Buying Your Home - Foreclosures
Do you have to buy HUD homes through a realty agent?
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.
Are foreclosures an option?
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 judgments are cleared
or at least disclosed.
What types of foreclosure are
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.
How do you find government-repossessed homes?
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.
Where can you find foreclosures?
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.
What happens at a trustee sale?
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
Where do I learn about HUD foreclosures?
One good source
is their Web page http://www.hud.gov/.
What are problems buying foreclosures?
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 James I. Wiedemer, author of "The Smart Money
Guide Bargain Homes, How to Find and Buy Foreclosures." 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.
What about buying a foreclosure "as is"?
Buying a foreclosure
property can be risky, especially for the novice. Usually, you buy a foreclosure
property as is, which means there is no warranty implied for the condition of
the property (in other words, you can't go back to the seller for repairs). The
condition of foreclosure properties is usually not known because an inspection
of the interior of the house is not possible before the sale. In addition, there
may be problems with the title, though that is something you can check out
before the purchase.
How do you get financing for a foreclosure?
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