Many readers are interested in buying a foreclosed home
It's usually best to purchase a foreclosed property directly from a bank rather than on the courthouse steps.
Q. Our local newspaper says that there a lot of foreclosed homes in our neighborhood, and we would like to buy one or two of them now because we think that local home prices have finally bottomed out. But how can we find homes that are in foreclosure if we don't have a real estate license?
A. Just a few years ago, there were really only two ways to find foreclosures: Either regularly go to courthouse auctions, or spend hours combing through real estate filings at the county's assessor's office or a related government agency.
That has all changed now, because foreclosures have skyrocketed in the past few years; banks are now contracting with realty agents to sell their foreclosed properties (which they rarely did before); and several Internet sites have begun tracking realty records, which you can access for free or for a nominal charge.
I have received dozens of letters from readers in the past few weeks who want to know more about purchasing foreclosed properties, so I'm devoting this entire column to answering some of their most common questions.
Q. What's the best way to find a foreclosed home?
A. Your best option is to call a local real estate brokerage and ask if there is a "foreclosure specialist," which many companies now employ. The agent can tell you which homes are in foreclosure in your neighborhood, and also can tell you about homes that are in "pre-foreclosure," which can save you even more money if you can buy the house before the bank must spend thousands of dollars in attorney's fees and other court-related charges to boot the current owners out of the house.
If you can't find a local agent who specializes in foreclosures, there are many Web sites that can locate them. Two of my favorites are foreclosurepoint.com and realtytrac.com.
Q. Is it better to buy a foreclosure at a court auction or from a bank?
A. It's usually best to buy directly from a bank, mostly because lenders typically wipe out other liens against the property - whether it's a second mortgage or (sometimes) even a bill that the seller owed to a contractor for previous improvements. A court auction usually does not, and typically won't, even allow you to inspect the house for potential problems.
Most banks today are also offering ultralow financing rates and minimizing upfront fees for buyers of properties that are in foreclosure. A court auction usually requires the buyer to pay for the property in cash.
Q. How much should I expect to pay for a house that is in foreclosure?
A. It obviously depends on where you want to buy. It would be a lot cheaper, for example, to purchase a foreclosed property in Omaha, Neb., than it would in Beverly Hills, Calif. But as a general rule, foreclosure experts say you should make an offer to the bank that's about 20 percent lower than similar homes in the same community that are not facing foreclosure proceedings.
You could even offer 30 percent less than the bank's offering price if there is an unusually large number of foreclosures in the neighborhood, although you should expect to spend several more hours or even days haggling with the lender over the additional discount.
Q. How long does it take for a foreclosure sale to be processed?
A. It's impossible to say. Some lenders are willing to close a deal within a few weeks, especially if they are anxious to get a soured loan off their books. But other banks take several months to complete a deal, particularly if they are overloaded with foreclosed homes or (like many financial institutions today) are short-handed because they have recently laid off so many workers.
There are a few things that you can do to speed the transaction. One is to get preapproved for a loan before you make an offer on a house. Another is to make your offer contingent on closing the deal within a specified period of time - say, 45 or 60 days - and include a paragraph in the sales contract that gives you the right to cancel the sale and get your down payment back if the lender cannot complete the transaction within the time that you each agreed upon.
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