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This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.Is there a silver lining in the horrific number of home foreclosures we read about every day?
While having a home foreclosed must be traumatic for the homeowner, does it present an opportunity for investors and potential home buyers to pick up a bargain?
The answer may depend on the nature of the sale.
The classic scenario is the auction, where a home is literally auctioned off to the highest bidder, often right on the lawn in front of the house.
The basic problem with buying a home at auction is that you have no right to inspect the home and you have to pay the full purchase price by cash or bank check on the spot. There have been situations where buyers found serious problems with homes purchased in this manner, which would have been uncovered by a competent home inspector. Also, while not common, the homeowner may refuse to vacate the house. If so, you may be confronted with delays and significant legal fees to evict him.
A safer option is to buy a home owned by the bank. If a bank owns a foreclosed home, it will permit you to inspect the home and to ensure that there are no problems with the title to the home.
A final option is to negotiate a price from a homeowner who is in default of her mortgage payments, but whose home has not yet become subject to formal foreclosure proceedings. As with bank-owned homes, you will have adequate time to have the house inspected and to confirm title.
A good rule to follow when buying residential real estate is not to buy any property that you would not live in yourself. If everything goes south, at least you will have a roof over your head.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).
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Reader Comments (Page 1 of 1)
8-10-2008 @ 4:31PM
william lindblad said...
Dan; did I miss something here? When "in foreclosure" usually means that the bank has taken subject "homeowner" to court and obtained title and the local sheriff has tossed occupant onto street, just who is left to evict? With only a few exceptions, foreclosed properties are vacant. Don't be late on payments in Ga. as they have one of the shortest to court. Two months in arrears and you are on the street. Fla. can take as long as 2 years, so it is a matter of which State the foreclosed property lies within. But I agree, if considering buying foreclosed, you need to know something about the process.
Buying from the bank is not always the best deal as in a good market they will try to get "best price" also. However, in a market as today's one might. IF you are savvy on home construction, pest inspection, area faults (soil compaction, sinkholes,flooding,etc) and general landscape architecture you can do ok. Other considerations are well/city water and septic/sewer systems. Community fees/county city assessments. General condition of property and related systems.
The first thing I look at is the roof. Even on a small home this is a 5,000 bill and a home inspection is only going to tell you that it is sound - not how long you can expect it to last.
Knowledge is everything.
8-14-2008 @ 6:11PM
sowirka said...
Dan - negotiating with a homeowner before the home goes into formal foreclosure would be a great option. How does one go about finding these homeowner? I don't believe the mortgage company provides such a list.