This is a call that we get quite often. It may seem a bit daunting but once you understand basics of buying a foreclosure property. It's more a question of grinding your way through it …. First we need to explain Pre Foreclosures because there is always confusion around these.
· When a property is labeled as pre foreclosure, it means that it is in the early stages of being repossessed. After three months of the owner failing to make mortgage payments, the lender files a default notice on the property.
· This is a public notice and that is why you see these pop up on Zillow or Trulia etc. This does not mean they are available for sale or ever will be.
· This simply gives the owner legal notice of the action that will be taken if their outstanding debt is not paid.
· At this point in the process, the owner of the home has a set amount of time to pay their debt. If they succeed in paying their missed mortgage payments, then their property is no longer in pre foreclosure.
· Many people find a way to make this happen. Therefore, it is not by any means certain that because a home is listed as pre foreclosure, it will ever actually be foreclosed on.
Two choices when buying a foreclosure
1. Bank-foreclosed homes
These homes have not yet gone to Sheriffs Auction – there is an Oregon Website https://oregonsheriffssales.org/ that you can view these for every county in our state.
2. Real-estate-owned homes (REOs)
· REO homes have gone to auction without success – in other words there was either no bid or no acceptable bid and they end up on the bank's books.
· The bank assumes the responsibility of ownership and maintenance. You will normally find that the bank eventually lists these with an REO Broker and they will be on MLS.
· We will talk more about REOs next week.
How to buy a foreclosure home at auction
The foreclosure market is like any other: it runs on supply and demand. So, with supply down 78%, it's a seller's market. Buyers who want to invest in foreclosures increasingly resort to purchasing property at foreclosure auctions. This is riskier.
Before you think of attending an auction, you need to check with our local rules and state and county laws. You will need to be prepared -some of the things required are:
Credible photo ID just to gain admittance to the venue
"Proof of funds," which is evidence that you have the resources to follow through on your bid. A cashier's check is usually good. Cash is usually not allowed, and a personal or business check won't work either.
Please note –
There are no inspections
No title checks and no lien investigations
You must have all of the purchase price
If you don’t have cash Go to your lender ahead of time and explain that you want to purchase a property at auction. Provide documentation requested by your lender to make sure you qualify for this. Make arrangements to have cash available the day you bid at auction. Money is due at the time of the auction, and payment must be made in full.
As you can see, buying a foreclosure property at auction is not for the fainthearted. And it can be particularly challenging the first time you do so.
What you need to know about Auctions
At the auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale.
There are 3 ways or types of auction
The absolute auction is the purest experience. The bidder with the highest bid wins. Period.
Minimum bid auctions set a floor for bids. So you know what the minimum cost will be before you bid.
The reserve auction treats the top bid as an offer to the seller, who can choose to accept or reject it.
Foreclosure sales often get postponed or cancelled at the last minute because the homeowner reaches an agreement with the lender or the lender finds a buyer before the start of the auction.
A general guideline is that you should never pay more than 70% of the property's estimated market value. Here's the deal: Instead of looking for cheap homes, you should look for good value in a foreclosure sale because the property's true value is the total of renovations as well as the initial purchase price.
Like other states, under federal law, a loan servicer typically must wait until the mortgage payment is more than 120 days overdue before foreclosing on an Oregon property. This period allows owners to find a way to avoid a foreclosure.
After a property is sold at a sheriff's sale (foreclosure sale), there is a period of time referred to as the “redemption period” during which owners still have some rights. In Oregon for most properties it is a six month period.
A judgment debtor must redeem the property within 180 days after the date of the sheriff's sale. ... Once the redemption period expires, the sheriff's deed is issued and delivered to the purchaser
In addition to foreclosure sales, you may also find properties at auction being sold by the county for back taxes, properties sold because of a bankruptcy, and occasionally properties up for sale because of death or divorce.
Information you'll need before bidding
The reason that buying at auction can net the biggest discounts is because you also assume more risk. The more information you can get, the less risk you take.
First, take a drive and go see the exterior of the home. If you are not an expert in home repair or renovation, take one with you. You probably won't have the chance to commission a home inspection, but do the best that you can.
Research the neighborhood home values to see what similar houses are fetching in traditional (not distressed) sales. You're looking for a healthy discount from the price of a traditional sale.
Get a title report on the property to make sure that the title is insurable and clear.
Then, set your maximum bid. Decide what profit margin you want -- say, 15%. Take your estimate of the property value if it was sold traditionally and discount it by your desired profit margin.
Finally, subtract your estimate repair costs from that bid amount.
Be sure to not go over your set maximum bid amount.
Financing auctioned properties
Can you get a mortgage for a property bought at auction? It depends on the venue and location.
You will need to be prepared to pay in cash and then complete a cash-out refinance to get some portion of your money back out.
Some investors use private ("hard money") lenders for the upfront cash and then repay the loan with the proceeds of a sale or refinance.
In any event, if you plan on using a mortgage to finance a home, get preapproved for your home loan upfront.