How to buy houses in foreclosure
By Jerry on Mar 28, 2008 in Buying Foreclosures
Question: I’m not an investor…And I’m would like to buy a home in pre-foreclosure or before they go into auction. I have good credit and good income. I’m tired of paying rent. What would be the best way for me to buy a home in forclosure?
Alex Betancourt, Naples, FL
Answer: First, if you are not an investor, we would not recommend for you to buy a home in the pre-foreclosure market. Buying a home in pre-foreclosure requires to have knowledge the laws that apply to seller’s in foreclosure, requires special negotiation skills, and some money to spend to generate the appointments from the sellers.
Knowledge of the Pre-Foreclosure Law: When you negotiate the purchase of a home from a seller in pre-foreclosure, the seller’s are considered to be in a very vulnerable position. That’s why in states like California, you are required to give every seller a 5 business day cooling off period. A lot of people ignore this law and they put themselves in great risk because, the seller, within certain time frame (depending on the Statue of Limitations) for each State, could claim they were in distressed and invalidate the contract you signed with them in the past. How would you like it if after 2 years that you purchased a home in pre-foreclosure, the seller comes back at you and tells you that you abused them and that the house you are living in it’s still theirs?
Negotiating Skills: To buy a home in pre-foreclosure, you have to be tenacious. You have to be willing to call or talk to seller who are going through some serious trouble. Some of those troubles might include: loss of job, sickness, divorce, etc Believe me when I tell you…they are not waiting for you to show up and trying to convince a seller in distress that they should meet with you because you are the answer to their problems…It could be a difficult task to accomplish. Sellers who are loosing their homes are in a state of denial. The somehow believe that things will get better and that their situation will improve by hoping that something supernatural will happen that will fix all of their dilemmas.
Money to Generate the Appointments: Here is where a lot of us have gotten deceive a couple of times by the so called “Investor Gurus” who tell you that you can buy a home in pre-foreclosure with 0% down and to just take over payments. Let me be up front with you: YES you have to spend money. The so called “Investment Gurus” will teach you that you only need to give $3,000 to a seller for the title of their home so that he could at least get some money to go out and rent an apartment (This is called: “The cash to walk out” investment strategy) Well let me tell you this….You will not only spend the $3,000. Specially if you don’t know about real estate investment. The greatest expense a company has is marketing. If you don’t know what you are doing, you could be throwing a lot of money down the drain. You could have generated 100 phone calls from 100 hot sellers but if you don’t know how to convert those seller’s into appointments and if you don’t know how to convert those appointments into contracts…Then you are waiting your time and money.
From your question, we can see that you have good credit and possibly a good down-payment. If that is your case, then buying an REO (Real Estate Owned) or REPO homes is possibly your best shot. When a house goes into auction and if nobody buys that house at the auction , then the house becomes property of the bank who financed the home to the seller. This is called an REO. Here is the good part. It is not in the best interest of the bank to keep those non-performing assets in their portfolio. At least not in today’s times that the foreclosure rate is so high and that the so called “bubble has burst.”
Your good credit and the money you have as a down will be the best factors to help you find a great mortgage loan with a great interest rate.
Also, since there is a lot of competition in the market, the banks have to compete with other properties in the market and if you pay attention, you will notice that the REO’s or REPO’s are usually the cheapest homes for sale.
Again, with your great credit and with your down-payment, we don’t see why a bank would reject an offer from you.
Good look on your home search!
Sincerely,
