We probably hear this from people at least once a week. However, when we ask what they mean "buy a foreclosure" most people don't really know. We like to break it down as follows:
In Connecticut, when a property has more value than the outstanding mortgage and the homeowner falls behind on their payments, the lender can get a court to approve a public auction of the property. These auctions will be listed in the local paper. The risks involved in buying a property this way include: you must bring a 10% deposit to the auction, sometimes you cannot inspect the property prior to the auction, there are no inspection contingencies, there are not mortgage contingencies and you must close in as little as 30 days after the auction. Buying at auctions is often left to the professionals. Additionally, since the mortgage holders are often owed very high amounts of money on properties with very little equity, the banks or mortgage holders are often the buyer at the auctions and will resell the properties a few months later as a bank owned home.
Bank owned homes, REO, or corporate owned:
These are true "foreclosures". They have been acquired by or for the lender who held the mortgage and now they are wholly owned by the lender who foreclosed. These homes are almost exclusively now listed by a real estate broker for sale to the public, often at a price discount.
These are homes where the mortgage holder, or another entity has given notice, or is about to give notice that they may be foreclosing on the property. In some instances, homeowners will attempt to sell their home with a real estate broker to avoid a foreclosure. If they can sell it for enough money to pay off their mortgage, they can avoid a deficiency or a short sale.
A short sale occurs when the proceeds of a real estate sale fall short of the balance owed on the property. In a short sale, the bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender, sometimes (but not always) in full satisfaction of the debt.
While you will see many ads for website selling foreclosure lists, most of this information is not very too useful to the average buyer. What these websites typically track are liens or lis pendings (intent to lien). There is no simple way to tell if the liens are from a mortgage company, a contractor, the tax collector or anyone else. Additionally, the data is often outdated. Plus, how many people feel comfortable to knock on a stranger's door and ask them to sell their house because you saw on a website there was a lien?
Contact a Realtor at Pulse Realty to discuss the best way for you to purchase a foreclosure or distressed home at a discount. We are experienced helping buyers buy homes pre-foreclosure and short sales. We also have experience selling homes for mortgage companies and banks so we have gained valuable insight as to what it takes to buy foreclosure homes at a good price.