Foreclosed Homes buying advice ?
Foreclosed Homes buying advice ?
I'm a first time buyer looking to buy a home, condo or a townhouse.
I'm interested in looking into foreclosed properties. I did a lot of
search on the web, but all the sites require membership. Can someone
please advise where I can get free & accurate listing/information. Is
buying a foreclosed home/condo/townshouse a good idea?
It can be. But there are a few things you need to know.
1st) Think about why a house would be in forclosure. If
the owner had any equity in the property, and was smart,
he will sell the proerty to protect his equity before
he falls so far behind in payments.
These forclosures tend to be mortgaged to the hilt.
2nd) The houses are sold as-is. There will be no repairs
or cleaning to the house prior to the sale. These houses
are not move-in ready. In many cases you will need to
spend some time and money to fixup and clean up the house.
You will definitly need some ready cash to do this.
3rd) there is no seler help with closing costs.
Not that HUD foreclosures are necessarily a good deal (around here
they are not), but what you say leaves me thinking you don't quite
grasp how HUD foreclosures work. For the benefit of others, let me
elucidate.
HUD is the agency which oversees the Federal Housing Administration
(FHA). FHA insures loans against default. There are extensive rules
about how the insurance works. If the lender does not follow the rules
they invalidate the FHA insurance. Since FHA loans are written at high
loan to value ratios, lenders take care not to jeopardize the
insurance.
When a bank has an FHA loan that is in default the first step the
lender is to notify the FHA (in addition to sending the usual late
notices to the borrower). After the loan has been in default for a
certain time period FHA requires the lender to advise the borrower to
seek consumer credit counseling. If this does not provide a solution,
then the lender seeks permission to foreclose. As soon as this is
granted, the lender proceeds with the legal steps to foreclose.
However, unlike private loans where the lender can refuse to bid at
the sheriff's or trustee's foreclosure auction sale, FHA rules require
the lender to open the bidding at the total amount owed, including all
expenses as allowed by the court or state law. If the loan is an old
loan where there is substantial equity in the property, someone from
the band of thirty thieves who haunts these sales will outbid the
lender. Anyone bidding at one of these sales is required to pay all
cash. So if someone outbids the lender, the lender just got cashed out
for the entire loan amount and all their costs. The FHA insurance just
became irrelevant. The lender cannot seek compensation under the
insurance because the lender was not hurt.
But if the loan was so new that the loan balance was still high enough
that no one outbid the lender, then the lender will end up being the
successful bidder. This means that the lender will end up in title to
the property. The lender could just offer the property for sale,
either for sale by lender or by listing it with a real estate broker.
But chances are they will not recover all that they are owed if they
do. And this is where the FHA insurance comes in. The FHA insurance
allows the lender to trade the property at this point to the FHA for
FHA bonds. The bonds bear interest at the same rate as the rate on the
loan, and mature in semi-annual installments over the same term as the
remaining term on the loan that was just foreclosed. (Important point:
A lender will get all their money back, including the agreed interest,
but will never make a profit on an FHA foreclosure because they get
the FHA bonds, not cash for the property.)
Now the FHA is in title to the property. Once the FHA is in title they
spend a few months deciding what to do with it. Some properties are
sold as is. Some the FHA decides to go in and rehab before reselling
them. One way or the other, the property ends up on the FHA foreclosed
property list (officially called the list of "HUD acquired
properties," so as not to use the nasty "foreclosure" word). When HUD
puts the property on the market they do so at a price their internal
appraisers determine. This is typically far less than the dollar
amount of the bonds they gave the lender for the property. In other
words, HUD loses money on it. But that is what the insurance is all
about. HUD collects premiums from all FHA borrowers, and that is the
source of the funds to cover the losses. Since its inception in 1934,
the FHA has lost money only in a couple years, and those years were
only small losses, made up in subsequent years. HUD remains today
revenue neutral, costing the taxpayers nothing.
So the big point I want to make is that HUD properties are frequently
not very good deals, but not because nom investor wanted it when it
was sold on the courthouse steps. They are not good deals because HUD
was trying to minimize their losses when they put it on the market and
they usually overestimate what they can get.
And having said that, at least in the market areas where I deal, HUD
gets more than market value for their properties. The public assumes
that if it is a foreclosed property it must be a good deal, and
typically pays above market as a result. Personally, I never bother
even looking at them, nor do any of the other investors around here.