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Human nature being what it is, everybody loves a bargain, and with the media continually espousing the number of foreclosures in our country, it’s only natural for a buyer to feel that there has to be something in the market that’s right for them. After all, who doesn’t like that feeling of saving BIG dollars? Many foreclosures are referred to as distressed properties. This could mean that the value of the house is less than the amount of the outstanding mortgage debt, something very common with the refinancing that had been done on properties up until the sub-prime debacle. A distressed property can also be just a property on which the mortgage has been unpaid due to a variety of reasons.

There can definitely be a bargain in those foreclosures, but the buyers must be prepared for a number of situations that could mean more work or time than they have patience. Some homes in the system are noted as short sales. This means that the home will probably sell for less than the outstanding mortgage debt, but if the bank has not yet gotten completely involved with the sales process, which is very common, then the time to complete a short sale purchase could run from 45 days to six months. I have experienced situations where the seller has agreed upon a price, but the bank would completely reject the contract and sometimes even raise the asking price in the system. This would be the case when the bank only gets involved AFTER a contract is presented, and then they determine the value that they need on the property. At that time, the potential buyer either agrees to pay the higher value, or else goes on to something else.

Another way the home begins its presence into the market would be with a public auction. Public notice is given with both a sign on the property with the date and time of the auction, and the minimum amount of escrow money needed in order to get into the auction. This information must also be presented publicly in the local newspapers and online. The auction begins with a minimum bid that includes the loan balance, and accrued interest, plus attorney’s fees and any costs associated with the foreclosure process. The winner of the auction receives the property “as is” which sometimes means someone living there, which would require an eviction process; any liens against the property, such as tax liens, plus they get to do all of the repairs to make the house comfortable for their needs. Very seldom does a home get purchased in this manner, which means the home’s ownership goes back to the bank and they must then deal with getting the property cleaned up for sale, including satisfying any outstanding liens; handling the evictions, and cleaning out any debris left behind. The bank will then get a Realtor involved to handle the sale of the property. At this point, the bank relies on the Realtor to actively market the home plus handle the property management of the house.

Not all foreclosures are suitable to all buyers, however. For first time homebuyer or for buyers that are purchasing a home with an FHA type mortgage, the home must be habitable. This means no electrical issues, heat must be working, there can be no plumbing problems, and major appliances must be already there and operable. Also, all of the utilities MUST be on when the appraiser comes in to view the house for the bank

I have had buyers call me trying to find the foreclosure for $500 to $10,000 that they see promoted on those infomercials on TV and radio. Unfortunately, I have to let them know that if they do exist, they aren’t in this area, and in all probability haven’t existed in 20 years and the only person getting the break out of that ad are the people getting the credit card numbers so that they can send you a packet on how to buy cheap properties in Arizona or Utah.