Foreclosures: Info to Help You Get a Great Buy

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foreclosure informationTypically foreclosures are a very good buy. They’re priced to sell, so you (the buyer) are most likely to get a great deal IF you and your real estate agent are knowledgeable about the procedures and the pitfalls you’re likely to face.

I see it happen all the time. Buyers especially are not aware of how different REO’s are from regular homeowner re-sales. Here are some things to keep in mind:

1. The bank or foreclosure company rules. They will dictate how the process will evolve.
2. The bank will look at offers based on their offer process. Don’t be surprised if they will not look at an offer while another is being negotiated. If they do decide to look at your offer while another offer is in the negotiating stage, they will ask for your “highest and best offer”. 
3. Be sure you have ALL addendums and documentation, such as Lender Approval Letter. Keep in mind that many banks will require that you be approved by their lender prior to making an offer. They will require proof of funds.
4. Follow all instructions to the letter. 
5. Be sure to read your contract carefully…especially as it regards to earnest money and phrases like “seller can unilaterally terminate for any reason”. Banks can and will do what is in their best interest.
6. Both you and your real estate agent should pay close attention to any time sensitive items regarding the contract. 
7. You’ll need to keep on top of every step from offer to closing. If issues arise such as lender required repairs, let the seller know immediately.
8. You should have a cash reserve ready as foreclosures may have up-front costs, such as utility turn on and other miscellaneous items. You will not be refunded any out of pocket expenses used during the process.

Foreclosures are not for the faint of heart. It’s truly a gamble, but the gamble can pay off (big time) for you if you have patience and determination. Good luck!

Be sure to leave your comment or question below. Your story/question could help others who are looking to buy a foreclosure.

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17 Responses to “Foreclosures: Info to Help You Get a Great Buy”

  1. Pat Viohl Says:

    Because of the even tighter deadlines associated with foreclosures, as soon as we have binding agreement, I provide a list of deadlines, in chronological order, to my buyers and also to the lender and the seller’s agent. I also provide [for the buyers] a detailed explanation of what each of those deadlines means to them [finance contingency, appraisal contingency, etc.] in the simplest language possible. NEVER assume that someone else involved in your deal is staying on top of things – you can insure that the deal moves along fairly smoothly if you stay informed of progress every step of the way. In my experience, seller’s agents in foreclosures are often not particularly motivated to get you what you need timely, to respond to phone calls, etc., so you may have to become very [professionally] assertive about getting information and documentation you need.

  2. Dana Eskridge Says:

    You are right to assume nothing. I like that you explain in detail every aspect of the process to your buyers. I am sure it is very beneficial to them. And most importantly your chances of closing goes way up

  3. Steve Adkins Says:

    Another thing to add is that no two banks operate the same. Talk to the listing agent to see how they want the paperwork, how conters and contracts are handled, earnest money and anything else in the transaction. Plus, some banks (usually only the smaller ones) are willing to make any repairs, the big national bank 9 out of 10 times will not. When they say “As-Is”, they mean it.

    As a listing agent for two banks now, I see a lot of low ball offers come in, not one has ever been accepted with the banks I work with. The properties are already priced below appraisal value (yes, EVERY bank does an apparisal before listing, sometimes 2 or 3 times). Bring your best offer the first time and the whole process will go much easier.

    Here lately we have been getting multiple offers on every listing. If you submit a low offer the bank may never look past the first page of your offer and go on to the next. Never giving you the chance to submit a better offer. The asset and REO managers are overwhelmed right now and time is very important to them. Everytime you counter their offer it’s just like a brand new offer to them as most are handling several hundred properties at one time. They do not like dealing with multiple offers on one property, they prefer multiple properties on one offer!

    And a big problem I am having right now is agents are still functioning as if they are still in 2006! They wait until after an offer has been accepted before they have their client apply for a loan. WRONG! Have your clients fully approved BEFORE submitting an offer. In todays market it may take 45 to 60 days to get most buyers completely thru the loan process because of all the underwriting changes. Few asset managers will allow a closing date more then 30 days out.

    The last year has been a major learning experience with all these REO’s. I can assure you that the REO and Asset managers are just as confused as you about what will happen next! But they are trying as fast as they can! There are many great deals out there, but you gotta do your homework!

  4. Margaret Kees Says:

    Excellent comments and good advise not only for REO property but I can see that much of this can apply to short sale property. And yes the lenders who have these properties are confused and confined by the rules of the company they are employed by. They really are trying as fast as they can, which in a lot of cases doesn’t even look like movement at all!

  5. Arthur Harris Says:

    Very good post,yes they are a lot of good buys out their but you usually get only one shot so give it your best. Banks are holding the handle so you have to follow their rules and every bank operates differently.

  6. Savvy Brown Says:

    Great Topic due to the majority of Properties Selling Today are in Foreclosure or Default. There are quite a few Agents not familiar with the process of dealing with Banks due to lack of knowledge, they can not fully educate their Buyers expecting the informed Agent to guide them through the process. Our company has done a great job to educate their Agents, as we are a reflection of the Company we represent. Just like a car, if you don’t put the key in the ignition and turn it, you’re stuck in that same position. Yes, there are plenty of Deals however, we must follow the protocol.

  7. Myagent Says:

    My agent said her loan officer told her I couldn’t apply for my loan until after the contract ws accepted. It took longer than 30 days to close due to underwriting and I had to pay $100 per diem. Was my agent/loan officer wrong? Thanks

    • Judy Jones Says:

      Technically, a complete mortgage loan application can not be done until the property is selected. The mortgage approval guidelines address both the buyer and the property.

      A potential homebuyer can get a total pre-approval for credit purposes only prior to having a property selected, but the appraisal, title search and exam, required homeowners insurance policy and all the Federal Disclosures can not be complete until a specific property is under contract.

      The mortgage lender is not a party to the sales contract. Often buyers and sellers enter into terms under the sales contract which can not be met due to current underwriting guidelines and turn times.

      After July 30, 2009 the new Federal HERA law will be in affect which extended the required amount of time that must pass between the final Truth in Lending Disclosure and the Closing date. More on this new Federal Law to come on this Blog.

      • Dana Eskridge Says:

        Thank you Judy for clarifying the loan process.
        It is true that banks and foreclosure companies
        can require a per diem because the closing is
        delayed. This does not just apply to loan approval
        by the underwriter; it can be for a mulititude of reasons

  8. Dottie Wise Says:

    Thank you Dana! Great information about the process! I, too, am working with smaller banks in our area and Steve Adkins, you are right! These banks do get new appraisals before listing and every 90 days thereafter. Agents cannot seem to understand that so the low offers continue to come in. Also correct, they look at the sales price on the contract and decide wether to proceed any further or not. If only we could get agents to understand this. The amount of time that so many buyer’s agents waste with extremely low offers is amazing. Poor Time managment and poor job of managing expectations.

  9. Ed Short Says:

    Great information, Dana. I have represented several buyer clients buying foreclosure homes and all have been a very pleasant experience. And, best of all, my buyers have obtained some amazing deals on these homes. I agree, one must stay on top of the transaction, make sure all timeframes are met, and educate the buyer upfront about the process and what to expect.

  10. Linda Ragghianti Says:

    I just had an experience with a bank that as soon as they gave “verbal acceptance” of the offer the clock started. Without having all signatures the buyer would have had to performed all inspections. The deal fell through anyway but it’s that kind of terminology you need to be looking for in their addendums.

  11. Lorelei Fischer Says:

    Thanks for the info and for the subsequent comments! This is very helpful information to me. I have people inquire frequently about this process.

  12. Jack Nunn Says:

    Foreclosures can be trickey, and the banks have no conscious. Dot all of your I’s and cross all of your t’s. And by all means have your buyers preapproved before submitting an offer.

  13. MC Says:

    I am a potential buyer and I found a foreclosed property (DC/MD area) that recently went “under contract”. I am wondering if the bank/lender is legally allowed to look at other offers while under contract in order to choose the best offer. I would like to make an offer on the house and was wondering if the current accepted offer is legally disclosed.
    Thanks.

    • Dana Eskridge Says:

      Each bank and foreclusure company operates differently, but many will look at back-up offers. I suggest that you have your agent ask the listing agent if indeed a back-up offer could be presented. Keep in mind that if an offer has been accepted by the bank they are bound by that contact and cannot accept other offers unless is it as a back-up. Deals do fall through on occasion, so if you are truly interested in this property a back-up offer is a great idea. If you need an agent to help you in DC/MD, I can help you.

  14. MC Says:

    Dana,
    Thank you for replying to my query. At present I do have an agent but I will surely let you know if we decide to go with someone different.

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