Well as some of you may have noticed there are more and more foreclosures being seen in today’s market. A lot of you may see a foreclosure as a way to capitalize on a good deal…turning someone else’s misfortune into your good fortune. Unfortunately in most cases it is not the really that simple.
The foreclosure process as seen from the side of the buyer goes a bit like this:
- Find a home that is in foreclosure.
- Put in your offer.
- Wait for the lender to accept offer.
- Wait for court approval.
- Go to court for the day of the hearing (auction).
- Take the home “as is” if court accepts your offer. (possession is usually ten days or so after court approval)
Sound easy? Let me elaborate a little. It is pretty easy to find a home that is being foreclosed on…just ask your agent to keep his/her eyes open. Currently (2015 foreclosures make up roughly 1% of the active listings for sale). Keep in mind that court ordered sales happen for many reasons, some of which can affect resale value and the amount of work required to make the home livable. They can happen because: someone stopped paying the mortgage; the home has been used to manufacture illegal drugs; the owners are divorcing and can not agree on how to handle the sale; the owners are having other legal issues; etc.
After hunting around and finding a home you like you put in your offer (if there is not one already in place) and treat the purchase pretty much like any other home purchase. You do need to know that when you buy a foreclosure you buy the home ‘as is’ at time of possession and NOT as is the day you viewed it…I don’t have to tell you a lot can change between the day you see the home and the day you take possession of the home. This is especially true when you are possibly waiting a month for court approval…I will get into that part in a moment.
The offer process goes as follows: Your offer goes from your agent to the listing agent, who sends it to the lawyer or financial institution which has ‘condition of sale’ (control of the property). The lawyer or financial institution then (if they deem the offer acceptable) authorizes the sale to go ahead. The whole matter then gets sent to the courts for a court date to be set. (That date could be as far away as a month). Your offer must also be free of conditions before the court date is set in order to be considered by the judge. In other words you need to get your inspections, financing, title searches, etc. out of the way before the trial date is established so you are subject free and ready to take control of the home IF you are the lucky buyer who the judge selects to be the new owner.
Once the court date is set, that date and YOUR OFFER become public knowledge. This means that anyone who has been watching the property knows the date has been established. Did you think you were the only person interested in this property? Remember that the longer this home sat on the market the greater the number of people who saw it. Chances are the price got a little lower and still more people took notice. Nobody wants to be the first person to jump on the property (if they know the process involved) as they want to see the price reduced even further.
Come the day of trial anyone who was watching the property may put in their own offer. The process goes like this: Everyone delivers their offer to the judge in a sealed envelope. The judge can call a recess to review the offers or do it in the court room. The judge can then do as they like…pick the highest or best offer…accept more offers…decline to see more offers…call the whole thing off…pretty much whatever they wish. The judge does however owe a duty to the seller to get as much money for the home as possible…so don’t think it will just sell for hundreds of thousands of dollars less then its worth…we are talking market value or near to it. This is kind of like a silent auction but with someone changing the rules a bit.
So now the court hearing is over and let’s say you are the lucky winner of your new home...YAY! Well let’s go visit your new property….Hey wait a minute! There were appliances here when you saw it! And the garage door is broken! Where are all crown mouldings that were stacked in the garage waiting to be installed? Well, like I said earlier you get the home ‘as is’ on the day you take possession NOT the day you last saw the home. If the furnace has been removed or all the cupboards torn out, you are out of luck…sorry.
So after weeks of waiting you finally get your home and you paid more for it then you wanted to and you did not get the product you thought your were going to get…not the best way to buy a house…there are deals out there but they don’t happen often. Just today I was in court waiting at a foreclosure hearing and the room was packed. The people who put in the first offer were there and seven other offers popped up on them. The home was listed for $899,000 and ended up selling for $1,130,000 ‘as is.’ The people who put in the first offer did not get the home…well back to the drawing board.