How can our family can get a foreclosure using cash without standing on the Courthouse steps?

Family Man,

It is a good thing that you have decided not to purchase a foreclosure at the courthouse steps. Buying a property at a foreclosure auction is not for the faint of heart or the uninitiated. Some of the issues are clouds on the title, condition of the property, market value, etc. In most cases you will not be able to obtain title insurance to protect your interest in the property. You will not be able to inspect the property to fully evaluate it’s condition…at least not without trespassing. Remember the property is owned by the person being foreclosed upon until the property is sold at the foreclosure auction. If they still live in the property after the foreclosure you, as the new owner of the property, will be responsible for evicting them. How would you know if you paid market value or less? Just because a lender lets a bidder pay the amount owed on it or even less is no indication that it is a good deal. Additionally there is no way to know if you will be able to win the bid on a property that has all of the amenities and other requirements that an owner occupant such as yourself will want. If you are a professional investor and are unable to acquire one house you just go on to the next.

The best way to buy a “foreclosure” is to buy it from the lender once they acquire the property at auction. These properties are called “Real Estate Owned” by lenders or REOs. After a lender forecloses on a property and all of the title problems are resolved they will list the property for sale with a real estate professional. If you buy one you will be able to get title insurance and will have an opportunity to have the property professionally inspected before you plunk down your hard earned money.

All REOs are listed with real estate agents. Lenders will not deal directly with the general public. There is too much liability for them not to use a real estate professional to represent their interests.

I advise you to get your own “buyer’s” agent that will represent you in the transaction. You will not get a better deal by going directly to the listing agent. If you buy from the listing agent the money that would have paid an agent to represent you will go into the listing agents pocket, not yours. A buyer’s agent will be able to advise you what homes in the area have sold for and how much to offer on a home. The seller’s agent is unable to give you that information due to their fiduciary relationship to the seller.

Since all of the REO properties available will be listed for sale in the multiple listing service your agent will be able to provide you with a list of all the available homes in the area and price range in which you are interested. And your search doesn’t have to be limited to REOs. What if a homeowner, not a lender, is offering a life changing deal on a better home for less money than all the available REO properties? You wouldn’t pass up a great deal purely on the fact that the house had not been foreclosed on would you?

There is one instance you might want to think twice about buying based on who is selling the property and that is if the seller is selling on a “short sale.” Here you will have a contract with a seller whose primary motivation to sell to you is that they are going to avoid foreclosure. They may not be very excited about selling since they will not be getting a lot of money for all they put into the house. They may not even want to sell. They have to sell to avoid foreclosure. Excited??? More like depressed. And who must approve the transaction…the seller’s lender…and they can change their mind at any time right up until the day of closing. There is nothing you can do if they decide they are not getting enough of the closing proceeds except for you to pay more for the house. You do not have a contract with the seller’s lender. Your purchase contract is with the seller. And this can happen after literally months of waiting for the lender’s approval of the sale. So if you decide to buy a “short sale” don’t get your hopes up and be prepared to have lots of patience. You’ll need it.

Good luck and happy house hunting!