| Q:
|
Are
foreclosures an option? |
| A:
|
A
foreclosure property is a home that has been repossessed
by the lender because the owners failed to pay
the mortgage. Thousands of homes end up in foreclosure
every year. Economic conditions affect the number
of foreclosures, too. Many people lose their homes
due to job loss, credit problems or unexpected
expenses.
It is wise
to be cautious when considering a foreclosure.
Many experts, in fact, advise inexperienced
buyers to hire an expert to take them through
the process. It is important to have the house
thoroughly inspected and to be sure that any
liens, undisclosed mortgages or court judgments
are cleared or at least disclosed. |
|
| Q:
|
What
types of foreclosure are there? |
| A:
|
Judicial
foreclosure action is a proceeding in which a
mortgagee, a trustee or another lienholder on
property requests a court-supervised sale of the
property to cover the unpaid balance of a delinquent
debt.
Nonjudicial
foreclosure is the process of selling real property
under a power of sale in a mortgage or deed
of trust that is in default. In such a foreclosure,
however, the lender is unable to obtain a deficiency
judgment, which makes some title insurance companies
reluctant to issue a policy. |
|
| Q:
|
What
happens at a trustee sale? |
| A:
|
Trustee
sales are advertised in advance and require an
all-cash bid. The sale is usually conducted by
a sheriff, a constable or lawyer acting as trustee.
This kind of sale, which usually attracts savvy
investors, is not for the novice.
In a trustee
sale, the lender who holds the first loan on
the property starts the bidding at the amount
of the loan being foreclosed. Successful bidders
receive a trustee's deed. |
|
| Q:
|
How
do you get financing for a foreclosure? |
| A:
|
One reason there are few bidders at foreclosure
sales is that it is next to impossible to get
financing for such a property. You generally need
to show up with cash and lots of it, or a line
of credit with your bank upon which you can draw
cashier checks. |
|
| Q:
|
How
do you find government-repossessed homes? |
| A:
|
The
U.S. Department of Housing and Urban Development
acquires properties from lenders who foreclose
on mortgages insured by HUD. These properties
are available for sale to both homeowner-occupants
and investors.
You can only
purchase HUD-owned properties through a licensed
real estate broker. HUD will pay the broker's
commission up to 6 percent of the sales price.
Down payments
vary depending on whether the property is eligible
for FHA insurance. If not, payments range from
the conventional market's 5 to 20 percent.
One caution.
HUD homes are sold "as is," meaning
limited repairs have been made made but no structural
or mechanical warranties are implied. |
|
| Q:
|
Can
I get a HUD home for as little as $100 down? |
| A:
|
If
you are strapped for cash and looking for a bargain,
you may be able to buy a foreclosure property
acquired by the U.S. Department of Housing and
Urban Development for as little as $100 down.
With HUD
foreclosures, down payments vary depending on
whether the property is eligible for FHA insurance.
If not, payments range from 5 to 20 percent.
But when the property is FHA-insured, the down
payment can go much lower.
Each offer
must be accompanied by an "earnest money"
deposit equal to 5 percent of the bid price,
not to exceed $2,000 but not less than $500.
The U.S.
Department of Veterans Affairs also offers foreclosure
properties which can be purchased directly from
the VA often well below market value and with
a down payment amount as low as 2 percent for
owner-occupants. Investors may be required to
pay up to 10 percent of the purchase price as
a down payment. This is because the VA guarantees
home loans and often ends up owning the property
if the veteran defaults.
If you are
interested in purchasing a VA foreclosure, call
1-800-827-1000 or visit www.foreclosurefreesearch.com
for a current listing. About 100 new properties
are listed every two weeks.
You should
be aware that foreclosure properties are sold
"as is," meaning limited repairs have
been made but no structural or mechanical warranties
are implied. |
|
| Q:
|
Where
can you find foreclosures? |
| A:
|
In
most states, a foreclosure notice must be published
in the legal notices section of a local newspaper
where the property is located or in the nearest
city. Also, foreclosure notices are usually posted
on the property itself and somewhere in the city
where the sale is to take place.
When
a homeowner is late on three payments, the bank
will record a notice of default against the
property. When the owner fails to pay up, a
trustee sale is held, and the property is sold
to the highest bidder. The financial institution
that has initiated foreclosure proceedings usually
will set the bid price at the loan amount.
Despite
these seemingly straightforward rules, buying
foreclosures is not easy as it may sound. Sophisticated
investors use the technique so novices may find
themselves among stiff competition.
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;
2001; www.amazon.com.
* "Real Estate Investing From A to Z,"
William H. Pivar, McGraw-Hill, 2003; www.amazon.com. |
|
| Q:
|
Where
can you find foreclosed HUD homes? |
| A:
|
The
U.S. Department of Housing and Urban Development
acquires properties from lenders who foreclose
on mortgages insured by HUD. These properties
are available for sale to both homeowner-occupants
and investors.
You can only
buy HUD-owned properties through a licensed
real estate broker, whose commission will be
paid by HUD.
Down payments
vary depending on whether the property is eligible
for FHA insurance. If not, payments range 5
to 20 percent. When the property is FHA-insured,
the down payment can go much lower. Each accepted
offer must be accompanied by an "earnest
money" deposit equal to 5 percent of the
bid price not to exceed $2,000, but not less
than $500.
You should
be aware that HUD homes are sold "as is,"
meaning limited repairs have been made but no
structural or mechanical warranties are implied.
|
|
| Q:
|
Do
you have to buy HUD homes through a realty agent?
|
| A:
|
You can only purchase a U.S. Department of
Housing and Urban Development property through
a licensed real estate broker. HUD will pay the
broker's commission up to 6 percent of the sales
price. |
|
| Q:
|
What
about buying a foreclosure "as is"?
|
| A:
|
Buying
a foreclosure property can be risky, especially
for the novice. Usually, you buy a foreclosure
property as is, which means there is no warranty
implied for the condition of the property (in
other words, you can't go back to the seller for
repairs). The condition of foreclosure properties
is usually not known because an inspection of
the interior of the house is not possible before
the sale.
In addition,
there may be problems with the title, though
that is something you can check out before the
purchase. |
|
| Q:
|
Where
do I learn about HUD foreclosures? |
| A:
|
One good source is their Web page http://www.hud.gov.
|
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