By Elizabeth Weintraub. Home Buying/Selling Expert
Elizabeth Weintraub has an extensive background in real estate spanning more than 30 years, including experience in related industries such as title and escrow. She is a full-time broker-associate at Lyon Real Estate's midtown Sacramento office and is recognized as a top producer. She is also a Life Member of the Master's Club, an honor bestowed by the Sacramento Board of REALTORS®, and ranks in the top 1% of all the agents at Lyon Real Estate.
CA BRE License #00697006
What is the best type of distressed sale and how do you get a good deal on a home?
What is a Preforeclosure?
Many distressed sales are actually homes that have fallen into some various stage of foreclosure. The first stage is generally a preforeclosure. This means the homeowner has not made a payment when the payment was due and the homeowner is in arrears. At this point, the home is not for sale. It's also against the law to trespass on another person's private property but that doesn't stop some zealous buyers because those buyers don't know any better.
The buyer knows he spotted a home for sale online that was labeled as a preforeclosure. He clicked on that home address map and found directions to get there, so he went over to peek in the windows. He's lucky, I suppose, that he didn't get his head blown off by a trigger-happy homeowner. There are companies that sell lists to certain websites of homeowners who have fallen behind in their payments and these websites freely publish the data.
How Some Preforeclosures Morph Into a Short Sale
Next, before a home goes to foreclosure, often a home owner will consider a short sale when there is no other option.
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Not every seller will qualify for a short sale. but that doesn't stop some desperate souls from calling local agents and asking these agents to list the home as a short sale. Unfortunately, there are real estate agents who do not qualify sellers, they just take listings and don't blink an eye. They hope for the best, which is a terrible way to conduct business.
If the seller qualifies for a short sale, and the home is priced appropriately, that preforeclosure home will sell prior to foreclosure as a short sale. Sellers gravitate toward short sales because the stigma and consequences are less severe than that with a foreclosure and because it gives them a closure to the entire unpleasant situation that can't be gained by walking away .
Buying a Home Through an Online Auction
Websites that feature homes available for sale through an auction bidding process are ubiquitous. These homes are generally not foreclosures but they could be flipper homes owned by investors that were once a foreclosure,
bank-owned homes known as REOs because the title to the property lies with the bank in a post-foreclosure status, or even government-owned homes and, in some odd cases, a short sale.
Be careful of minimum bids, reserve pricing, incremental bidding, shill bidding, and premiums for the winning bid. Buying an auction home online is not invariably a good deal if the buyer is forced to pay a percentage bonus on top of the sales price. It's a case of the big print giveth and the little print taketh away.
Buying a Foreclosure Home from HUD
FHA is one of the few financing options available that allow a home buyer to pay a minimum down payment without having to provide stellar credit. These loans are often highly leveraged so if a homeowner can no longer make the mortgage payments, there might not be enough equity in the home to sell it.
Many sellers with FHA loans do not qualify for a short sale or the sellers give up because the process to get approval is so lengthy, fraught with red tape and convoluted even for the most experienced FHA short sale agent to process, that it's not surprising many of these homes end up in foreclosure, with title passed to the government.
The government then puts these foreclosed-upon homes up for sale through HomePath. They offer buyers a terrific deal -- no appraisal, in exchange for paying the list price the government wants, which can be more than market value. This means home buyers can start out upside-down in their new home if one is not careful. Before buying a HUD home, ask your agent to produce comparable sales to see if a lower price is possible to request.
Buying a Foreclosure on the Courthouse Steps
This is generally your best option to get a good deal on a foreclosure home. But every other Tom, Dick and Harry and I need to add Sally knows it, too. Some investors earn a very good living buying foreclosure homes on the courthouse steps. They know every angle. You do not. It will be you versus them and you might lose. They will pay cash and buy those homes sight unseen.
Or, you can decide to buy a home directly from a regular seller, a person just like you or me. This is probably your best bet. Given a choice between a cigar-chomping bank executive who expects to get top dollar from that foreclosed asset and demands market value -- because contrary to popular belief banks are NOT giving away homes like toasters -- or a seller who just wants to move on with her life, who will give you the best deal? Think about it.
At the time of writing, Elizabeth Weintraub, BRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.