Buying a Home in Today’s Market, Short Sales and Foreclosures

Posted 08/31/2012 by Anonymous

Buying a Home in Today’s Market, Short Sales and Foreclosures
Most home sales are handled between a real estate agent and a buyer and seller. The process is fairly straightforward. A homebuyer works with a real estate professional to determine his or her needs, find a suitable neighborhood and visits a home that meets those criteria. Once a suitable home is found, the buyer negotiates with the seller to get the best price as well as any concessions the seller may be willing to offer such as paying closing costs, etc. The buyer then goes through their local bank, mortgage company or a mortgage broker to secure financing. Once the process is complete, the deed transfers and the sale is complete. The reality of today’s market Today the real estate market has a mix of properties including owner occupied properties where the seller is upsizing or downsizing, foreclosure sales through banks or foreclosure auctions and short sales. The process for sellers who are merely selling their homes is basic. However buying homes that are currently in foreclosure or available through sort sales can present some interesting challenges. What is a short sale? When a homeowner has a mortgage that exceeds the value of their home, they may explore a short sale. Generally, this means that the homeowner is selling the property for less than the outstanding mortgage. The current lender must approve short sales or there are several problems that could occur during the closing process. For example, if you are a buyer of a short sale property, you may find out the lender has not approved the sale. If this is the case, the lender who has the current mortgage on the property, may prevent the sale from being completed. When purchasing a home directly from a seller or one that has been advertised as a “short sale” it is crucial to ask the right questions. These include:

Asking about market value - It is important to understand that most homeowners who are underwater on their mortgage know that the current market value is less than the outstanding mortgage. Find out what the difference is between what is owed and the property value. Ask the homeowner or real estate broker if the current lender is aware that the home is up for sale at a lower price.

Ask about lender negotiations - Whether a sale is allowed to be consummated is often at the discretion of the lender who holds the mortgage on a property that is underwater. Be certain to ask whether the lender has approved the sale and what they have agreed to in terms of the remaining mortgage balance.

Buying homes in foreclosure

Homes that are currently being auctioned off in a foreclosure sale can be a great bargain. However, buying these homes may come with some financial risk that a perspective homeowner should be aware of before they decide to buy. In addition to carefully reviewing the advertisement for the auction, there are other things that should be reviewed.

State laws regarding foreclosure - Many states have a caveat in their foreclosure laws that allow a homeowner who has lost a home to foreclosure to get that home back. The process is known as a “Right of Redemption”. Many states allow these rights to be exercised up until one year after the homeowner has lost the home in foreclosure. Before you purchase a home at a foreclosure auction, be certain to find out your state laws. Homes with occupants - While most homes that are auctioned during foreclosure are vacant; this is not always the case. It is crucial if you are purchasing a home to find out if the home is vacant. Single-family homes may have the foreclosed homeowner in residence and multi-family homes may have tenants. It is imperative to ask this question and determine your legal rights. While neither of these may seem particularly problematic, there are numerous issues that can occur. When purchasing a home that is in foreclosure, if the current homeowner wishes to exercise rights of redemption, they could pay off the outstanding mortgage and reclaim the property. For the current homeowner, this could mean a year of equity and the need to move again. There are several legal challenges associated with buying homes that have underwater mortgages or those that are in foreclosure. While these properties may be a “better bargain” for a first-time homebuyer, be sure that you fully understand what you are getting into. Buying a home is a very exciting prospect and is part of the American dream. Understanding some of the pitfalls associated with being a perspective homebuyer can help you avoid problems later. Having an understanding of the overall home buying process can help most homeowners. 

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