The foreclosure market has exploded and most buyers are looking at foreclosed properties. Many of these properties are not in the best condition and are priced accordingly. Some buyers find the perfect home, other will decide they are too much work and hassle and decide to shop among privately owned homes.
What is a Foreclosed Home?
A foreclosed home is one where the owner was unable to keep up his house payments and the bank had to evict the owner for non-payment. These homes could have been purchased with a conventional loan, a FHA loan (HUD) or a blend of adjusting rate loans. They are now vacant.
I See Empty Houses In My Neighborhood. What Takes So Long For Them To Come On the Market?
When an owner goes through a foreclosure there is a time line defined by state law that has to be followed. After 1 or 2 missed payments the bank or mortgage company will notice the homeowner that he is in default of payment and give them an opportunity to "catch up". Most owners are behind because of money problems and don't have the funds to catch up. After 3 missed payments, the bank may send the home to a Sheriff's sale. This means the house goes on the auction block to the highest bidder. Banks usually buy these houses back - the public usually doesn't want to pay all the outstanding liens and taxes on these homes. After the sheriff's sale the homeowner has 6 months called a redemption period to come current with the bank including late fees and penalties. Most homeowners don't have the money. After the six months the bank asks the homeowners to leave - sometimes requiring the sheriff to evict them. Now the bank has to do a clean-up of the property and file the proper papers with the courts to get a "clean" title to sell the house. So a foreclosed home can take over a year to actually come on the market.
My Agent Took Me to a Foreclosure. What's With the Electricity Being Off?
Most foreclosures are weatherized - the power and water are turned off. The banks don't want to pay the utility bills on these homes.
How Do I Put In An Offer On A Foreclosed Home?
You can use the agent listing the house but remember - that agent is the bank's agent. You will want to find a good buyer's agent to help you with the process. It has many confusing twists and turns and you absolutely want an agent you can trust. Your agent will go over the purchase agreements, bank addendums to contracts, agency agreements, etc to make sure your offer protects you. An earnest money deposit (EMD) is needed with your offer to show the bank that you are serious about buying the property. EMDs can run from $1,000 to 3% of the sale price. But remember too, foreclosed homes are sold "AS IS" and in most cases the banks don't work with repairs or reductions for conditions. The homes are priced for their current condition so negotiations are for price only. Banks also don't care about anything but the bottom line. If you are late in closing the deal, they'll charge you a daily late fee.
What If I Want a Home Inspection When I Put In an Offer?
Most agents will put your offer into the bank contingent on the home passing a home inspection. Private Home Inspections typically run about $250-$300 for 1000 sq ft home. It is the responsibility of the buyer to order and pay for the utilities to be turned on for the inspection and for the appraisal if the buyer needs a loan to buy the property. Remember, your agent is vital in coordinating the turn-on of the utilities and opening the home to the utility workmen -- something they don't have to do when buyers purchase a privately owned home where the lights are already on. After the appraisal, the buyer is responsible for returning the property to the weatherized condition and turning off the utilities. If the buyer's loan does not go through, the bank wants the property restored to its condition upon first showing.
What Happens Next?
Once your offer is accepted and the inspection and appraisal is done it is time to process the loan. Now your loan agent will go through the underwriting process for you. This is where everything is researched that impacts the sale. Your credit history is reviewed. Your employment is confirmed. The title work on the deed of the house is reviewed. This usually takes 3-4 weeks. Your loan agent will tell you when you are "clear" to close.
Why Do We Close At An Office On the Other Side of Town?
Most foreclosure closings in SE Michigan are held by title companies working in the Southfield or Troy areas. These title companies are hired by banks located all over the country. You will be required to travel to the closing bringing the certified funds in an amount given you by your loan agent. Many times foreclosed homes don't close in full at the closing meeting. They usually close in escrow. This means that everyone comes to the closing table with funds, loan arrangements and contracts. Once the documents are sent to the out of town banks (the true owners of the foreclosed homes) then the keys can be given to the buyers. This can take 1-4 days. Your agent will do their best to speed this process along but will be dependent on how the bank handles their sales.
How Does My Buyer's Agent Get Paid?
Most homes are sold with a compensation offered to the buyer's agents. In some cases the foreclosed home is sold at such a low price - a great deal for the buyer - that the buyer's agent is not fully compensated. When that happens, the buyer's agent will charge a nominal fee to cover their expenses in helping you. Your agent will apply first any compensation offered by the seller and then will discuss with you any other charges required. Many times this can actually work out for the buyer. The selling bank doesn't have to raise the selling price of the home to fully compensate the buyer's agent. Since most of the buyer's expenses are computed on a percentage of the selling price, this helps keep all the other buyer's fees lower.
It is really important to have an agent who knows how to deal with foreclosed properties to guide you through each step. If you have questions, please call me at 734-624-9985.