| Q: |
How does a
home go into foreclosure? |
| A: |
Foreclosure
proceedings usually begin after a borrower has skipped three mortgage
payments. The lender will record a notice of default against the
property. Unless the debt is satisfied, the lender will foreclose on the
mortgage and proceed to set up a trustee sale. |
|
| Q: |
Are
foreclosures an option? |
| A: |
A
foreclosure property is a home that has been repossessed by the lender
because the owners failed to pay the mortgage. Thousands of homes end up
in foreclosure every year. Economic conditions affect the number of
foreclosures, too. Many people lose their homes due to job loss, credit
problems or unexpected expenses.
It is wise to be cautious when considering a foreclosure. Many
experts, in fact, advise inexperienced buyers to hire an expert to take
them through the process. It is important to have the house thoroughly
inspected and to be sure that any liens, undisclosed mortgages or court
judgements are cleared or at least disclosed.
|
|
| Q: |
What are
problems buying foreclosures? |
| A: |
Buying
directly at a legal foreclosure sale is risky and dangerous. It is
strictly caveat emptor ("Let the buyer beware").
The process has many disadvantages. There is no financing; you need
cash and lots of it. The title needs to be checked before the purchase
or the buyer could buy a seriously deficient title.The property's
condition is not well known and an interior inspection of the property
may not be possible before the sale, says Wiedemer.
In addition, only estate (probate) and foreclosure sales are exempt
from some states? disclosure laws. In both cases, the law protects the
seller (usually an heir or financial institution) who has recently
acquired the property through adverse circumstances and may have little
or no direct information about it.
|
|
| Q: |
What types
of foreclosure are there? |
| A: |
Judicial
foreclosure action is a proceeding in which a mortgagee, a trustee or
another lienholder on property requests a court-supervised sale of the
property to cover the unpaid balance of a delinquent debt.
Nonjudicial foreclosure is the process of selling real property under
a power of sale in a mortgage or deed of trust that is in default. In
such a foreclosure, however, the lender is unable to obtain a deficiency
judgment, which makes some title insurance companies reluctant to issue
a policy.
|
|
| Q: |
What happens
at a trustee sale? |
| A: |
Trustee
sales are advertised in advance and require an all-cash bid. The sale is
usually conducted by a sheriff, a constable or lawyer acting as trustee.
This kind of sale, which usually attracts savvy investors, is not for
the novice.
In a trustee sale, the lender who holds the first loan on the
property starts the bidding at the amount of the loan being foreclosed.
Successful bidders receive a trustee's deed.
|
|
| Q: |
How do you
get financing for a foreclosure? |
| A: |
One
reason there are few bidders at foreclosure sales is that it is next to
impossible to get financing for such a property. You generally need to
show up with cash and lots of it, or a line of credit with your bank
upon which you can draw cashier's checks. |
|
| Q: |
How do you
find government-repossessed homes? |
| A: |
The
U.S. Department of Housing and Urban Development acquires properties
from lenders who foreclose on mortgages insured by HUD. These properties
are available for sale to both homeowner-occupants and investors.
You can only purchase HUD-owned properties through a licensed real
estate broker. HUD will pay the broker's commission up to 6 percent of
the sales price.
Down payments vary depending on whether the property is eligible for
FHA insurance. If not, payments range from the conventional market's 5
to 20 percent.
One caution. HUD homes are sold "as is," meaning limited
repairs have been made made but no structural or mechanical warranties
are implied.
|
|
| Q: |
Can I get a
HUD home for as little as $100 down? |
| A: |
If
you are strapped for cash and looking for a bargain, you may be able to
buy a foreclosure property acquired by the U.S. Department of Housing
and Urban Development for as little as $100 down.
With HUD foreclosures, down payments vary depending on whether the
property is eligible for FHA insurance. If not, payments range from 5 to
20 percent. But when the property is FHA-insured, the down payment can
go much lower.
Each offer must be accompanied by an "earnest money"
deposit equal to 5 percent of the bid price, not to exceed $2,000 but
not less than $500.
The U.S. Department of Veterans Affairs also offers foreclosure
properties which can be purchased directly from the VA often well below
market value and with a down payment amount as low as 2 percent for
owner-occupants. Investors may be required to pay up to 10 percent of
the purchase price as a down payment. This is because the VA guarantees
home loans and often ends up owning the property if the veteran
defaults.
If you are interested in purchasing a VA foreclosure, call
1-800-827-1000 to request a current listing. About 100 new properties
are listed every two weeks.
You should be aware that foreclosure properties are sold "as
is," meaning limited repairs have been made but no structural or
mechanical warranties are implied.
|
|
| Q: |
Where can
you find foreclosures? |
| A: |
In
most states, a foreclosure notice must be published in the legal notices
section of a local newspaper where the property is located or in the
nearest city. Also, foreclosure notices are usually posted on the
property itself and somewhere in the city where the sale is to take
place.
When a homeowner is late on three payments, the bank will record a
notice of default against the property. When the owner fails to pay up,
a trustee sale is held, and the property is sold to the highest bidder.
The financial institution that has initiated foreclosure proceedings
usually will set the bid price at the loan amount.
Despite these seemingly straightforward rules, buying foreclosures is
not easy as it may sound. Sophisticated investors use the technique so
novices may find themselves among stiff competition.
Resources:
* "The Smart Money Guide to Bargain Homes, How to Find and Buy
Foreclosures," James I. Wiedemer, Dearborn Financial Publishing,
Chicago; 1994.
* "Real Estate Principles," Charles O. Stapleton III, Thomas
Moran and Martha R. Williams, Dearborn Financial Publishing, Chicago;
1994.
* "Real Estate Investing From A to Z," William H. Pivar,
Probus Publishing, Chicago, 1993.
|
|
| Q: |
Where can
you find foreclosed HUD homes? |
| A: |
The
U.S. Department of Housing and Urban Development acquires properties
from lenders who foreclose on mortgages insured by HUD. These properties
are available for sale to both homeowner-occupants and investors.
You can only buy HUD-owned properties through a licensed real estate
broker, whose commission will be paid by HUD.
Down payments vary depending on whether the property is eligible for
FHA insurance. If not, payments range 5 to 20 percent. When the property
is FHA-insured, the down payment can go much lower. Each accepted offer
must be accompanied by an "earnest money" deposit equal to 5
percent of the bid price not to exceed $2,000, but not less than $500.
You should be aware that HUD homes are sold "as is,"
meaning limited repairs have been made but no structural or mechanical
warranties are implied.
|
|
| Q: |
Do you have
to buy HUD homes through a realty agent? |
| A: |
You
can only purchase a U.S. Department of Housing and Urban Development
property through a licensed real estate broker. HUD will pay the
broker's commission up to 6 percent of the sales price. |
|