You can’t always judge a home buying opportunity by its cover.
Distressed properties, those with owners whose mortgages are higher than the value of the house or who are being foreclosed upon, may not be pretty, but they could be just right for the right buyer.
As many as four out of 10 home sales today involve distressed properties.
The term distressed can mean homes that are in some stage of the foreclosure process. It can also refer to short sales, where the home is sold for less than what the seller owes on the mortgage.
While there are buying opportunities in foreclosures and short sales, the process can be very complex.
Because distressed property owners are often burdened with debt, many of these homes are abandoned or in disrepair. The key to buying a distressed property is working with professionals – beginning with a Realtor who understands where to find distressed properties and how to navigate the purchase.
You’ll also need a good home inspector and perhaps a real estate lawyer to work through the legal tangle that can occur when owners have walked away from their property or have sunk into unbearable debt.
The foreclosure process includes three different stages – pre-foreclosure, auctions and bank-owned or (real estate-owned – REO).
Pre-foreclosures are homes where a Notice of Default is publicly filed and the property owners are in default on their mortgage. Based on the state, owners have between three weeks to a year to remedy their problem.
Foreclosure auctions are known as the second state of foreclosure. A sheriff or trustee sale notice is publicly filed and the foreclosing lender “hosts” an auction. The foreclosure sale begins with a minimum bid that includes the loan balance, any accrued interest, plus attorney’s fees and any costs associated with the foreclosure process. Successful bidders receive the property in “as is” condition, which may include someone still living in the property. There may also be liens against the property.
REO properties are the result of unsuccessful auction sales. Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property reverts to the bank.
In this stage, the bank will handle the eviction, if necessary, and may do some repairs. It will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues.
At this point, Realtorswho know the foreclosure process are crucial in not only identifying opportunities for buyers, but also in attending to all of the baggage that comes with such properties.
Realtors can help guide potential buyers through the process – from identifying the right property to negotiating the transaction.
When the unthinkable happens, selling a distressed home can help the owner alleviate an unfortunate financial situation. The community also benefits as the new owners assume responsibility for the home’s upkeep.
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