With foreclosures on the rise, now is a good time to buy, but first, determine what you’re trying to accomplish. Rick Sharga, vice president of marketing for RealtyTrac, an online real estate marketplace, says to ask yourself: “Are you turning the property into a rental unit, will you live in it with your family, or do you plan to rehab and resell?”
Once you know the answer, consider if you want to buy local or if you’re willing to go farther for a better deal, and determine your risk level. Bank-owned homes carry less risk than properties at auction, which usually can not be inspected prior to purchase. “Auctions are for [people with] high tolerance for risk and willing to do homework. I don’t recommend it for first-time foreclosure buyers,” says Sharga.
Foreclosure options include bank-owned homes or REO (real estate owned), pre-foreclosure or default properties, short sales and auctions. An REO describes a home, or property, that does not sell at foreclosure auction, and as a result, goes back into the hands of the bank or mortgage company. Sharga says it’s the easiest and safest foreclosure to make. It’s the closest to a traditional real estate purchase, and mortgage, and lets you negotiate. “REOs are the best opportunity right now: there’s a huge inventory.”
When considering an REO, verify you’re paying a fair price. Research the market price, the value of the home and surrounding neighborhood. That’s according to John Anderson, a broker and member of the National Association of Realtors. He says just because a property is in foreclosure doesn’t mean it’s a good deal. “The buyer needs to go in with eyes wide open.” He recommends you do a home inspection, check appliances are working, that plumbing hasn’t been removed, and pools are operational. If the home requires work, determine if it’s still a good buy if you have to put in another $60,000 to fix.
A pre-foreclose or default property is when a lender files a notice in court stating that they’re going to foreclose on a property. The homeowner gets a warning he or she is in default, but the lender cannot reclaim the property or sell it. Prospective buyers can research court filings for default homes and approach the homeowner to negotiate a price. Sharga explains how it works. Say a home is worth $500,000 and the owner has $100,000 in equity. You buy the home for $450,000. The homeowner doesn’t have to foreclose, and you got the home 10 percent under market value. One place to access information about properties that will be sold in upcoming mortgage foreclosure sales is on the Clerk of Courts’ website, www.miami-dadeclerk.com/MortgageForeclosures.
With a short sale, the bank accepts less than what’s owed on the mortgage or the full price of the home. Anderson says this one involves patience once an offer is made. “It might take six to eight weeks before you hear back from the bank.” Another downside, you have to negotiate with both the homeowner and bank.
Auctions require the most research and caution, especially since home inspections are hard to come by. “Know what the house is worth before you bid on it,” advises Sharga. “There’s no recourse if you buy a lemon.”
With any foreclosure, check for unpaid water bills or liens against the home prior to closing, and pre-qualify for a loan before you even start looking. When ready to shop, search listings with realtors, banks, local newspapers and county websites such as www.miamidade.gov and www.miami-dadeclerk. com/public-records in Miami-Dade, or www.broward.org and www.clerk-17th-flcourts. org in Broward.
“Buying a foreclosure is a process and numbers game. It will take time and you’ll have to go through a lot of properties before you find one,” says Sharga.