Recent up-ticks in home foreclosures present opportunities and hazards
To see the infomercials on television and to read the ads for seminars that arrive via junk mail, you can pick up foreclosure properties for just pennies on the dollar. But according to Cody Farris of Prudential Texas Properties, the reality is quite different.
Despite the high foreclosure rate reported in the media, foreclosed properties in Dallas sell for about 97 percent of the prices of other properties in the area which hardly makes them steals.
“There are occasionally good buys if you want to do some work,” Farris says. With the sub-prime lending crash and foreclosures on the rise, some bargains are available. But watch out for the pitfalls lenders are not in business to lose money.
“I don’t like foreclosures for a few reasons,” says Dallas real estate agent Keith Yonick. “First, you have to buy as-is. Second, you have to waive your right to mediate if you have a problem. Third, you’re not always getting a great deal sometimes the inspectors miss things and the properties haven’t been well-cared-for.”
When a home is foreclosed, some angry homeowners strip the interior. What may look like a bargain might not be one when appliances and fixtures need to be replaced. Other homeowners, perhaps upset that a bank has suddenly raised their interest rate or monthly payment to unaffordable levels, can do much heavier damage to the property. Walls, floors and plumbing should be inspected before signing any papers.
Yonick suggests having the home inspected thoroughly. An important part of any residential real estate transaction, the inspection may be particularly important to foreclosure buyers. While intentional damage may be apparent, routine problems a homeowner may be aware of might be unknown to the bank.
Mark Paxton of Wells Fargo Home Mortgage tells of one property where the former homeowner poured cement powder down the drain. When the inspector did his test and turned on the water, everything seemed normal. The homeowner later found the drains cemented shut.
Paxton cautions foreclosure buyers to be very careful, even of homes not vandalized. “If people are not making their payments, they’re probably not taking care of the home,” he says.
Farris warns homeowners that lenders are getting more aggressive about protecting their investments and filing police charges on vandalized properties.
There are advantages, though, for bidding on foreclosed properties. The lender holding title probably has no emotional attachment to it and is anxious to sell. A bid might be lower than they can accept, but it won’t be rejected for sentimental reasons.
Farris suggests not being too aggressive if a home is particularly appealing. If it’s already a great price in a great neighborhood, others might be bidding on the property at the same time. If the house is for investment, be prepared to bid on several properties before a low bid is accepted.
Lenders in foreclosure properties rarely lower the price for inspection problems, but may offer low-cost financing to cover these problems. For properties that need work, Farris suggests FHA’s 203K loan program or Wells Fargo’s renovation financing.
“Our renovation loan product allows someone to come in and get bids and we do a loan for the future value of the home. Disbursement of funds is done as the work progresses,” Paxton explains.
For foreclosure buyers, “Fannie Mae is doing some carpet, paint and new appliances and streamlining financing,” Farris notes. With their wholesale purchasing power, their properties are often good values.
To get the best deal on foreclosed property, everyone agrees: Work with an agent experienced in this type of transaction.
This article appeared in Defining Homes Magazine on November 9, 2007