You can get some really good deals on bank-owned properties, but whether or not you make a good return on your investment depends on how much you know before you buy.
- Will a Bank Lend You Money on a Foreclosure?
Of course, it will depend on your financial status and the appraised value of the foreclosed property, but yes, lenders do not shy away from these types of properties, just because they have already been foreclosed on. This is reflective of the previous owner, not on the property itself.
- Get Pre-Approved
When a foreclosure comes on the market, it is usually priced well and therefore buyers are jumping all over it. You may find yourself in a competing offer situation with another buyer and being pre-approved may give you an edge in the Sellers’ eyes (the bank who owns the property).
Keep in mind you may want to borrow extra to help with any repairs or updates the property may need. Most lenders will not add more than 10% of the purchase price to your mortgage.
- Where to find Foreclosed Properties
Tax Sale properties that have municipal taxes owing and in default are posted on the respective Municipality’s website and in the local paper. These are most often vacant lots, but can usually be picked up for the cost of the amount of taxes owed.
Foreclosures go through a court process of changing official ownership from the defaulting owner to the lender holding the mortgage and usually take a few months before they become an active listing on MLS.
You may see a property with a white property management notice in the windows, which can indicate that it is coming up for foreclosure. Your best bet is to let your REALTOR® know you are interested in the property and they will keep an eye out for it coming to market.
You can go to the courthouse to see a list of properties that are on the process of changing the title back to the lenders so that they can be sold, but the court sheriff nor the lawyers will not discuss the properties. They will often refer you to wait and contact the listing realtor once it becomes active on MLS
- Work with a REALTOR®
Having a REALTOR® on the lookout for any foreclosures that come on the market can give you the jump on other buyers who are scouring MLS themselves. REALTORS® have access to the MLS daily bulletin and review all the new listings each day.
A REALTOR® can also do a market evaluation of an area to give experienced advice as to the foreclosed property’s resale potential and a suitable offer price. You are taking a lot of risks buying a foreclosure, having the guidance from a knowledgeable REALTOR®, will lessen your risk. They can offer you market advice, help you find the foreclosure property that is right for you, get your offer met and work with you to get your conditions met on time and with less stress.
- Making an Offer
Sometimes if a foreclosure is such a good deal that your REALTOR® feels there will be lots of interest, you may want to put an offer in before you can schedule your viewing to get ahead of other buyers or to not have your offer be in competition.
Banks usually want You to leave your offer open for them to consider for 72 hours at three business days. Unfortunately, this means that other offers can be submitted during this period as well and you may then be in competition. The Bank will usually have an extra schedule or two required to be attached to the offer. One saying they offer no warranties or representations about the property and another saying you do not or are not related to anyone who works for the lender.
The Seller will either accept your offer, reject it, or counter it. With a counter, they can counter anything in your offer, not just price. They may counter your closing date, inclusion requests, deposit amount, etc.
- Do Your Due Diligence
All foreclosures are sold “as is, where is”, meaning that the Bank owner, will assume no responsibility, or liability of the property. They will give no warranty on the property. They have no knowledge as to the history of the property, so the onus is on you the buyer to inspect and investigate all you can about the property before you buy. This is another reason to use a REALTOR® because they know all the issues you should be wary of.
As with an offer on any other property, you will have approximately 10-15 business days to get your conditions met to your satisfaction. The common and most requested conditions are built right into the offer forms, such as financing, inspection, insurability, water tests, and septic inspections.
Keep in mind, the waterlines are usually drained by the property management company, to ensure no water damage, so to do your inspections and testing, you will have to request that the bank authorize the systems to be turned on.
If there is any other condition that would make you walk away from the deal, make sure that your REALTOR® adds it to your offer, that way you can get out the deal if the conditions are not met to your satisfaction by the condition deadline date. Banks do not usually like long closing dates either.