Navigating Foreclosures: Great Deals at Bargain Prices

November 20, 2008 4:33 PM0 comments




While the Falls Church area has managed to escape the severity of the foreclosure crisis that plagues much of Northern Virginia today, the foreclosure market in the Greater Falls Church area still remains lucrative.foreclosure-pic.jpg

According to Ryan Davis, the Director of Real Estate Assessment for the City of Falls Church, the city has seen “fewer than 20 foreclosures this calendar year,” noting that the city lumps together in their calculations both foreclosures and short sales, or pre-foreclosed homes whose owners cannot afford mortgage payments.

To get a feel for that market in Falls Church and what prospective buyers should do to procure a foreclosed home, the News-Press spoke to realtors with the experience.

Stacy Hennessey of Long and Foster Realty and Shaun Murphy of Remax Allegiance shared their knowledge of the area market, and the how-to and don’t-do’s when it comes to purchasing a foreclosed home.

A foreclosed home is a property whose owners can no longer sustain payments of their mortgage to the lending bank. When those owners go into default, the bank repossesses the house, transferring the deed to the bank’s name and leaving the homeowners homeless.

“The owners overpaid in 2005, 2006 for these big homes, and now prices have dropped, so they were foreclosed,” says Hennessey, who represents buyers looking for homes, including many foreclosures across Fairfax County, where she says the markets are “inundated” with foreclosed homes. “I’ve seen houses in the $150,000 – 200,000 range or less. That’s a big drop from $500,000 and up.”

As far as Falls Church properties go, with the city’s fairly stable housing market, Hennessey says she has yet to see many steep price drops, noting only one house she has seen below $400,000.

For Murphy, the market is even busier, as he doubles his role as a real estate agent for buyers and as a listing agent for IndyMac Bank. “There are a lot of foreclosed homes and a lot of buyers purchasing them,” he says. “Two-thirds of the homes I’ve dealt with are bank-owned homes.”

Foreclosures may be a sign of hard times in the economy, but as Hennessey and Murphy can attest, it’s a ripe time to snatch a beautiful home at a bargain price. “Foreclosures are an awesome investment,” says Hennessey.
Both agents agree it is “the best time to buy.”

Hennessey adds that the buyers market also translates to a renters opportunity, as well. “Buy a home for a little, rent it out: that makes for a great investment,” she says.
Here are the crucial basics to finding that bargain dream home:

1. Patience is Key

Unlike its cousin, the normal house transaction, in which buyers might find and settle a home purchase within a month or two, the path to owning the deed to a foreclosed home is by comparison tangled and lengthy.

Above all, patience is key.
Hennessey cautioned, however, that while buyers should not “sit around and wait” to find the ideal home, they can only make one offer at a time. “You can’t make more than one offer, so find the house that’s perfect for you and go with it,” Hennessey says. “Hope that they respond; nag them, get your loan approved and follow the selling bank’s contingencies without adding any of your own. The less hassle, the quicker the sale.”

2. Secure financing

Prospective buyers should “make sure finances are all set up,” according to Murphy. “You don’t want to go into a deal without finances.”

“Cash is king,” Hennessey says. “The banks love cash because there’s no risk involved.”

Otherwise, the buyer should shop around the lending banks and find the rates and terms that are best for them, says Murphy. “You want to be pre-approved before you go shopping for a foreclosure.”

When banks are considering multiple offers, it becomes the bank’s decision to find “the highest and best offer,” Murphy says, pointing out that the best deal might not translate to the highest bid.

“Say there were two offers for one home: one is cash, $275,000 and ready to close, and the other is a loan, $280,000 and to be settled in a couple of months. The bank would more likely take the cash settlement.” He adds that it also depends on the sort of loan, which might delay the process even more.

He adds that another source of buyer’s vexation comes from the post-signing, when the bank may take between 5 – 10 days to approve the contract, leaving the buyer in a tight spot with their mortgage lender.

In addition to outside lenders, Murphy says that banks like Countrywide, GMAC and Wells Fargo might offer their own pre-approved loans to beat out competition with favorable interest rates. Murphy advises buyers to “explore your options early because the rates are constantly changing.”

3. Examine the deed

In addition to the regular home-buying paperwork, foreclosures involve a special tedious contract between the buyers and the bank – a bank addendum, which stipulates the bank’s conditions for purchasing the house.

“The bank addendum doesn’t protect the buyer; it protects the bank,” Murphy explains. “Since it’s not really favorable to the buyer, you want to ensure that the house under the market price is worth the risk.”

The addendum reinforces the bank’s sale of the property “as is,” meaning even with a housing inspection, the buyer will be purchasing the house without any needed repairs.

In the bank addendum, banks will often give buyers an inspection period clause, Murphy says, that allows buyers a grace period of 7 – 10 days to back out of a contract if they find the house is in poor condition or that repairs would be cost-prohibitive.
“You want to make sure it’s a good investment and that the roof is not collapsing,” Hennessey says.

4. Settlement Precautions

Before settling the contract, it’s imperative for buyers to protect themselves not only from damaged goods, but from potentially damaging liens left on a foreclosed property. Hennessey suggests that the buyer’s agent should clear only “clean titles” for consideration.

Even so, she and Murphy emphasize the need for title insurance. “It’s very important that you’re not stuck with liens on the house from previous owners,” says Murphy.

Liens might include old mortgages and loans taken out for the maintenance of the property, but were left unpaid by earlier tenants.

“You wouldn’t want to find this great deal out there, and find that there’s $300,000 still owed on it,” Hennessey says.

Besides liens, the next challenge will be to find a good settlement company, which will depend on the buyer’s agent and suggestions from the bank.

Choosing a competent, experienced buyer’s agent helps to insure against struggling with a difficult settlement company, they say.

Settling the house and approving the financing takes as long as a month or more before the house exchanges hands between the bank and the buyers.

5. Other Options

Foreclosures represent the best deals on the market, according to both Hennessey and Murphy. Home buyers may also consider “short sales” or homes where the original owners still live on the property but cannot pay back loans to the banks. But Murphy cautions that “short sales tend to be less successful” and can waste buyer’s time and effort.

Hennessey says that short sales are “often the hardest to deal with” because of owner’s emotions and refusal to set a lower price.

“The chances of getting a short sale are much smaller, take more months and might never happen,” Murphy notes, adding that the owner’s bank might even reject the offer, if they deem the offer price unfavorable.

Foreclosures remain one of the current economies greatest steals, and if economic conditions continue to deteriorate, Hennessey says, “there are going to be more great deals” for home buyers.

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