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Buying a Foreclosure



HOW TO BUY FORECLOSED HOMES AND CONDOS IN BALDWIN COUNTY ALABAMA

CAN I GET A GOOD DEAL BUYING A FORECLOSURE?

Yes, no and maybe. Just remember, the lower the home''s asking price, the more work it will most likely need.  Most homes priced below others in an area are going to need some work to make them livable. If the price seems like a steal of a deal, look into the condition of the home further.  We''ve had a number of hurricanes a few years back that may have caused roof damage that has gone unrepaired leading to potential health problems such as molds and other health dangers. There are many of these homes on the market as foreclosures now. 

Alabama is a Buyer Beware State, so you''ll want to carefully look over any home and hire a professional inspector.  I was in a foreclosed home recently that had mushrooms growing out of the corner of the ceiling. It is not uncommon to see appliances missing, carpet ruined from pet urine, terrible animal smells in the home, flea infestations, stained ceilings and discolored growths from unknown moisture. I''ve seen shoe-sized holes in sheetrock, broken windows and missing light fixtures. Remember that if there was money to do home maintenance, the mortgage itself probably would have been paid and the home would not have been foreclosed on.

HOW MUCH OF A DISCOUNT ARE THE REO (Real Estate Owned) BANKS SELLING HOMES FOR?

Even in the current, slow real estate market, the banks are not discounting homes tremendously, as some late night infomercials would have you believe. I work in this business full time and I see what banks are selling these homes for.  I track not only my sales, but the sales prices of all homes sold by foreclosure banks. At best, you may be able to purchase a home at 5%-15% lower than the surrounding homes for sale in a neighborhood, and still need to do some updating or repairs on the property. Typically, you may estimate a bank owned property will sell for 95% of current list price. If you are asking the bank to put your closing costs in with what they will pay as seller costs, you may be looking at paying 100% of list price or more.

 

I HAVE A HOUSE TO SELL FIRST, WILL THE REO BANK ACCEPT A CONTINGENCY OF ME SELLING MY HOME TO PURCHASE A FORECLOSED HOME?

No

 

HOW SAFE IS THE NEIGHBORHOOD?

As far as safety of neighborhoods, you''ll need to contact local police departments with addresses you have in mind to inquire about how quiet/safe a neighborhood is. Real estate agents are bound by federal laws and can be sued for steering buyers into or out of neighborhoods by discussing these issues. We sell houses, not the neighbors that come with them and are bound by federal laws not to discuss them.  www.ZipSkinny.com is an informational website many homebuyers find useful.


WHAT ABOUT THE AREA SCHOOLS?

School information can be found at www.GreatSchools.net

 

ARE THERE OTHER PHOTOS I CAN SEE?

The majority of these bank owned properties only post a front photo and no inside views.  Why are so few photos posted in some cases? A simple matter that the listing company knows that these properties will sell based on price alone, and marketing attempts are rare.  Listing agents are working for the seller, not the buyer who wants to see more photos. 

      Will your company provide more photos for me since I am located out of state?  It is my business practice to charge an upfront fee to travel to foreclosed or regular listings to photograph additional views for customers.  I receive many, many requests to provide photographs and cannot provide this as a free service due to time constraints and my work with numerous customers at a time.


DO FORECLOSED HOMES HAVE INSPECTION REPORTS I CAN SEE?

No. At times, there may be a note in the MLS if the bank knows of specific, obvious problems, such as missing plumbing, known mold, or other problems. If problems are not stated, expect to find some anyway. Just my observation.  One exception to the inspection report is with a HUD foreclosure (US Department of Housing and Urban Development). These usually have a basic report on the home''s condition noted at the time of listing.  HUD foreclosures are not plentiful in our area.  It is suggested that you conduct and pay for your own professional property inspection on any home you purchase, foreclosure or not.

 

I WANT TO LOOK AT SEVERAL HOMES I''VE SEEN ON YOUR WEBSITE

What buyers are doing is driving around to view the areas around homes of interest and narrowing down which homes hold the most interest by what''s important to them personally. I tell people to approach foreclosed homes expecting the worst, and hopefully be surprised with a better situation than anticipated.

Many homes on your list can be eliminated by driving to the home to check out what you may or may not like about the conditions surrounding the home.  Take note if your budget will not allow replacing a roof, paying for major exterior repairs such as rotten siding and broken windows, or replacing an AC unit, as these items are often easily seen from the outside without touring the interior of the home.  If you are not willing or financially prepared to make these exterior repairs, we do not need to make an appointment to view the interiors of these homes.

 

I AM READY TO START VIEWING HOMES WITH A REALTOR

First, you''ll need to speak with a lender about faxing me a pre-approval letter before we make an appointment to begin viewing homes. Without it, many of these homes will be going under contract with other buyers. The best deals are going to prepared buyers, because the banks will not wait for buyers just ''kicking tires'' until they find a deal and then try to get approved.  Your free pre-approval letter shows your ability to get needed financing, but is not for a particular house. There is no cost for this, and does not obligate you in any way for a loan or to the lender. All it takes is a 10 minute phone call to your lender, or to one of these Local Lenders and have them send it to my toll free fax number at 1(888)554-2661.

Foreclosure banks who hold the homes, will not accept an offer from us without this letter, period.  This is the rule of the REO banks, not mine, but it does affect how I work. For this reason, I only work with buyers who have their letter showing proof of funds if making a cash offer or their pre-approval letter if obtaining financing.

 

CAN A REALTOR EXPLAIN THE ALABAMA RIGHT OF REDEMPTION LAW TO ME?

No. Alabama laws would view our explanations as a translation of the law and the giving of legal advice. Real estate agents are not licensed to practice law or to discuss the Alabama right of redemption laws, therefore, questions must be directed to an attorney for further explanation if required.  Again, we are licensed to transact the sale of property, but not to answer legal questions.  You will need to consult with an attorney for any advice you may want before purchasing foreclosed property. 

 

I can provide you with a source for information.  Be aware:  "Alabama has a statutory right of redemption period, which would allow a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs within twelve (12) months after the foreclosure." (as taken from the Foreclosure.com  website) Exact dates for redemption periods will vary on each property and are not usually listed in the MLS. If this issue is of concern to you, you will want to contact an attorney or possibly omit foreclosed properties from your home search.

 

I FOUND A HOUSE I WANT TO MAKE AN OFFER ON

You will need to speak with an insurance agent to get a price quote for the address you have interest in. This one issue has prevented many buyers from purchasing a home along our coastal area. Once you have your quote, we can sit down and write up a formal written offer to send to the bank''s agent.  My office requires me to have this quote to fill out your paperwork on your estimated closing costs. The REO bank will not accept or acknowledge verbal offers.  We will need your letter that has been sent to me from your bank, and a personal check that may later be required to be converted to a certified check if the offer is accepted and will show your earnest intent to purchase.

We will discuss the timeframe that you are willing to stay in this deal until you hear word of acceptance or a counteroffer from the bank.  Different from other transactions, we cannot require these REO banks to respond to our offer within a certain timeframe. They have the control, not us.  What you can do is limit your time that you are willing to consider a response from them and you are then free to walk away from the deal and pursue something else, if they have not responded by that date.  Normally, we are hearing from the REO banks within 2-4 days.

Typically, I see the bank counter a buyer''s offer.  You would then be free to turn them down and walk away, hold firm on your offer price, or increase your offer for the home.  At times, and this has been often lately, the bank''s agent will notify us if you are in a multiple offer situation.  This means that there are other buyers who have made offers to purchase the property and all the buyers involved will be given one last notice to make their highest and best offer for the home.  The bank will look at all of these at once, and then make their choice of which one buyer to proceed with.  They will then begin to further negotiate with that one buyer to see if a deal can be reached.

If you and the bank don''t reach an agreement, your earnest money is returned to you.

 

MY OFFER WAS ACCEPTED, NOW WHAT?

We will immediately have more paperwork to fill out from the REO bank that will be due back to them in about 3 days. You will usually be given 10 days to inspect the home to determine if you want to proceed to closing on this property.  The clock will be ticking and we must respond in writing within this time to notify the bank if you are indeed going through with this purchase. 

On day one, you will need to contact a professional home inspector of your choosing to inspect the home in the next couple of days and advise you of its condition. He or she will want to be paid at the time of your inspection. A home inspection is not mandatory, but strongly advised. You want to set up your inspection in the first couple of days after acceptance, in case there are any needed repairs that you will want to get estimates for.  This will help you decide whether to buy the home or not, and you don''t want to run out of time to get quotes.  Your bank''s appraisal is not a home inspection, and is not ordered until after your 10 day inspection time is over.

Once you accept the home within this 10 day inspection period, if you later back out, you will most likely forfeit your earnest money paid up front.  The 10 day period is your legal time to research everything you want or need to know about the property including flood zones, flood insurance requirements, any former incidents of crime, deaths, etc on the property, anything and everything important to you.  With a foreclosure, there is no former owner to ask questions of about the property.  You will need to satisfy your questions about the home by conducting your own research or hiring professionals.  Adjoining neighbors make great sources of information and the majority of my buyers seek them out before making an offer.

 

WE LIKE THE HOUSE AND WANT IT

Congratulations!  Behind the scenes work will be done on your behalf by no less than about a dozen or so people, including me, as your real estate agent.  This is where the REAL work to assist you with your purchase begins, and where most buyers don''t witness the activity. Phone calls, faxes, emails and research will be conducted daily on your behalf to handle the hundreds of details to get you in the property.  The actual closing for the foreclosure will be held at the REO bank''s choice of a title company.  This title company or attorney works for the REO bank and not the buyer, so if you have questions of a legal nature, please contact an attorney of your choosing.

This phase of your purchase generally takes about four weeks to complete, unless you are paying cash.  Cash buyers can generally close and own the property within a couple of weeks.

The REO banks all have a penalty that buyers must pay if you go past the close by date on your contract.  This penalty can get expensive and is normally a $100 per DAY or more charge if you or your lender delays your closing by not being ready with paperwork on time.  REO sellers require that they have all documents 48 hours before your actual closing, so work needs to be completed for you in a timely manner. This is why I insist on speaking with your lender before we even write an offer for you. 

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