Foreclosures - Q & A
Q: How does a home in Houston, Texas go into foreclosure?
A: Foreclosure proceedings usually begin after a borrower has skipped three mortgage payments. The lender will record a notice of default against the property. Unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale.
Q: Are foreclosure properties an option?
A: Homes that have repossessed by lenders are called foreclosure properties. Thousands of homes each year end up in foreclosure because owners fail to pay the mortgage. Homes are lost due to people losing their jobs, people who have credit problems, or for other unexpected expenses.
If you are considering a foreclosure property, it is wise to proceed with caution. In fact, experts advise for all inexperienced buyers to hire an expert to guide them through the process of buying a foreclosure property. Make sure that all undisclosed mortgages or court judgements, an all liens are either cleared or at least disclosed. It is also important to have the house thoroughly inspected.
Q: What problems may surface when buying foreclosures?
A: When buying directly at a legal foreclosure sale it is quite dangerous, and yes, you are taking a risk. Buying foreclosures is strictly caveat emptor (“let the buyer beware”).
The process of buying a foreclosure property has numerous disadvantages. First of all, you need an abundance of cash for there is no financing. Before the purchase, the title needs to be checked. This also needs to be completed before the buyer can buy seriously deficient titles.
Wiedemer states that the condition of foreclosure properties are not well known and an interior inspection of the property may not be feasibly possible.
Estate (probate) and foreclosure sales are exempt from some of the states' disclosure laws.
A seller, who has recently acquired a property through adverse circumstances and may have very little or no direct information at all about the property itself, is protected by law, in both cases. For further information in regards to this topic, please check with your tax professional.
Q: Can you provide information on the different types of foreclosures?
A: A proceeding in which a trustee, a mortgagee or another lien holder on a property makes a request of covering the unpaid balance of a delinquent debt with a court-supervised sale of the property is a judicial foreclosure action.
The process of selling real property beneath a power of sale in a mortgage or deed of trust which is in default is known as a nonjudicial foreclosure. A foreclosure such as this prevents the lender from obtaining a deficiency judgement. Because of this, some title insurance companies reluctant to issue a policy.
Q: During a trustee sale, what takes place?
A: Trustee sales are usually conducted by either a sheriff, a constable, or a lawyer acting as a trustee. These particular sales are advertised well in advance and require all-cash bids. Trustee sales attract many savvy investors, is not for the novice.
The lender who possesses the first loan on the property starts the bidding in a trustee sale. The bidding starts in the amount of the foreclosing loan. Those who are successful in their bids receive a trustee's deed.
Q: How does one receive financing for a foreclosure?
A: Financing for foreclosure properties is next to impossible, which is precisely why there are very few bidders present at foreclosure sales. Since this is case, you will need to show up at the sale with either a line of credit with your bank upon which yo can draw cashier's checks from or an abundance of cash.
Q: How are government-repossessed homes found?
Government-repossessed properties are acquired from lenders who foreclose on HUD insured mortgages, by the U.S. Department of Housing and Urban Development. These particular properties are available for sale to bot the homeowner-occupants and the investors.
HUD-owned properties can only be purchased through a licensed real estate broker. Six percent of the sales price of the broker's commission, will be paid by HUD.
When it comes to down payments, on government-repossessed properties, the prices vary. It all depends on whether or not the property is eligible for FHA insurance. If by chance it is not, the down payments range from the conventional market's 5 to 20 percent.
HUD-owned properties that are being sold “as is,” means that no structural or mechanical warranties are implied. Properties such as these also have had limited repairs done, so proceed with caution.
Q: Is it at all possible to purchase a HUD home for as little as $100 down?
There is a possibility, for people who are financially strapped and who are out seeking a bargain, to purchase a foreclosure property acquired by the U.S. Department of Housing and Urban Development for a mere $100 down.
Down payments vary when it comes to HUD foreclosures. The variations depend upon whether the property is eligible for FHA insurance. Down payments range anywhere from 5 to 20 percent if the property is not eligible. If, however, the property is FHA insured then the down payments can be much lower.
An “earnest money” deposit equal to 5 percent of the bidding price must accompany each offer that is made. It must not $2,000 but must not be less than $500.
Some foreclosure properties can be purchased directly from the U.S. Department of Veterans Affairs, often well below the market value. The down payment on these particular properties, for owner-occupants, is as low as 2 percent. Investors, however, may be required to pay up to 10 percent of the purchase price as their down payment. The reason why is because the VA guarantees their home loans and quite often they end up owning the property if the veteran defaults.
Call 1-800-827-1000, if you are interested in purchasing a foreclosure from the VA to request a current listing. Every two weeks about 100 new properties are listed.
Beware of foreclosure properties sold “as is.” This means the property has had limited repairs done and no structural or mechanical warranties imply.
Q: Where are foreclosure properties located?
A: Foreclosure notices, in most states, are published within the local newspaper, the legal notices section to be exact, of where the property resides or in the nearest city. You can also find foreclosure notices posted on the property itself or somewhere in the city where the sale is planned to take place.
The bank records a notice of default against the property, if the homeowner is late on three payments. A trustee sale is held, if the homeowner fails to make payments, and the property is then sold to the highest bidder. The bid price is set at the loan amount by the financial institution that has initiated the foreclosure proceedings.
Buying foreclosure properties is not as easy as some may think, despite the straightforward rules given. The techniques are used by sophisticated investors so that novices may find themselves among stiff competitors.
Resources:
* "The Smart Money Guide to Bargain Homes, How to Find and Buy Foreclosures," James I. Wiedemer, Dearborn Financial Publishing, Chicago; 1994.
* "Real Estate Principles," Charles O. Stapleton III, Thomas Moran and Martha R. Williams, Dearborn Financial Publishing, Chicago; 1994.
* "Real Estate Investing From A to Z," William H. Pivar, Probus Publishing, Chicago, 1993.
Q: Where can I find foreclosed HUD-owned homes?
A: Foreclosed HUD-owned homes are acquired from lenders by the U.S. Department of Housing and Urban Development and are able to be purchased by both the homeowner-occupants as well as the investors. Contact a licensed real estate broker if interested in purchasing an HUD-owned property. The broker's commission is paid by HUD.
HUD-owned property down payments vary, it depends on whether the property is eligible for FHA insurance. The down payment will fall in the range of 5 to 20 percent if it is not eligible, however if it is, the down payment will be much lower. An “earnest money” deposit must accompany each accepted offer and must equal 5 percent of the bid price. The deposit must not exceed the amount of $2,000, but must not be less than $500.
Limited repairs have been done to HUD homes that are being sold “as is.” No structural or mechanical warranties are implied either. So buyer beware.
Q: When purchasing an HUD home, do you need to go through an agent?
A: Licensed real estate brokers are the only way you are able to purchase a property from the U.S. Department of Housing and Urban Development. HUD covers the broker's commission up to six percent.
Q: Is there a risk involved when buying an “as is” foreclosure?
A: When buying an “as is” foreclosure, especially for the novice, it can be risky. There are no warranties implied for the condition of as is foreclosure properties. This means when you purchase an as is property you are not able to go back to the seller asking for repairs to be done. The condition of as is foreclosure properties is not usually known due to the fact that a thorough inspection is not possible to do before the sale.
Before purchasing you may also want to find out if there are any problem with the title itself.
Q: Where can I learn more about HUD foreclosures?
A: The most reliable source of information in regards to HUD foreclosures is their web page: http://www.hud.gov.
