January 12, 2009

Foreclosures - are they for you?

Posted to Mike Pfammatter

It's on a lot of people's minds. You hear about them all the time. Could this be a good time to add some real estate to your investment portfolio? The foreclosure market can offer some excellent opportunities to “buy right”. But beware, this is not for everyone. Just because a property is considered a foreclosure does not guarantee a good deal. You have to be willing to do your homework and look at a number of offerings to get the best deal. For a sobering look at the potential pitfalls, visit this link.

Still with me? OK, here are answers to some of the most common questions we get asked.

What exactly is the deal with foreclosures?

Foreclosures typically are properties that are owned by a bank or credit company (lenders). They call the properties REO properties (Real Estate Owned). They took title to the property in lieu of the mortgage payments or bought the property from a sheriff's sale to protect their investment after the previous owner defaulted on the mortgage. Most likely all of the previous liens and encumbrances have been removed when the bank took title of the property. The lender then sells the property to recoup their loan money. If the loan was backed by the government (FHA, VA, HUD) the property will be commonly referred to as a HUD property.

What type of special circumstances do foreclosed properties bring to a purchase?

  • • Remember, you are dealing with a bank, credit company, or government agency as the seller. There is no emotion on their side and they are very, very busy people these days.
  • • You have to look these properties over very closely because they are typically sold "as is". You should request an inspection in your offer, but generally any defects found cannot be used in further negotiation of the price. If there is a major defect identified in the inspection, usually your only recourse is to go ahead with the deal or give up the house and keep on looking.
  • • In many cases there will be several offers from different buyers submitted at the same time. You are always well advised to start with your best offer to avoid being outbid.
  • • Most of the time you need to include a letter from your bank or lender to prove you have the ability to afford the purchase.
  • • If your offer is accepted, the sellers are usually slow to respond. In some cases they never do get back to you if your offer is not chosen.
  • • When an offer is accepted, the seller will impose special requirements for time periods and addendums to the offer. This is where using a knowledgeable realtor really comes in handy. I can help you make sense of this and am willing to discuss the process with you in detail. Make sure to be in touch with your real estate attorney throughout the process as well.

How do I find them?

Most of the banks market their foreclosure properties through the real estate market and list them on the same MLS (Multiple Listing Service) that buyers and real estate agents use to find conventional properties. Contact me I will send you a list of foreclosed properties tailored to the area and price range you prefer anywhere in southeast Wisconsin or northern Illinois.

Is it right for you?

Chances are if you were considering real estate as an investment and are able to spend the time and effort to identify the right property, a foreclosure could be worth your consideration. On the other hand, if you’re looking to "move up" to a new home, or if you are not the type to take chances in an investment that requires a lot of "hands on” attention, foreclosures won't be for you.

Posted By: Mike Pfammatter

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