With a staggering number of home foreclosures that have occurred over the past few years, another side of this story has come to the forefront – the “opportunity side” of foreclosures.
Scotty Ball is a real estate attorney with the Gainesville, Ga. law firm Stewart Melvin & Frost. He specializes in residential and commercial real estate law, and provides great insight into this economic trend and how homeowners facing foreclosure can attempt to avoid becoming another tragic statistic.
Question: While the foreclosure crisis has been painful for many homeowners, it also provides great opportunity for others, doesn’t it?
Scotty: We are experiencing one of the best buying opportunities for homes in the last 100 years. It is a pure “buyer’s market.”
There are three key economic factors have come together
Large inventory of foreclosed homes on the market;
Which has driven down prices of all homes;
And extremely low interest rates on mortgage loans.
One of the biggest beneficiaries of the foreclosure crisis is the first-time homeowner who don’t have to worry about selling a home.
Question: How do you go about finding a foreclosed home for purchase?
Scotty: The best advice is to contact a local real estate agent. They have local knowledge of the best buys and opportunities in the foreclosure market. They can save you a lot of time and prevent you from making a mistake.
There are three basic types of investing opportunities in the foreclosure market:
1) Pre-foreclosure -what is commonly known as a Short Sale. This is when a homeowner facing foreclosure is allowed by their lender to sell their home for less than it’s worth. (For example, the homeowner owes $150,000 on a house but the lender writes off part of the mortgage and allows it to be sold for $125,000 in order to move the property. A win-win for the buyer and the seller).
A warning: The buyer needs to make sure the seller has secured a “short-sale letter” of approval from the bank. Otherwise, the deal can collapse.
2) Foreclosure sale – buying at auction on the courthouse steps. You should be careful – taking this approach is like “swimming with sharks.” You must do your research, because you are purchasing a foreclosed property “as is.” You must pay cash on the spot (cashier’s check) and be responsible for any taxes or liens that exist on the home. Historically, the foreclosure sale has been an opportunity to purchase a good deal and receive instant equity as home values were on the rise. But this is not the case anymore under this recessionary economy.
3) REOs – Real Estate Owned. This is the “main game”. It is much safer territory for the inexperienced buyer because the foreclosure has already taken place and the property is now owned by the lender. The list of these bank-owner properties used to be difficult to uncover, but now most banks post the properties on their websites. Banks have incentive to lower their foreclosure inventories and sell these properties, because they are not in the business of selling homes. Most banks are represented by a realtor, and I advise purchasers to enlist the services of a local real estate agent who will be knowledgeable of the overall foreclosure market.