One person's misfortune can become someone else's blessing - and that's particularly true with foreclosures on residential property. When homeowners are unable to keep up with their mortgage payments, lenders foreclose and take the house back. But the lender doesn't want the house. It wants the money it loaned for the purchase. The only way it can get that money is to sell the home to someone else.
Get Preapproved for a Mortgage
When you bid on or make an offer on a foreclosed home, it's a good idea to line up your financing ahead of time. The foreclosure process generally ends with the house being auctioned to the highest bidder. You'll need cash for this type of sale.
The lender who foreclosed doesn't automatically finance a new mortgage for you if you buy the house. If you buy from the owner or the lender during or right after the foreclosure process, you'll need preapproval for a mortgage.
Buying a House Before Foreclosure
Foreclosure is a long, drawn-out process. The house you want may be scheduled for auction in approximately a month's time, if the owner does't come up with the past-due payments. In this case, you can approach the homeowner directly and make an offer before the auction takes place.
If your offer covers the existing mortgage, you can add a cushion so the owners have enough money to relocate. Even added together, this amount might still be below market value.
Buying a Home After Foreclosure
Lenders don't have to let the house go to the highest bidder at auction if the bid is less than the mortgage balance. When this happens, the lender keeps the house. You can make a purchase offer to the lender, but it will generally want market value for the property, not just the amount of the outstanding mortgage.
Set Aside Money for Repairs
Whether you buy the home from the lender, the owner, or at auction, you take it in "as is" condition. If the house you buy needs repairs, neither the owner nor the lender will make them. It can be difficult to know how much to set aside for repairs if you buy at auction, because you may not have a chance to inspect the house first.
Be Wary of Liens on Property
If you buy at auction, and if one of the owner's creditors took a lien against the property, you're usually responsible for paying it after the sale. The lien transfers to you as the new owner.
A Foreclosure Lawyer Can Help
The law surrounding the purchase of foreclosured residential property is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a foreclosure lawyer.