If a home is foreclosed because the owner defaulted on their mortgage, the property goes up for auction at the county courthouse to the highest bidder. And, the bank itself can send an agent to bid on the house for them. That way, if the bidding is too low for the bank to accept that much of a loss, they can buy the home themselves and put it on the open market through a realtor. And, this may be below comparable market value, because they want to get the property off their books as soon as possible.
Also keep in mind that you'll be competing at the auction with professional property investors who will bid up the best properties. You'll also be competing with these investors for the properties on the open market. And, a lot of these investors have the ability to make a cash offer. The banks prefer these to a buyer who has to finance the purchase, because there's no way for the sale to fall out of escrow due to funding problems. And, banks will often accept a lower cash offer than a financed one for this reason.
If it's a tax lien foreclosure, this means that the property is owned outright (no mortgage on it), but the owner stopped paying property taxes. These are the ones that the get-rich-quick programs on the late night infomercials brag about being able to buy for ';pennies on the dollar.'; But, you have to ask yourself, why did someone stop paying taxes? Many of these homes are so dilapidated that the owner figured it was better to just walk away from the property. Or, there may be some code violation, the neighborhood is full of crack houses ... whatever. So, it may be cheap to buy. But, it would cost a fortune and be a money pit to fix up, or no one would buy it regardless of the condition it's in. And, you're stuck with it unless you can find some sucker to take it off your hands.
Another thing to consider with a foreclosure of any kind is that the seller (the bank or county) doesn't have to submit a transfer disclosure statement (TDS) when selling the property. The TDS is an affidavit that's required to be submitted by the seller of any regular (non-foreclosure) transaction that states the condition of the property - warts and all - to the best of the seller's knowledge. And, if there's some discrepancy that pops up later, but that's not on the TDS, the buyer can come back and sue the seller and his agent.
With a foreclosure, the buyer has full responsibility to do whatever inspections it takes to satisfy him of the actual condition of the property, including any code violations, existing liens, or anything that might be an issue that has to be addressed. And, once the buyer owns the house, any and all discrepancies are the buyer's sole responsibility to correct. If you bought a foreclosure and the day escrow closes you open the door to the house, and it crumples to the ground like a pile of match sticks, guess what? It's your house now and you get to fix it. And, sometimes former owners actually trash or damage the house on purpose to ';get back at the bank'; for foreclosing on them (like pouring concrete down toilet drains).
The bottom line is that someone who is not very skilled at evaluating properties or even just not very experienced at purchasing one should avoid foreclosures. The good ones will likely be snapped up by the professionals (flippers and investors), and the bad ones that are left over will just be a nightmare for the buyer.Are foreclosure homes for sale too good to be true?
That depends on the home. Some really are great deals but just because it is in foreclosure does not mean the price is good so do your market research and make sure that you get a full home inspection from an inspector that you pay for. (The two things you do not want paid for by the seller are your home inspection and your title insurance. They will pay for their title insurance and you need to pay for yours.)
Also, try to get the seller to purchase a home warranty for you. (American Home Shield (AHS) is a great warranty company to work with.) Lastly, be sure to check with any home owners association, the local tax office and local utilities to be sure there are no financial ';clouds';. The closing attorney should take care of it but do not go to closing without letters to you that give assurance that the property is clear of all liens and fees owed from the previous owner!Are foreclosure homes for sale too good to be true?
http://foreclosuremortgageoptions.com/ has a lot of good information on everything about how to protect your house from becoming foreclosed, foreclosure laws, and how to buy houses on foreclosure auctions.
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