Information on Lincoln, NE Real Estate.

How to Buy Foreclosures

Financing

  1. Cash offers are looked at more favorably, so try to do cash if at all possible. You’ll need to provide documentation from your bank (or wherever you keep your funds) proving you have the money.
  2. If you can’t do cash, be prepared to do renovation financing. Reno financing is very detailed and very involved, and requires you to provide a lot of documentation, as well as detailed estimates on the repairs you’re prepared to do.
  3. Renovation loan underwriting will want to know that you have the necessary skills to do the fix-up work. If you’re not skilled, or can’t prove that you know what you’re doing, you’ll need to have a contractor prepare written bids for the work you plan to do.

Planning

  1. For HUD and VA foreclosures, buyers need to do any inspections BEFORE submitting the offer. Once the offer has been submitted and accepted, you’re buying it as-is, warts and all. Utilities will likely be turned off, and seller will not let buyer turn them on until after closing.
  2. Seller (HUD, VA, Fannie Mae, Freddie Mac, banks) will not make any repairs. Understand that you’re buying the house as-is. Always a good reason to do inspections, so you know what you’re getting into!
  3. Best time of year to negotiate a good buy is around Thanksgiving and Christmas. If your offer promises to close before the end of the year, the seller can get a non-performing asset off their books and they can make their year-end numbers look better.
  4. Buying a foreclosure property is unlike a traditional transaction. Expect delays, requests for information, and for the seller to be non-responsive. When they ask for information, do your best to provide it quickly and accurately.
  5. Seller will often dictate the title company to issue title insurance and handle the closing. Buyers often have the choice of title company in a traditional transaction, but not in a foreclosure deal. Seller will sometimes offer to pay the entire cost of title insurance and the escrow closing fee if the buyer agrees to let the seller choose the title company.
  6. If you’re considering buying a foreclosure or bank-owned property, make sure your agent has experience in that area. The agent’s counsel and advice will be invaluable as you navigate the buying process.
  7. Don’t bother to impose a response deadline on the seller when writing your offer. The seller’s representative (called an asset manager) will respond when s/he feels like it. Sometimes it’ll be later in the day, often it’ll be the next day or later in the week. If you’ve submitted a lowball offer, they might not respond at all, and if they do respond, they might counter at full price.

Expectations

  1. Seller is not motivated to sell the property for 50% off, especially when the property has been on the market for only a week. The bank often doesn’t know the true condition of the property, and even if they do, they don’t care. The asset manager making the decision on your offer is trying to get as much money for the seller as s/he can.
  2. If you’re an investor, be aware of the FHA 90-day flipping rule, which says you cannot re-sell the property to an FHA buyer within 90 days of your acquiring the property. That rule has been waived, but many underwriters can and may choose to enforce the rule. (Underwriters make their own rules because they answer to the investors who will ultimately buy the loan. Those investors call the shots, no matter what the buyer’s lender may have told you.)
  3. The longer a property sits on the market, the more likely you’ll be able to negotiate a better price. Every seller is different, so motivation will vary. Remember that the seller likely has many other properties available in our market and other cities, and is simply looking at numbers on a computer screen (often several states away). They’re still trying to minimize the seller’s loss, but some asset managers do recognize that each day the property is unsold is costing the seller more money. (Not all asset managers appear to understand this concept, which can be frustrating!)

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