| In the current real estate market, many buyers are | | | | - Myth: Banks are Desperate to Unload Foreclosures, |
| interested in foreclosures, and with good reason. In my | | | | and Will Accept Almost Any Offer What we've found |
| market area (greater Sacramento, California), | | | | in our area is that it's not so much the case that banks |
| foreclosures are often discounted by an average of | | | | will accept any offer, as that they will discount the |
| about 20% from other homes. So it's no wonder that | | | | property 20% and more up front. In other words, |
| some 60% of all residential sales in recent months | | | | usually most of the discount on a foreclosure is built |
| have been properties that the bank has foreclosed on. | | | | into the list price already. Because they often |
| Many buyers have heard different things about | | | | represent very good bargains, we found when we ran |
| foreclosures, some that are true, some that are true in | | | | statistics that the average ratio of what buyers pay to |
| other states besides California, and some that are just | | | | what the home listed for is actually higher in the case |
| plain wrong. Let's take a look at some of the common | | | | of foreclosures than in the case of non-foreclosed |
| myths and facts about foreclosures so that we can | | | | homes. This is not because the banks weren't willing to |
| better understand what we're dealing with. | | | | give a bargain, but because they listed the home as a |
| - Myth: Foreclosure Buying Is for Serious Investors | | | | bargain. |
| Only Actually this is partly true. If you're talking about | | | | - Myth: When You Buy A Foreclosure You Pay the |
| buying a foreclosure at a trustee's sale, when the | | | | Amount Owed on the Loan Generally this is false. |
| foreclosure process is "finished" and the bank is sold at | | | | When you buy a foreclosure you pay an amount |
| a public auction, yes, this is true. California law allows | | | | agreed to by you and the bank that owns it. |
| the trustee to require any bidder to provide cash or | | | | - Fact: Foreclosures are Sold As Is This is true. As a |
| cash equivalent at a trustee sale, and there is no | | | | rule the bank will not make repairs on a foreclosure. |
| inspection period. If you're going to be buying "on the | | | | However, there are some exceptions to this rule. If you |
| courthouse steps", you'd better know what you're | | | | present a strong offer, the bank will sometimes pay |
| doing. What this myth doesn't tell you is that many | | | | for repairs that may be required. Lender required |
| foreclosed homes are never sold at the trustee sale, | | | | repairs are often common on when homes are |
| so they're "bought back" by the bank. These homes | | | | financed using FHA, for example. Generally, you still |
| make up the bulk of the foreclosures that | | | | have inspection period on an as is sale. You still have |
| Realtors® sell, and are called REOs ("Real Estate | | | | the right to do your inspections, and we strongly |
| Owned", i.e., by the bank), foreclosures, or sometimes | | | | recommend you do. What "as is" means is that once |
| "bank repos". These homes can be financed. The big | | | | you've done your inspections, you'll decide whether to |
| differences in buying these homes and in any other | | | | move forward or cancel, and the seller generally won't |
| kind of sale are 1) The bank will generally not fix items | | | | do repairs. |
| found during the inspection period (with certain | | | | - Fact: Foreclosures Are Great Buys As we |
| exceptions) and 2) the requirements for owner | | | | mentioned above, often foreclosures are listed at 20% |
| disclosure are also relaxed somewhat, since the law | | | | (or more) of the list price of a comparable |
| assumes the bank won't know about the property first | | | | non-foreclosed home. Multiply that 20% by $300,000, |
| hand. You still have an inspection period, however, so | | | | for example, and we're talking about a savings of |
| you can find out what you're getting and cancel the | | | | $60,000! For being willing to accept a home that may |
| transaction if anything serious comes up. | | | | have minor repairs and some cosmetic fixing needed, |
| - Myth: After you Buy a Foreclosure, the Foreclosed | | | | that's not a bad way to go! No wonder 60% of the |
| Former Owner Can Cure the Debt and Get The | | | | homes selling in our area are foreclosures! |
| House Back This is true to some extent in some | | | | Note: The information in this article is provided for |
| states outside of California, where most homes are | | | | informational purposes only, and should not be relied on |
| sold using a mortgage and foreclosed using a judicial | | | | exclusively to make a buying decision. Discounts |
| foreclosure. Such foreclosures are often subject to | | | | quoted herein are averages, and all information here |
| the buyer's "right of redemption", a one year period in | | | | should be discussed with a competent real estate |
| which the buyer can get the house back. In California, | | | | professional who is familiar with your area. Buyer |
| the vast majority of homes are sold using a deed of | | | | should satisfy themselves as to any information about |
| trust, so there is no right of redemption after the | | | | the condition of their home and obtain competent |
| trustee's sale. | | | | advice and inspections as needed. |