Educate me on buying a foreclosed home

[Z-man]

Looking to buy a home as my primary residence. RE here in NJ is pretty much dead - at least , in my price range, so I started looking into foreclosures.

We did see a bank owned home that was a good option but before we pulled the trigger on it, someone else beat us to the punch. That home needed a lot of work, and wasn't the typical foreclosed home, as the bank was selling it (it had an MLS number, was sold through a realator...etc). I believe it was more like a short sale vs. a foreclosure. The buyer got it for a song and a dance -- while it needed work, homes in that area that didn't need work were selling for $200 - $250k more than that home.

Now, I found another home. This one is scheduled to be presented at a foreclosure auction next week. Seems to meet our needs, and is likely in our price range. I have read through some of the foreclosure information out there on the interwebs, but still need some guidance.

So - anyone here know about foreclosures? What are the pitfalls? How do I check to make sure the home doesn't have any liens on it? In my initial research, I found the owner may have been a used car lot owner as well, and there were some bankruptcy papers processed. If that is the case, how do I make sure I am not liable for any links between the resident property and the car business?

Is this worth digging into, or would I be over my head going against investors and developers who know what they are getting into?

Thanks,
-Z

[GH85Carrera]

The abstract search should find any back taxes, liens or mortgages. If it was a used car place you might want to pay for an environmental check. Cars that leaked a lot of fluids could cause problems for you.

[porsche4life]

Find a realtor in your area who deal with foreclosures. They will be able to tell you the process, and help you buy the ones that are in the MLS. Some foreclosures do end up in the MLS like a short sale.

From what I've heard buying the ones in the MLS can be a headache. The banks are PAINFULLY slow about responding to requests for documents, and readily ignore many of them. You are buying the home AS IS. You can request repairs in the inspection period, but there's about a 99.99% chance they won't do them.


I am a licensed RE Agent in AZ, and we do things way different than the east coast or I'd offer you more advice. I really think you need to spend some time talking with a Realtor who knows the process in NJ. If you don't buy through them, try to at least refer some business to them, they'll appreciate!

[Z-man]

Sidney:
Thanks for the info -- the problem is that my RE agent that sold my home last year doesn't deal with foreclosures because there is less money in them, and the headaches are indeed greater. She's been burned with short-sales falling through after months and months of filing paperwork and going through meetings and what-not.

While I can understand my RE agent's frustration, and the fact that she would get zero commission out of a property I would buy at auction, I agree that a foreclosure agent would be able to do all the research necessary...

Thanks for the input...
-Z

[porsche4life]

A foreclosure agent will be able to answer your questions in under an hour probably. If you buy one at auction maybe throw them a few hundred for their time, or refer all your friends to them. But they may be able to find you something if the market is thick with them.

The foreclosure market here in AZ has pretty much dried up. The house behind us sold as a foreclosure through the MLS last month. Only sold for about 20k below market, and in my opinion needed 30k worth of work...

[MikeSid]

Do you have enough cash to completely fund the purchase price on the spot with a certified check? In most states, foreclosure sales are cash auctions. A whole industry of short term bridge lending has developed in recent years due to average home buyers wanting to buy at foreclosure sales.

Given the questions you have, I would doubt that you have enough time to do the diligence that you need to do in order to actually safely engage in this sort of transaction by next week. Your best bet would be to attend the sale, watch what goes down, talk to people, get the lay of the land. If you still want this particular property, at least you will learn what the new owner paid at the sale and you'll find out first who that is. Contact them before they list and make an offer (after your diligence is complete). Maybe they'll make a little profit, you'll get a deal, etc.

From what I understand, New Jersey is a judicial foreclosure state which means the sale is done by a court order and probably by the county Sheriff. That might change whether it is a cash sale or whether you have, say 30% now and 10 days to close, etc.

I do this for lenders in Washington, and it's a bit different for sure. But there is one immutable truth, the investors that do this daily will be miles ahead of a first time auction attendee. You can catch up fast, and you'll have a more singular focus, but they'll likely have resources you don't both with information and immediate finance.

[RANDY P]

Title report / insurance will report any outstanding liens against it, and pay them off if they are wrong. Just make sure there aren't any back HOA or any crap like that.

Be prepared to take it in the shorts on escrow look how much escrow will charge you- LOL. Betting your escrow charge will be around $5K and it'll be an attorney- normally it's around $5-600.

rjp

[look 171]

Be prepare to wait and sometimes with disappointment. Title report will show liens like Randy said. I had a Fanny Mae home on the hook with a 10 day escrow about 6 months ago. it was going to be our vacation home in the mts, but Fanny Mae pulled it from under us one day before close of escrow without giving us any reason. My agent or Broker told us that they do not have to give us anything reason whatsoever. We were pissed. I found out that the very same house was sold again about three weeks ago for 25k less then our offer.

[RANDY P]

The escrow costs that they charge are a complete bastard. I lost my mind the first time I closed one of those- the escrow was more than everything else added together, including impounds.

What are you going to do? They have you by the nuts.

rjp

[McLovin]

I assume you are talking about a true foreclosure sale, i.e., buying at a foreclosure sale (as opposed to buying a post-foreclosure bank owned property, or doing a short sale, etc., all of which is very different).

I bought a +$1 million property at a foreclosure sale on the courthouse steps.

It can be a pretty stressful process, too many things to list. But, you have to have the cash on hand at the sale, in full. So that's tough for most people. You have to be prepared to travel to the sale (with the money, in cashiers' checks) several times, as they usually get postponed multiple times. There is a limited inspection ability (usually). There is no guarantee as to liens, title, etc. There is no escrow, the sale occurs on the courthouse steps immediately. There is very limited recourse if something goes wrong or is not as expected.

In short, it's nothing like a regular sale, which has an escrow, normal due diligence, title insurance, etc. etc. It's far more risky, with many pitfalls for the unwary.