How to Buy an Alienated Home
The housing market has been an insanity long enough that some of us have lost all hope of ever getting a home. However, one possible alternative is to seek foreclosures: the property that the lender has seized from the borrower who missed a certain number of mortgage payments and defaulted on the loan.
After foreclosure, lenders sell the house at auction, and the price is often close to or equal to the amount remaining on the mortgage. This means foreclosure may be cheaper, but not always. Some foreclosures are sold at market value and many are in disrepair.
But if you’re willing to go through the foreclosure process, you can get a deal that you won’t find in the mainstream market.
How foreclosures work
There are two categories of foreclosure: judicial and non-judicial . In simple terms, foreclosure occurs when a mortgage lender files a civil action against a borrower and a judge rules that the lender can auction the property. For out-of-court foreclosure – permitted in certain states where the mortgage includes a force of sale clause – there is no court order.
Foreclosure litigation looks a little different in every state, and there are several agencies that can foreclose property . Banks are the most obvious, but counties can confiscate homes from owners who have not paid property taxes, and the IRS can take properties for non-payment of income taxes. The US Department of Housing and Urban Development (HUD) can foreclose borrowers who fail to pay FHA loans, and homeowners associations (HOA) can foreclose for non-payment of premiums.
Again, it is common for foreclosures to be auctioned off as soon as the borrower is found to be unable to catch up on the payment. But you can also find the listed homes in foreclosure – the case is ongoing, but the process is not yet complete. Some pre-foreclosure homes are put up for short sale, which means that the lender is allowing the borrower to sell the property for less than what they still owe on the loan.
How to find foreclosures
Foreclosures are not necessarily listed in the same way as conventional homes for sale. Here are some places to watch:
- Bank Websites : Banks can list foreclosures online, or at least give you the ability to narrow down your search for properties available to them.
- HomePath.com and HomeSteps.com : These sites list homes estranged by Fannie Mae and Freddie Mac, respectively.
- Auction.com
- Zillow : Once you enter your address or zip code, go to Sale> Foreclosures to narrow your search.
- Redfin: Click on “Open Advanced Filters”> “Show More” (under “Listing Status”) and select “Buyouts and Buyouts from the MLS List.”
- Estate Agents: Some real estate professionals specialize, or at least have experience dealing with foreclosures.
- Public Records: If you’re willing to dig a little, you can find legal documents indicating foreclosure – Notice of Sale, lis pendens, or Notice of Default – in your county’s registrar records.
How to buy a foreclosure home
To buy a foreclosure home, you have to be prepared for a quick turnaround and give up some of the guarantees of a traditional sale. For example, you may need cash for a deposit plus a sale, as you won’t be able to get a traditional loan fast enough to use it in an auction. In addition, typical contingencies such as home inspections and financing can be unacceptable, and foreclosures are often sold as-is, regardless of conditions.
Keep in mind that you may not have as much information about foreclosures as you would about a home acquired through the normal buying process, so there is always some risk involved in this journey. Foreclosures are still a huge investment and should not be taken lightly. However, if you have the resources, time, and interest, this can be a worthwhile alternative.