HOW TO GET A GOOD DEAL ON A FORECLOSURE

Learning to maneuver the maze of options for buying property before, during and after foreclosure can help make the difference in whether a buyer invests in a discount or a money pit. The look of the home on paper or from the curb can be deceiving. It does not mean that all foreclosed homes are in bad shape, many foreclosed have been brand new by builders or barely lived in homes that owners just purchased a few years ago but defaulted due to having a sub-prime loan, but still, there are risks involved. Home buyers who venture into the wild world of foreclosure sales won't be snapping up luxury homes for $100, like some advertisements may suggest.

But patient buyers might see a 5 percent to 35 percent discount, according to those who watch the foreclosure market.

Here are types and ways to purchase a home in or near foreclosure and tips for managing each:

Type 1...
Foreclosure auction for delinquent mortgage: These homes are purchased on the county courthouse steps (check with your local county on the auction dates and location)

How to buy a delinquent mortgage foreclosed home: This is the type of sale everyone thinks of when they hear of a foreclosure sale. The buyer waits for the trustee, usually a lawyer representing the bank, to arrive. The trustee reads the legal description and then asks for bids. It's not organized, it's often hard to hear and frequently several trustees are auctioning their properties at the same time. The winner pays cash, usually by cashier's check, for the entire amount bid immediately after the sale. Many are sold before the auction ever takes place and many are also bought back by the bank because there are no bids and assigned to an agent and placed on the real estate market.

Advantages: The average price of a home bought in Tarrant County by this method is 68cents on the dollar. Nongovernment liens, such as a second mortgage, fall off the property through foreclosure, lowering the number of debts that need to be made good after the sale.

Risks: Buyers usually can't go inside to inspect the house before the sale. There could be expenses associated with evicting the former homeowner. Some homes can be weighed down by government liens, such as income taxes owed. Novices should find someone to show them how the process works and attend at least a couple of auctions without bidding. "There are a lot of people who go to the auction and really get burned," said Roddy, whose company offers classes on how to buy foreclosures.

How to find properties: All properties are posted in the deed record office of the County Courthouse. Some companies sell lists of properties for sale.

Type 2...
'Constable Sale' (or Sheriff's Sale)

What it is: A delinquent tax sale

Where to buy it: On the county courthouse steps (see your local county for info)
How to buy it: In most counties, a constable's office sells the properties under a tent; buyers must bring a bidder authorization form from the county tax assessor's office.

Advantages: The sale goes to the highest bidder who can pay the property taxes, so it's possible to buy a home for, say, $5,000. If the homeowner wants to get the house back later by repaying the taxes, they must pay the person who bought the house the tax amount plus 25 percent interest for the first year and 50 percent interest in the second year. The tax sale wipes out all debts that come with the property, except government liens.

Risks: The homeowner has the right to buy back homesteaded property for up to two years after the sale (it's six months for nonhomesteaded property). The property must be purchased by cash, cashier's check or money order immediately at the end of the sale.

Type 3...
'Writs of execution' or 'abstract judgment' sale

What it is: Part of the sheriff's sale; the home is considered an asset that the court orders sold to repay debt

Where to buy it: On the county courthouse steps (see your county for info)

How to buy it: In most counties, a constable's office sells the properties under a tent along with properties sold for delinquent taxes

Advantages: Unlike a sale for property taxes, the original homeowner has no right of redemption

Risks: Unlike a foreclosure sale, no liens are wiped off the property when ownership is transferred; the property must be purchased by cash, cashier's check or money order immediately at the end of the sale

Type 4...
Short sale

What it is: Making a deal with a lender to buy a home that will probably be posted for foreclosure.

How to buy it: A buyer agent contacts the home's listing agent and makes an offer. A lender can usually take anywhere from a week to 30 days to respond to the offer.

Advantages: Few or none of the expenses that come with the foreclosure process are incurred by the buyer. "The house is usually better taken care of because the owners still reside in the home and did plan on moving. The lender may take a discounted price to cut its losses with the current homeowner who can't make payments. "If the homeowner owes $200,000 and the fair market value is $150,000, the bank is already looking at losing $50,000," Parmelly said. "If the buyer comes in at $130,000, it's possible the bank may consider that offer."

Risks: The transaction sometimes has to move quickly, especially if the home has been posted for foreclosure. A home has about 21 days between the time it is posted and the auction, and a good agent can get a deal going in time to stop the auction, Parmelly said. The buyer should be prepared to buy as-is and bring several thousand dollars to the closing table.

How to find properties: Contact your realtor to locate these properteis.

Type 5...
Foreclosure sale/REO properties

What it is: Sale of real-estate owned properties

How to buy it: The buyer's agent negotiates directly with a lender that owns a foreclosed house (most of these homes are assigned to a listing agent who's job is to only submits all ffers to the bank.)

Advantages: Often, the initial asking price is about 5 percent below market value, After 30 days on the market, they usually get reduced again; sometimes they refurbish the properties. This is usually the best way for an investor or home buyer looking to score a good deal because the title is clear and the lender doesn't have any emotional attachment to setting the price.

Risks: There are deadlines particular to this type of purchase; work with an agent (such as myself) experienced in buying REO properties.


Type 6...
Foreclosure government-owned properties

Type of purchase: Sales from such government entities as the Department of Housing and Urban Development

How to buy it: The prospective buyer must contact the listing agent, who will enter an electronic bid with the agency. Only a HUD-approved agent (such as myself) can enter a bid. Most sell in 10 days; the prospective buyer has 10 days to inspect the house.

Advantages: The typical starting price for a HUD-owned home is 15 percent below market value. Only people who are planning to live in the home can bid on it for the first 10 days.

Risks: The deals go fast, so it's important to move quickly and stay flexible. It's rare for a HUD home to be for sale for more than 30 days. A missed deadline or problems with financing can kill a deal or allow another buyer to step in.


Tips for buying a foreclosure

The average person can buy a home from a financially distressed homeowner, but there are many ways to do it, and varying degrees of risk. For the best results:

Do your research. Are there liens against the property? Is the homeowner still living there? Are there obvious maintenance issues?

Be flexible. It's hard to know when opportunities will knock; on the other hand, buyers have to be ready to walk away from a deal that isn't right.

Work with an agent experienced (such as myself) in dealing with these types of homes. They know their way around these specialized deals, which can be tricky.

(partial report courtesy of A. Jares)

To find a list of short sales, foreclosures and HUD homes, contact me at luna@greatdfw.com