Buying a foreclosed property is a great way to get your feet wet when it comes to real estate investing or purchasing a home. Although the low price of a property in foreclosure is often worth the effort, the process is different from traditional real estate transactions. A good real estate lawyer can help you understand the pros and cons of purchasing a foreclosure, guide you through the process and protect your interests.
What is a Foreclosure?
When a property owner defaults on a mortgage, a lender will take ownership and try to recover their investment by selling a foreclosure for less than market value. Some lenders post bank-owned properties online and the U.S. Department of Housing and Urban Development publicly lists its foreclosures as well.
Types of Distressed Sales
In addition to purchasing a foreclosed property directly from a lender, there are a few other options for getting a good deal on a home or investment property, including:
- Pre-foreclosure –Buying directly from a seller who is behind in their mortgage payments before a lender claims the property.
- Short sale – When a homeowner owes more than a property is worth and a lender forgives some of the debt.
- Public auctions – Bidders have the opportunity to make offers on foreclosed or sheriff’s sale properties.
Get Pre-Approved for a Loan
Unless you’re paying cash, it is always best to get a pre-approval letter from the bank before you make an offer on any property. Having proof of a mortgage pre-approval shows buyers that you are serious about purchasing a foreclosure. It is also important to remember that many foreclosed properties need repairs or renovations, so make sure you apply for an amount that will cover these expenses.
Many people think that foreclosures are only bought by real estate investors who pay cash. This is not always the case. There are plenty of lenders who are willing to help buyers find the right loan to purchase a foreclosure.
Check out Comparables
Running a comparative market analysis (CMA) can help you determine recent sale prices of similar properties in the area. Your attorney can assist you with finding comps and let you know what they think would be a competitive offer for the local real estate market.
Prepare to be Competitive
Because foreclosures are often snapped up by professional investors, understanding how to make a reasonable offer is essential. If a sale is particularly competitive, you may have to offer a bit more than the asking price, but your lawyer will advise you of how much is too much. If you’re buying a commercial property, some business lawyers also handle these types of real estate transactions.
Know that You are Buying in As-is Condition
Property owners who are short on cash sometimes neglect routine maintenance and repairs, so a home inspection is a must. If you’re dealing with serious issues like structural damage, termites, or extensive water damage, make sure to seriously consider repair costs and what your return on your investment may be.
Buying a Distressed Property is a Complex Process
Unlike a straightforward, traditional real estate transaction, buying a foreclosure or short sale requires the specialized knowledge of an experienced Pennsylvania real estate lawyer who is familiar with the process and the law. Your attorney can handle negotiations and deal with any title or deed issues that may arise. Having a lawyer review contracts and any real estate sales agreements is also essential.
Are you considering buying a property in foreclosure? Our experienced team at Carosella & Associates can help.