Although there is a lot of publicity surrounding the foreclosure crisis in America, there is very little real or useful information available to people who are interested in trying to purchase a foreclosed property. Radio and TV ads talk about buying a 4 bedroom house for $14,000 and so forth. Foreclosure is a lengthy and painful process for the home owner. Foreclosure laws vary by state, but this is what typically happens: The home owner falls behind on 2 or 3 payments. This causes the lender to issue a Notice of Default which is sent to the home owner and recorded at the Court House, usually in the Sheriff's office. The home owner then has a period of time - often six to eight months - to contact the lender and make some kind of arrangement to
prevent the home from being sold at the Sheriff's sale which is generally held once a month. whitney bank
Many home owners fail to do anything. They don't contact the bank. They don't contact a Realtor® about putting the house up for sale or try to negotiate a short sale. (A short sale requires lender approval because the home owner is selling the home for less than is owed - typically around 20% - and the lender must agree to the deal).
So, the home comes up for Sheriff Sale. If you have never been to your local Sheriff Sale, and you are interested in buying a foreclosure, you should attend one to see how it works.
If the home owner owes more on the house than it is currently worth, buying the home at a Sheriff Sale would not make much sense, because you would have to cover what is owed. This is a common scenario in today's market. In this case, the bank takes the home back and adds it to the bank inventory of REO or Real Estate Owned properties.
When the bank does not take back the property, it becomes available for people to bid on starting at the upset price established by the bank. However, the home owner is often still residing in the property, making it impossible to get into the property to see it. You are therefore buying the property without a proper inspection. Plus, if you are successful in obtaining the property, it will fall to you to evict the former home owner and his family. Sheriff Sales typically require that you put down 10% of the purchase price on the day of the sale either in cash or certified funds. Also bear in mind that departing home owners often do damage, sometimes a lot of damage, to the property. There is currently a bank owned property in my local MLS where the home owner took the entire kitchen with them when they left from a 3-year old executive home.
So, the bank takes over the property. The property is generally priced a little below market price. Savvy buyers, knowing it is a bank owned property, are wise to make a low offer, much lower than they are willing to pay. The bank will then negotiate. The final sales price will typically end up midway between what the bank is asking and what the buyer is offering. Also be sure to select a Realtor® who is willing to go in with a low-ball offer. You should also be prepared to not get the house if the bank is unwilling to accept your price.