Buying Real Estate Foreclosures
In recent years the demand for bargain priced real estate in Destin has greatly increased. It is currently a “Buyer's Market” although inventories are diminishing and prices are beginning to rise again. There is still an opportunity to get a great value, even for listings that are not “distressed” however some buyers look to get a bargain deal by purchasing foreclosed real estate properties. These kinds of purchases can be an outstanding buy. However, there are some pitfalls that can be involved so buyers should be extra careful as they proceed.
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What is a Short Sale?A bank usually initiates foreclosure proceedings three to six months after payments are no longer made. Prior to this time warnings are communicated and sometimes lenders will agree to a “Short Sale” letting the seller accept an offer for less than what is owed but requiring contract acceptance by the bank's Board of Directors. These proceedings can be lengthy and sometimes require multiple negotiations of the contract, first with the seller and then with the bank. Six to twelve months may pass by before the property finally closes although the time period on these types of transactions has been lessened with some lenders in most recent years. When a bank forecloses on a property, they own it out right so negotiations are more streamlined. You are not negotiating with the owner first and then the lender afterward who must sign off on the contract approving the sale. Banks will often sell properties for much less than the proper value because they do not like to tie up their money with surplus real estate since it affects their balance sheets adversely, often limiting their amount of monetary reserves for more lucrative commerce.
What to look for when considering a ForeclosureIf you are considering making an offer on a foreclosed property, here are a few things you need to be aware of in order to protect your investment or personal real estate purchase. The most important consideration is the physical condition of the property. If the previous owners were having difficulty making mortgage payments you can bet that they probably had limited ability or desire to maintain the home properly. Both routine types of maintenance and often more serious physical problems may not have been addressed. If the house is empty, the condition of the structure can deteriorate rather rapidly. This is especially true if utilities have been disconnected since mold and fungus grow rapidly in warm climates, especially during the summer. There may also be roof or plumbing leaks, broken windows or damage from storms. If the property has been recently occupied, it may be stripped of appliances, light fixtures, window treatments and even copper tubing that you thought was still there prior to closing. Your contract should require a Building Inspection contingency clause in order to have a reputable inspector thoroughly inspect the property so you get a good idea of what needed improvements will cost you. It should also allow you to cancel the contract if the results of the Building Inspection are unacceptable. You should also make an inspection of the property just prior to closing if it has been recently occupied or is accessible to outside parties. Another important consideration is the neighborhood itself. You should have a Realtor provide you with a Comparative Market Analysis of the property and its value compared to other properties in the same area. If the neighborhood is glutted with foreclosures or abandoned homes it may take years for values to return to normal. Although it is usually the exception rather than the rule, sometimes whole neighborhoods may fall into ruin and never recover. You should make sure that the neighborhood itself is generally healthy and will be sought after by others in the future. The final consideration you should make is protection against possible existing liens on the property. These may include liens by subcontractors, building suppliers or others who did work on the property but were never paid. It may also include liens like past due Homeowner Association dues if they were not paid by the previous owner. Your offer must stipulate that such liens will be paid by the seller which in this case would be the bank. Your contract offer should also opt for Title Insurance to make sure that all such liens are properly researched in advance and paid from the seller's proceeds at closing.
Foreclosures can be a great deal if you are cautious, diligent and make sure that the above mentioned considerations are covered. Our reputable Destin Realtors here at Ocean Reef may assist you with this kind of purchase and you would be wise to seek our representation with foreclosed properties.