Wealthy Insider's Home Buyer Strategy #3:
How to get the BEST Deals on Foreclosures, using three different
We'll talk about three things here:
a.) Short sales - How to get the seller's bank to take a loss and sell the house to you, below market value.
b.) Auctions - Uncovering the dangers, pitfalls and profits to be made.
c.) REO Sales - How to buy a house directly from the bank at below market value.
First let me say, this could be an entire book in itself - just foreclosures. So I'm going to explain three different types of foreclosures and the benefits and downfalls to each of them as briefly as possible.
But please understand if you want to get into this, you really need to get more education on it.
Three different types of foreclosures ...
The short sale: This is when the seller of the property still lives in the home. They can't make the payments on their mortgage. But the market's down, and they can only sell it for less than their total outstanding mortgage amount.
This is otherwise known in the Real Estate Industry as being 'upside down in your house'.
The lender will allow the owner to attempt to sell the house for a period of time, while they are not making the mortgage payments. Then at the final escrow closing, the lender will take the loss on the difference between the lower sale price and the remaining higher balance that is left on the seller's mortgage.
For example the seller's lender would take a 'short sale payoff' of only $210,000.00 on an existing $250,000.00 loan balance. The problem is getting the lender to agree to that, and that's another whole, long, drawn-out issue. It takes some shrewd dealing.
Only about 25% of homes that are actually in the 'short sale' category are sold in a short sale. Many of them end up going to foreclosure because the bank doesn't agree to take that big of a hit.
Many banks don't want to take that kind of a loss, or they want to try to sell it on their own. They will usually take the loss, after they sell it on their own anyway, but sometimes banks need to find that out for themselves.
Foreclosure auction: This is when the bank is actually taking the house back from the seller. This is probably the most dangerous time to buy a house because you haven't been able to get into the house to see it or inspect it.
The seller was in there the whole time and they have been fighting to keep the house. They have not been actively trying to sell it. So if you show up at the auction to buy the house, you don't know its condition and a lot of other things are unknown as well.
There could be a lot of junior liens or problems with the title to the property. And in a public foreclosure auction sale, you will need to buy, with all cash at the foreclosure auction -- or you'll have to have your cash available within as little as a week.
So you really need to be prepared and know what you're doing, or stay away from it altogether. Foreclosure Auctions can offer some good opportunities, but the profits from those 'good opportunities' can be wiped out very quickly, if you don't know what you're getting into.
There could be big problems inside the house, or even bigger problems with the title or with land or zoning and/or building compliance issues. Extreme caution is advised in these situations.
There are professionals, who buy foreclosures from auctions for a living, and they are the ones you'll be competing with. If you find those people not buying the house at the auction or you're outbidding them, there's something you don't know. So be very careful in these situations.
The REO sale: This stands for ' Real Estate Owned.' These are bank-owned properties. This happens after the bank's already foreclosed on the property.
In this scenario, the foreclosure auction occurred, and nobody bought the house, or at least the bank wasn't willing to sell it for the low bids offered. So the bank went ahead and took it back themselves.
The bank will put the house on the market with a real estate agent. They'll put it on the market for a below-market price, in order to sell it quickly. Sometimes they'll fix the house up a bit, but quite often they won't.
The REO sale is probably the safest time to buy a foreclosure because it's already gone through foreclosure. It's already gone through the auction process. All the junior liens and most of the outstanding issues have been cleared up by the bank. They can now give the buyer clear title to the property when they buy it.
There won't be any problems on the title or issues with it, and the buyer will be able to get title insurance to protect their interest. The new buyer will also have an opportunity to go through the property, with a professional home inspector, to see if there are any major defects before they buy the property.
This is my favorite way to buy a distressed property because all the problems have been cleared up, and the bank is going to take the loss on the price; not the new buyer. Plus, I get to perform a thorough inspection of the property before I determine if I'll buy it.
You need someone to guide you, with this strategy, as well as all the others, if you want to take advantage of literally tens of thousands in savings over the life of your homeownership.
To conclude ...
As you can see, with just this one strategy alone, you'll be able to save an incredible amount of money on your home purchase ... but extreme caution is advised with this one!
Be sure to check your email often, because in a few days, you'll get your fourth 'inside real estate' secret.
In it, I'll be talking about how to get the BEST interest rate on your mortgage.
And you'll learn how to improve your credit score in 30 days to lower your interest rate, with 'rapid rescore' -- and save $100-$300/month on your monthly mortgage payments.
And I'll also talk about how to shop for loans. Who has the best interest rates ... mortgage banks or mortgage brokers? The answer may surprise you!
It'll be jam-packed, also, so be sure to watch for it!
Find the Best Deals and Save $25,000 - $50,000 on Your Northern Virginia Home Purchase. Get My Free Homebuyer Savings CD to find out How to use the "Insider Techniques" to get Huge Home Purchase Savings.
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Until next time,
Thierry Roche SFR, CDPE
Host of Talk Radio's,
'Inside Real Estate'