|
 |
Workshops |
|
Listings |
|
Buyers |
|
Investors |
|
Services |
|
Mortgage Info |
|
Community |
|
Buying a Foreclosed Property
You will see these properties referred to as Bank Owned, Foreclosed, or REO
The process starts the same as any real estate purchase. You will search for a property that meets your criteria and the criteria of your loan. The loan criteria is very important. Many properties, however desirable, may not meet your loans requirements. In the case of Foreclosed properties that seller is probably unwilling to make any repairs or changes that do not involve safety. The good news is that many sellers are starting to realize that most buyers are FHA and they are trying to bring most of the properties to the minimum FHA standards. But in many cases the seller may simply decide to sell the property as is.
Once you have identified a property the offer, acceptance, and escrow process starts:
Initial Inspection – Walk through the property and identify all items to be repaired or replaced. Identify items of concern that need to be further inspected. Make an initial estimate of the cost to repair property to you standards.
Determine the purchase offer and terms. Write up and submit the offer along with any additional addendums, a copy of the earnest money check and a lender’s pre approval letter or proof of funds (if cash purchase).
Each seller has a different response time to offers. Some will respond in hours, some in a week or more. These times can change.
Once an offer is approved by the seller, the seller will produce a Lenders Addendum. This is the document that a lender will require the buyer to sign as a condition of offer acceptance. The document is typically 26 to 30 pages long but may be longer or shorter. Review the document carefully so that you understand all the terms and conditions. The Lenders Addendum modifies the terms of the contract. Some lenders will produce this document in hours, some in a week or more.
Please be familiar with the conditions of your loan before you submit an offer. Requirements’ vary between FHA, VA, and Conventional. Requirements can also vary depending on the Lender you are working with. If you are looking at a property that needs repairs there are loans that allow for that situation. Examples of these would be the FHA 203K and the Fannie Mae Homepath Renovation. Be aware of the conditions you have to meet, and in the case of fixup loans, the process you must follow. In some cases the seller may offer their own financing. It's worth checking out. Many times the sellers financing can reduce your costs to purchase.
Once negotiations have concluded with an accepted offer, open escrow by depositing the earnest money check into escrow. The seller usually chooses escrow and/or title. The buyer always has the right to choose their own title company and then must coordinate with Escrow.
Buyer should have any inspections done within the due diligence period outlined in the contract. In Arizona this is typically 10 days, but not always. Closely watch your timelines. If an item is found to be unacceptable to the buyer, he/she may request it be fixed by the seller, however this request may not be granted. If the buyer will not go forward without the repair and the seller will not do the repair, escrow will be cancelled. As long as due diligence timelines are complied with, the buyer’s earnest money deposit will be returned.
Once inspection conditions are accepted by the buyer or successfully negotiated, Escrow proceeds to close as directed in the contract and addendums. Please note: Most sellers incorporate a Per Diem for each day buyer or buyer’s vendors delay escrow. For example the buyer’s lender fails to produce loan docs in a timely manner and close of escrow is delayed. 1 day of delay = 1 day of per diem charge. |
