Straight Answers to 9 Common Questions about Foreclosures

Transactions involving bank foreclosures come with their own original set of difficulties, and that’s not even counting obstacles created by institutional red tape and incompetence. So it’s only natural that when Buyers are looking to purchase REO foreclosures (assets owned and  liquidated by banks), plenty of questions arise. As they should. Given that we love answering  questions, it made sense to put together a list of the 10 questions most frequently asked by home buyers and demystifying them with some straight forward, plain speak answers. So, without further ado:

Q: Where can I get a list of foreclosure properties and how much does it cost?

The Foreclosure Secret will tell you in no uncertain terms where I stand when it comes to online services pimping foreclosure lists of publicly available information. Bottom line: 99.8% of bank foreclosures are listed on the MLS by real estate agents, which means the information is available to everyone and anyone. How do you get to it? Hunt for  Houston foreclosures or search pre analyzed investment property deals.

Q: How long does it take banks to respond to an offer on a foreclosure property?

This is an answer you will hear often when dealing with banks: It Depends. Most banks will respond within 48-72 hrs but some may take as long as two weeks. Patience is definitely a virtue when dealing with this institutions. Long waiting periods stem from bank staff being slammed with a volume of properties they not accustomed to handling.

Q: Can I have an inspection once I’m under contract to purchase the foreclosed property?

Absolutely YES! In the past few years we have been involved in a few hundred transactions with bank owned property and every single one of them we’ve been granted an inspection period. The length of time varies from bank to bank but it’s usually 5-10 days, which is plenty of time to perform a thorough inspection.

Q: Do all foreclosures need a lot of repairs?

It Depends . Some properties are in move in condition, some require a facemask to access, most need some cosmetic TLC like paint, carpet and light fixture replacement, appliances. However, in most cases, the deal that you get on these properties makes up for these repairs and then some.

Q: Do I have to offer the asking price?

You are under no restrictions to offer any amount. If the question is “What would you need to offer to be the winning bid”, the answer is “It depends on the property”. If the property has been on the market forever and the bank is motivated to move it off its books, they’ll negotiate. On the other hand, if the property has 10 offers on its debut day on the market, chances are the winning bid would have to be at or over full price. Supply and Demand.

Q: Do I need a preapproval letter to make an offer on a bank owned foreclosure?

The preapproval letter is ANY Buyer’s passport into the housing market, but this is especially true when they’re purchasing foreclosures. All banks require preapproval letters attached to the offer for it to be considered valid and submitted. Best strategy is to get pre-approved for a mortgage prior to looking for a home so you know your purchasing power.

Q: How much earnest money is required on a foreclosure?

Typically banks will specify the required amount of earnest money in the listing, but in the Houston foreclosure market I’ve never seen it be less than $1000 for average priced properties (up to about $150k). Higher priced properties require higher deposits.

Q: Can I negotiate repairs or price reductions after the inspection?

Bank owned homes are sold “as-is” so any repairs needed in the home are best reflected in the original offer. But sometimes, there might be issues uncovered during the inspection that are not evident to the naked eye. i.e. A/C not working, termite issues etc. In these cases, it is perfectly fine to go back to the Bank and request the issues repaired or an allowance issued to cover the cost. In general,  banks prefer giving allowances to repairing issues but sometimes they prefer neither and simply turn down the request. At that point, the buyer can walk away from the deal or continue on.

Q: Can I purchase bank owned foreclosure using same financing as a resale home?

In most cases, foreclosures can be purchased using conventional financing terms as any other property. The only exceptions occur when the condition of the property is so poor that the lender will refuse to finance the property. However, if the property simply needs cosmetic attention: paint, carpet replacement etc, banks will not have a problem issuing a mortgage on it.

There you have it: 9 Common Questions about Foreclosures, Answered. We’d love to add to this list. Do you have any questions about buying Houston Foreclosures? Ask them in the comments and we’ll provide straight answers for you.

Photo Credit: Oberazzi