Foreclosure is the legal process where lenders or creditors repossess the loan collateral (the house) of borrowers. This happens in the event that borrowers fail to make their payment or obligation.Foreclosed homes are owned by either the:
• lenders (bank, lending agencies, credit unions), who financed the real estate purchase
• government agencies, who act as guarantors or have insured the mortgage
Foreclosed homes are sold below-market value but can potentially appreciate higher. Through some home remodeling, it may even be worth more than what it was originally sold for. Leasing a foreclosed home
provides continual income. It may also be a good long term investment since the profit can be marginally higher when selling a foreclosed home.
The bank provides financial assistance to the borrower, when availing a loan. The collateral for these loans is usually the real estate property. When a borrower fails to pay the installments in a row, the bank then takes ownership of the property. Unlike government repossessed homes, banks are not too keen on owning or selling these for profit. Repossessed homes are costly for the bank to maintain.
Many foreclosures processed by the government are usually results of non-payment of taxes. To recover loss and make a profit, the government would be eager to sell these as soon as possible. Some of these houses may not even in the best condition.Here are some things to remember before buying a foreclosed home:
The rule of thumb is to check and double check before purchasing. It doesn’t mean that if these deals come relatively cheaper, then the conditions are already acceptable.First
, if you’re eyeing a government repossessed home, check with your local government. They will willingly provide you with a list and detail of these foreclosed homes. These are public properties anyway, so government agencies usually make announcements of sale. Second
, do not forget to check the fine print of the deeds and contracts. When a state forecloses a home, the owner is usually given a period where he can pay the arrears and redeem his property. Do not buy a foreclosed home under this case because it will just create a legal battle between the original owners, the government and yourself.Third
, foreclosures are sold on an “as is, where is” basis. When you’re eyeing a certain property make sure you know where these foreclosed homes are located. It is a wise move to learn about the condition of the house and the neighborhood surrounding it, before you make a decision. A blind buy in this case is definitely not a good idea.
If you’re buying a foreclosed home from the bank, remember that banks are not too keen on making a profit with these. They will however, get a broker’s accreditation before actually selling the property and some of the coverage and rates attached to these foreclosed properties may be worth more than it should. So check if all the assessments are in order.Lastly
, if possible, use the services of a real estate agent to negotiate for you. Having someone who is familiar with real estate transactions and deals would be a good decision. Real estate agents are more adept with handling property sales and fees and you should be able to get best value for your money.
Additionally, government agencies like the Housing and Urban Development, among others, provide financing and allowance. Again, check with these agencies and know their rates, schemes and process, before making the purchase.