When you buy a foreclosed home, you’re cashing in on a home someone was no longer able to pay for. Foreclosures are not difficult, they are actually quite easy if you have loan approval and can act quickly. It requires either a verification of cash on hand or a pre-approval letter, many times from the actual lender that owns the property with proof of funds for the down payment and you are ready to go. In practice the lenders are usually quick to respond but require very short time frames for inspections, loan approval and funding with a hefty penalty like $150 per day if you can’t close on time or lose your deposit. However, the potential to turn them over for a tidy profit may be there.

1. A foreclosure is a proceeding in which a financer of the home seeks to regain the property because the owner has defaulted on their payments. The first step is to find out how foreclosure works in your state. Procedures and legal requirements differ, so get a sense of how soon you can go after a home that appeals to you. Here are links to laws regarding foreclosures in California and Nevada.

2. Investigate the advantages. Since a bank or other lender wants to recover as much of its investment as quickly as possible, foreclosed homes are often unloaded at significant discounts– upwards of 30 percent or more. The best way to do this is to find a local agent experienced in foreclosures . Some sellers won’t accept offers from unrepresented buyers.

3. Before making any offers you should check your credit report and correct any defaults or outdated information. Get pre-qualified for a mortgage. Depending on the agency handling the sale, it may be required.

4. Find foreclosure listings in real estate magazines, newsletters, newspapers and Internet search engines. Call lenders for real estate owned (REO) properties lists of foreclosures. Government agencies such as Fannie Mae (fanniemae.com) and the Department of Housing and Urban Development (hud.gov) also advertise foreclosed homes for sale. Check public records for other leads. A lender deciding to foreclose must file a notice of default in the local county clerk’s office.

5. Tour the property and inspect it as closely as possible. Some foreclosures–unlike fixer-uppers–are in fairly good shape. Others may be behind in maintenance. Have your agent check nearby or comparable homes to see if the asking price for a foreclosed home is, in fact, a good deal. Check to see if the foreclosed home has any liens on it, such as unpaid property taxes. Find out who is liable for those costs.

6. Find out if there is a listing broker and make an offer.

7. Have the home inspected if the seller allows. Some sellers include this as part of the sales agreement, but the buyer still pays for it.

8. Be prepared to deal with more paperwork with a foreclosure than you would with a conventional purchase, particularly when a government agency is involved.

9. Be particularly aggressive in negotiating with a bank. They’re very keen to sell a foreclosed home fast, as it’s just sitting on their books doing nothing. HUD and other agencies often auction foreclosed homes. However, buyers are frequently unable to inspect any property before making an offer. With so little information, the higher the bid for the property, the higher the risk that you may end up with a money pit.

10. The biggest difficulty in going after a foreclosure is your competition, if the property is priced really low you will be competing with other offers and the banks weigh each offer on it’s merits. Is it all cash? Are there short time frames for inspections? Loan funding if applicable and closing? The banks goal is to get the money into their account ASAP so they can start using it again.

The caveat is to assure yourself that you don’t run into unforeseen problems with the property after you have bought it which can be tough to do with short inspection time periods. Then if there are problems with your loan and you can’t close on time you are stuck with the hefty per diem penalties on a daily accrual. To top it off since the lending guidelines have become so strict it is difficult to close a deal in less than 45 days any more and the banks want you to close in 3 weeks! Because there can be such great reward and such great risk involved, we recommend doing your homework first.

If you would like to skip these steps and incur no extra cost in your search for a foreclosure in South Lake Tahoe, the easiest way is to contact Paradise Real Estate and we will assign the real estate consultant that has the most foreclosure experience in the type of property you are seeking.

This entry was posted on Wednesday, January 27th, 2010 at 6:39 pm and is filed under Foreclosure. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.