In today’s turbulent real estate market, there always seems to be a handful of agents and realtors who “insist” that buying foreclosures is a great deal and everyone should have at least 4-5 of them.
Well, to tell you the truth, some of what they say is the truth but a lot is a fabrication of the implied truth that only aims to fatten the bottom line. Many real estate agents willfully lie to get their clients to buy foreclosures so they can get a commission. The problem is that you don’t need a real estate agent to buy foreclosures! But that’s not what I’m going to be discussing here today, instead, I’m going to talk about why I should “not” buy one.
First of all, a brief explanation of what foreclosure is:
Typically, the home is purchased through a real estate agent and the normal escrow handles the broker’s issues and is the “neutral third party.” There is a buyers agent, a seller agent, and a warranty officer who handles the warranty. Once all issues are resolved (title, loans, repairs, termites, etc.), the escrow closes and the buyer takes possession of the home or apartment.
The new buyer has taken out a loan for the property and pays monthly for this loan, and if it has been fixed for 30 years, then the payments will be fixed every month. If adjustable, the payments change with the interest rate on a LIBOR basis or on a 10Yr note or equivalent.
Let’s say the buyer can’t pay by the due date, then a late notice is sent and the buyer has 10 days to bring in the current loan. If they do not, a “Notice of Default” is sent and filed at the county recorder’s office. If the buyer still does not pay then the lender forecloses on the property. They file a document with the county notifying the public of a pending sale and notifying the seller that they will lose their home. Once they are sold on county courthouse steps, someone usually buys them for back taxes or loan amount. It’s too complicated to explain here the different ways people can lose their homes, but for the sake of argument, we’re going to say that foreclosure is the only way. Now, if no one buys the house at auction, it goes back to the lender and they have what’s called a REO or Real Estate Ownership. They do not want the property, they want the money plus the interest from the loan!
Now, what does the buyer do? They are forced to leave the house against their will. Do you think they are happy with that? no, they’re not. And guess what they’re thinking? They are angry with the moneylender and don’t even realize that they were the reason they lost their home. So in order to get back at the moneylender they might think: “If I don’t get this house, nobody will” and proceed to destroy the house. I’ve seen a picture of a vacant foreclosure completely smashed. Mold on walls up to 3-4 feet, dog pee and feces everywhere. Broken walls and cabinets, missing fixtures, and the like. Still want to buy foreclosures?? It gets worse! By law, they can’t even offer a home warranty on a home, there is no termite inspection and the transaction is minimally monitored except at auction which is sold in county court. A nice-looking small foreclosure may look cute on the outside, but the inside is another matter entirely.
my advice? Buy a home through a real estate agent and move in with a standard warranty. You’ll be glad you did!
Posted by James Knoll – Realtor, USA Real Estate & Loan