With so many homes going to foreclosure, how do I buy one?

There are a few things to consider when buying a foreclosure:

? In most states, you buy the house at auction. You are not provided access into the house prior to the auction. You will have the address in advance and you should at least drive by. Sometimes when you drive by you will see that the house is vacant or occupied.

o In most states if the house is occupied, you will have to evict the current owners following the local laws. This means that even after you buy the house, the people who were foreclosed on could be living there. To prevent them from causing damage to the house, you may consider paying them to move out. After all, it is much easier to pay $1000 for someone to move out than to replace all the broken windows.

o If the house is vacant, try to find out if it has sit through a winter vacant. If so, you may have frozen pipe damage.

? You can usually get a listing of all the foreclosures that are going to be auctioned off at the Sheriff's office.

? It would advisable partnering with a REALTOR, or someone who understands the current market value of the home prior to making a bid on the home. This will tell you the value for the home if it were on the market today in average condition.

? You must ensure that you know the liens against the property. (A lien is someone who has an interest in the property, like a bank or a tax lien may also be imposed if the person has not paid their taxes.) You can find this out through the Recorder of Deeds or the county office in your area that handles property registration. All liens on property should be recorded, but you can check with your local municipality to understand the rules in your area.

o Typically liens are in this order:
1. Federal Tax

2. State Tax

3. Local Tax

4. 1st. Mortgage recorded.(this is usually the primary mortgage)

5. 2nd Mortgage recorded (this is usually a Home Equity loan).

o Usually, when the higher ranking entity forecloses the lower ranking items are cleared unless they are TAX liens. However, this is not always the case. You should verify with your local municipality to ensure. Here are a few examples.

1. The home has 10K in tax liens, 200K in first mortgage and 50 K in second mortgage. The house auctions for $205,000. The tax lien is paid off, the first mortgage receives $195,000 (loosing $5,000) and the second mortgage and any subsequent liens would receive nothing. You own the home and the title is clear. (This is an example and is not guaranteed.)

2. The home has 50K in tax liens and is foreclosed by the government for TAX Sale. The house as $250,000 in other mortgages on the property. You win the auction at $38,000. This clears the tax lien that foreclosed and usually all subordinate leans. Usually in a case like this, the first mortgage company will bid on the home to protect their interests.

? Once you win the auction, you typically have to immediately pay 10% in the form of a cashiers check. The balance is due within 30 days.

? Now I suggest that you retain an attorney and perform a thorough title search on the property, buy title insurance and have the deed prepared.

o If you title search looks positive (you did not miss any outstanding liens), then pay the other 90%.

o If the title search indicated that you GOOFED, then you will need to decide if it is in your best interest to complete the deal or loose your 10% deposit.

? Pay the 90% and record the deed (your attorney can help with this).

? Now, if the house is vacant, you need to gain access, (you won't get any keys). The house is yours. (In some states the previous owners have a period of time where they can reverse the foreclosure and pay the entire amount owed to the foreclosing entity. This is usually 30 to 90 days if it applies at all. You can still gain access to the property; you just have a higher degree of risk for that period.

? If the house is not vacant, you have to work with the local sheriff to evict the current tenants. Note my suggestion above.

As you can see, there is a great deal of risk in buying a foreclosure. It is not nearly as easy as it sounds. There are a few alternatives.

1. Work with a local realtor and buy the house through the normal channel. Banks will sometimes lower their lien (called a short sale) to avoid the cost of foreclosure and the risk with it.

2. You can sometimes contact banks and buy bank owned property. Many banks use local realtors to list their property; so again, working with a REALTOR will help in this case.

Buying a foreclosure can be extremely rewarding. However it can also be extremely costly. Please make sure that you know what you are in for, if you choose to pursue this route.

Using a Licensed REALTOR is the safest way to ensure that you are buying a house for the right value. Your sales proposal / contract, whether prepared by an attorney or REALTOR, will ensure that your property is free and clear of all liens or the closing will not occur.

For those of you looking into foreclosures, best of luck. For those of you looking to buy a house in much less risky manner, call a REALTOR and let the shopping begin.

(All information contained within should be considered informative only. Local Laws and ordinances will dictate the exact foreclosure process in your area. You should validate your local laws/ordinances as they will supercede any information contained here within.)

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