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Started By
Message
Buying a house in pre-foreclosure & short sales
Posted on 7/12/16 at 2:23 pm
Posted on 7/12/16 at 2:23 pm
The wife and I are discussing making an escape from the city and she raised the possibility of buying a house via short sale or in pre-foreclosure. As I understand it, I would essentially be bailing out the original owners mortgage in return for getting the property. It also seems like we could save a boatload of money by taking the role of property vulture.
What's the MT opinion on this? Good idea? Bad idea? Difficult to do? Any experiences would be appreciated.
Thanks
.
What's the MT opinion on this? Good idea? Bad idea? Difficult to do? Any experiences would be appreciated.
Thanks
.
4
Posted on 7/12/16 at 2:31 pm to NYNolaguy1
A short sale means the mortgage company accepts less than the current balance on the mortgage when the house is sold. The bank has to agree to it, though. Thus, it can take a long time and have a lot of negotiation.
Posted on 7/12/16 at 2:40 pm to LSUFanHouston
Be careful, pre-sheriff's sale there may be liens, etc. on the house. I you get it after the sale, usually will only have a local municipality lien. Hard to borrow, best to pay cash and accept possible title issues or have atty perform title search. Probably can't get title insurance either.
Posted on 7/12/16 at 3:06 pm to tiger94gop
Would a title search be able to show all liens on the house?
Posted on 7/12/16 at 3:08 pm to NYNolaguy1
Yes
Posted on 7/12/16 at 8:30 pm to ELVIS U
I attempted to buy a house pre-sheriff's saw and had title work done on the property. I knew about the $1MM SBA 2nd on it before the sheriff's office. Money well spent (I actually didn't pay for the title work...but it would have been)
I ended up letting the house go through the process to clear title and took my chances buying from FNMA and I ended up getting it.
I couldn't afford the risk at the time so if you can't either then pay for the title work prior to any pre-sheriff sale purchase.
I ended up letting the house go through the process to clear title and took my chances buying from FNMA and I ended up getting it.
I couldn't afford the risk at the time so if you can't either then pay for the title work prior to any pre-sheriff sale purchase.
This post was edited on 7/12/16 at 8:31 pm
Posted on 7/13/16 at 7:39 am to NYNolaguy1
We bought a house in foreclosure. The bank already owned it and title had already been cleared by them, so that wasn't a worry.
The biggest negative we had is you're moving into a house that hasn't been prepared for market. Old paint on the walls, house just in general disrepair. Not so much neglected, but not gone through and thoroughly cleaned and prepped for market. It took us a few weeks just to get the house ready to move in. Paint the walls, new carpet in a couple of rooms, change out some light fixtures, etc. Obviously each house is different, so that may not be an issue with every one you see.
Another thing to keep in mind is the right of redemption of the previous owner. I forget the specific rules, but I think the previous owner had something like 2 years to buy back the house, but the chances of it are very small. Each state has different laws on that, but here(Alabama) the previous owner would have been on the hook for more than just the house. Our closing costs, the entire balance of his/her foreclosed mortgage, attorney's fees, etc.
Not sure the normal closing process. We had a family friend that was on the board of the bank that had the home we bought. We had to go through a couple of additional hoops for them to not get in any trouble with regulators, but the closing process was pretty painless otherwise. I've heard some horror stories though, especially on short sales. I've heard banks HATE short sales and intentionally make the process difficult. Not sure how true that is though.
This was all done 15 years ago though before the housing crisis. I imagine some things have changed since then.
The biggest negative we had is you're moving into a house that hasn't been prepared for market. Old paint on the walls, house just in general disrepair. Not so much neglected, but not gone through and thoroughly cleaned and prepped for market. It took us a few weeks just to get the house ready to move in. Paint the walls, new carpet in a couple of rooms, change out some light fixtures, etc. Obviously each house is different, so that may not be an issue with every one you see.
Another thing to keep in mind is the right of redemption of the previous owner. I forget the specific rules, but I think the previous owner had something like 2 years to buy back the house, but the chances of it are very small. Each state has different laws on that, but here(Alabama) the previous owner would have been on the hook for more than just the house. Our closing costs, the entire balance of his/her foreclosed mortgage, attorney's fees, etc.
Not sure the normal closing process. We had a family friend that was on the board of the bank that had the home we bought. We had to go through a couple of additional hoops for them to not get in any trouble with regulators, but the closing process was pretty painless otherwise. I've heard some horror stories though, especially on short sales. I've heard banks HATE short sales and intentionally make the process difficult. Not sure how true that is though.
This was all done 15 years ago though before the housing crisis. I imagine some things have changed since then.
Posted on 7/13/16 at 7:56 am to NYNolaguy1
I bought my last house as a short sell. The sellers were divorcing and they were under water. Communication between the bank, wife, husband, and realtor was extremely slow. It took four months but I finally closed. Then I had to go clean all of their crap out of my house.
Posted on 7/13/16 at 8:36 am to The Spleen
How much did you save percentage wise on the property? I don't mind buying a house that's a fixer upper, my main concern would be making sure it's mostly clear on any liens it may have, and getting all of that info before the sale. A lesser concern would be finding major infrastructure problems after sale as well, which is part of the risk you buy into when you get a short sale or house in preforeclosure. On that front it may be better to get it after foreclosure so you can have it inspected.
Posted on 7/13/16 at 8:37 am to ds1tiger
quote:
I bought my last house as a short sell. The sellers were divorcing and they were under water. Communication between the bank, wife, husband, and realtor was extremely slow. It took four months but I finally closed. Then I had to go clean all of their crap out of my house.
Did you go through an agent, or did you just work with the lender and the mortgage holder?
Posted on 7/13/16 at 9:02 am to NYNolaguy1
There's basically 4 kinds of 'foreclosures' or pre foreclosures:
Bank foreclosure: easiest, no liens usually
Tax foreclosure/ sheriffs sale: usually a cash sale and often has liens
Pre-foreclosure: usually it's on it's way to foreclosure and this is being pushed by the bank/ tax office because nothing has been paid
Short sale: basically a pre foreclosure but the sellers actively are trying to get rid of it
Bank foreclosures are basically like buying on the MLS through a realtor same as a normal house usually. The other 3 can get much more complicated.
Bank foreclosure: easiest, no liens usually
Tax foreclosure/ sheriffs sale: usually a cash sale and often has liens
Pre-foreclosure: usually it's on it's way to foreclosure and this is being pushed by the bank/ tax office because nothing has been paid
Short sale: basically a pre foreclosure but the sellers actively are trying to get rid of it
Bank foreclosures are basically like buying on the MLS through a realtor same as a normal house usually. The other 3 can get much more complicated.
Posted on 7/13/16 at 9:06 am to NYNolaguy1
quote:
How much did you save percentage wise on the property?
Price to market value we closed at around 18%. With our down payment we had equity of about 25%. We could have gotten closer to 30%, but kept some cash for those repairs and updates.
Our biggest mistake was not getting an inspection. It was my first time buying a home and I was a bit clueless. We relied on the advice of our family friend that was on the board of the bank who told us the house had been inspected. I assumed that to mean an actual inspection, when it was just a check through by a contractor whose wife worked at said bank. It turned out there were no major concerns, other than the upstairs a/c being on its last legs, but no structural concerns.
Posted on 7/13/16 at 9:22 am to The Spleen
Some good info in this thread. Thanks all .
.
Posted on 7/13/16 at 9:39 am to NYNolaguy1
We're looking at a foreclosed property that has an interesting story.
Owners get foreclosed on in like 2012. The bank owns the house. The owners sue the bank. They remain in the house. The case is still in court, they keep losing. One more appeal is state Supreme Court. We figure since we're knowledgeable about all this and are in no hurry, we may still take advantage of it. However, if you were looking back in 2012 as a buyer, you'd still be waiting.
Owners get foreclosed on in like 2012. The bank owns the house. The owners sue the bank. They remain in the house. The case is still in court, they keep losing. One more appeal is state Supreme Court. We figure since we're knowledgeable about all this and are in no hurry, we may still take advantage of it. However, if you were looking back in 2012 as a buyer, you'd still be waiting.
Posted on 7/13/16 at 9:47 am to Teddy Ruxpin
quote:
However, if you were looking back in 2012 as a buyer, you'd still be waiting.
At this point I imagine the bank desperately wants to get the property out of their possession, correct? Is it typical for a situation like that for a bank to just put a rock bottom price out just to get it off the books?
This post was edited on 7/13/16 at 9:48 am
Posted on 7/13/16 at 9:52 am to The Spleen
quote:
I've heard banks HATE short sales and intentionally make the process difficult. Not sure how true that is though.
I was told by a banker once that it has to do with mortgage insurance. If the property is foreclosed, the insurance will pay out on a large chunk of the difference between FMV and the mortgage balance. In many cases, they won't pay out on a short sale (although FHA does, I believe).
So it's a net decision for the bank. If they feel they will get more money being reimbursed partially by the insurance, despite having holding costs of the house, they will do that.
Posted on 7/13/16 at 9:58 am to LSUFanHouston
quote:
although FHA does, I believe).
That's a good thing to keep in mind. Uncle Sam is basically subsidizing the potential loss between FMV and short sale.
Posted on 7/13/16 at 10:04 am to NYNolaguy1
I worked with the listing agent, bank, sellers, and my lender.
Posted on 7/13/16 at 10:04 am to NYNolaguy1
quote:
At this point I imagine the bank desperately wants to get the property out of their possession, correct? Is it typical for a situation like that for a bank to just put a rock bottom price out just to get it off the books?
I have no idea but I'll let you know! That's what we're hoping for. This court decides in the next month or so, then we have to see if they appeal, which will drag it out for some more months.
The key point being just watch out for this sort of thing.
Posted on 7/13/16 at 10:53 am to The Spleen
quote:
We had a family friend that was on the board of the bank that had the home we bought.
Threw up my regulator red flag
quote:
This was all done 15 years ago
Until I read this
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