Buyers looking for a bargain in their next property often turn to foreclosed homes, which are typically sold below market value. While they can indeed be a good value, buyers should do careful research before making a purchase of a foreclosed home. These properties often require significant work and have a less straightforward purchasing process than traditional homes, so it is important to be informed to ensure that you truly get the best bang for your buck. This guide will help you understand how foreclosures work and what to expect when buying a foreclosed home.
How Do Foreclosures Work?
Foreclosures are homes that belong to the bank that originally gave the previous owner a loan. When the owner of the home abandons it or voluntarily deeds it to the bank, ownership goes to the bank, which can then sell the home. While it is often said that the bank “took back the home,” this is technically inaccurate, as the bank did not really own the home before it was purchased.
Typically, foreclosures occur when the buyer stops making payments on their mortgage. The loan then becomes delinquent, and the homeowner goes into default for 90 days, during which a lender will work with the borrower to determine whether they can pay the balance of the loan. If the payments can be made, the borrower can retain their home, and the foreclosure process will end.
If the homeowner is unable to pay their loan, the lender can take the next steps in the foreclosure process by filing a Notice of Foreclosure in court. This can take between four and nine months to complete, and the homeowner has the option of challenging the foreclosure process in court as well, which can extend the timeline. Laws governing foreclosures vary from state to state, so check the regulations in your area if you are considering purchasing a foreclosed home.
Why Do Sellers Go Into Foreclosure?
Foreclosures can happen for any number of reasons, including the loss of a job, excessive debt in other areas, problems with the home’s co-owner, a move to another state before selling the property, or unaffordable maintenance issues. During the market crash that occurred from 2005 to 2011, for example, many homeowners abandoned their homes because they owed more than the house was now worth. While this practice can cause problems for the bank and new buyers, it allowed homeowners to walk away from their debts with few consequences.
Buying a Foreclosed Property
There are three ways to buy a foreclosed property: negotiating directly with sellers, purchasing the home at a trustee sale, or purchasing the home from the bank.
Negotiating with the seller typically occurs before the foreclosure proceedings have been finalized. The laws governing these negotiations vary from state to state. In areas that use mortgages for foreclosures, the homeowner can stay in the property for almost one year after the sale. Where trust deeds are used, the seller has less than four months to negotiate and move out before a trustee sale. Many states require that buyers provide sellers with certain disclosures about equity purchases, so consult a real estate agent or attorney for your state’s regulations. Almost all states provide a redemption period, during which the seller has the right to pay all foreclosure costs, back interest, and missed principal payments to regain control of the property.
If the seller is not able to negotiate a sale with a new buyer, the home may be sold at a trustee sale. Laws governing these sales vary from county to county. In some cases, buyers may not inspect the house before making an offer, and there are no loan contingencies. Buyers may also be required to evict the residents of the home after receiving the title, which can be costly. Any liens on the home will become the buyer’s responsibility after a trustee sale as well. Carefully assess the risks involved in purchasing a home at a trustee sale before choosing to make a purchase.
Finally, foreclosed homes may be purchased from the bank, which will typically list the home through a real estate agent that specializes in foreclosed homes. Some banks will package homes into bulk transactions and sell them directly to a single entity, offering high discounts due to the volume of homes purchased.
Working with a Real Estate Agent
Contact the Katie Zarpas Group for more information about foreclosures in the Virginia Beach area. Katie Zarpas has a long and successful career in real estate and has been recognized by her peers with several awards. Zarpas and her team can assist both buyers and sellers during the foreclosure home buying process and specialize in vacation homes, country homes, investment properties, and more.