If you're contemplating between purchasing a short sale or a home in foreclosure, you'll find buying a foreclosure more challenging. A foreclosure occurs when the lender decides to execute their legal right to force the sale of a home when the owner defaults on their loan payments. In today's upside down bank and mortgage industry, you'll find a surge in the number of foreclosures hitting the market - creating new opportunities for homebuyers searching for a real estate bargain. All communities, from the high end luxury homes down to the least expensive, all are susceptible to foreclosure.
by SarahP.Shimanski
When a homeowner defaults on their mortgage, the lender will offer a grace period before they begin foreclosure proceedings. If a homeowner can't cure the default within the grace period, the bank will take steps to foreclose on the home - which creates great opportunities for new homebuyers during the pre-foreclosure, public sale or auction, and when the property reverts back to the bank (called real-estate-owned, or REO).
The main attraction of a foreclosure is the affordable price - whichever stage of the process you decide to purchase one, you'll most likely find a low price.
Disadvantages of buying a foreclosure
- You Sacrifice Some Buyer Protection - During most of the foreclosure steps you'll be sacrificing some of the standard protections available in a normal homebuying process; for instance, you may have to buy a property "as is" and forgo any title insurance.
- How Long Is The Owner Protected - You'll find most states have laws protecting the delinquent homeowner from having their home ripped away on a moment's notice by an unscrupulous bank. As a buyer, that means you're faced with deadlines, unplanned delays, abiding by court rulings, and an uncertain future - especially in those states where the defaulted owner has the ability to "redeem" or buy back the property following a foreclosure sale (usually within 10 days to one year). If those unfortunate circumstances should happen to you, your money will be refunded. It's important for you to seriously consider whether you want to wait indefinitely for a home you may not be able to occupy.
- Real Estate Investor Competition - The real estate market abounds with plenty of investors searching for great deals on a a home. If you decide to pursue a foreclosure be prepared to fight other investors to buy the home.
- Unknown Risks - Homeowners in foreclosure typically suffer through financial hardship for a while. They've probably cut back on maintenance, fallen behind on taxes, or put the home up as collateral for other debts.
If you still decide to purchase a home in foreclosure, it's important to have an experienced Realtor assist you through the process. Make sure the agent specializes in them. Only certain Realtors will specifically handle a foreclosure. If you decide to have a regular agent working for you, make sure to delineate each agent's role, so there's no confusion. You may also consider hiring a real estate attorney to help you steer through the maze of steps.
