My son and I are now participating in the Foreclosure market, and anyone desiring to invest in that market needs to know that there are differences between that market and the “NORMAL MARKET.”
First, there is money to be made if you are interested in being a landlord in the future, or to hold property for appreciation, but if you are accustomed to the usual sales and disclosure system, there are differences.
First, not all Foreclosures are good investments – there are many homes in foreclosure that have been trashed, or never maintained by the previous owners who were either angry over losing their home or simply did not have the money to maintain the home just as they did not have the money to pay their mortgage. That means that the cost of buying is higher than the price in many cases, and the new owner – the bank – does not have an obligation to disclose problems because they never lived there.
Often, it is better to buy a home in “Short Sale” because the Owner is still in residence and must disclose problems to avoid future lawsuits. Or, it might be better to buy a home that is teetering on the edge of Short Sale or Foreclosure and avoid dealing with the bank at all.
In Short Sale, you negotiate with first the Owner and then the Owner’s decision must be approved by the bank. In Foreclosure, you deal directly with the bank.
Now you might think that banks would be anxious to get a property off their hands, and they are they simply are not of a culture to move rapidly. The term “Banker’s Hours” is germane – they work 9-5, five days a week and do not care that a simple signature will permit a file to close and free Mayflower Vans that are parked in driveways from San Diego to Main. If it is the end of the day, it is the end of the day. One does not go to work in the banking industry to work overtime.
On the other hand, the bank wants everything speeded up in the sales process – the normal 17 day inspection period will be contracted, the length of time for loan approval will be shortened, the contingencies must be removed quickly – in short, the price will be low but you must jump quickly and make decisions in a much shortened amount of time.
The clue is to first determine the community location of your interest, then concentrate on the price range. Decide if you wish to deal with Owners; Owners and banks; or just banks. In a down economy, once you have the property you must face the fact that many of your renters will be the very people who lost their home in the housing bubble – they lost their home, and it may be that they lost their jobs.
In my community, we have a nice rental on a quiet street. We have interviewed more than a dozen potential renters, most seemed like very nice people and many have lost either job or home, or both. That situation will continue for some time. My son handles the property management division, and in more than a decade he has never had to evict a renter he has approved, but in this market that may require asking not just for bank accounts and job security letters, but the books of business owners! (That does not set well, but businesses are going under daily and people in businesses where it is easy to avoid using them in a down economy, like owners of carpet cleaner or window washers or housekeepers businesses, or even day care centers may not have as stable an income as they once had.)
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