Foreclosure Market and Traditional Buyers

This is in interesting subject!! I cannot tell you how many buyers and mortgage clients have approached me through the years looking for the ultimate score in the foreclosure market. This article is intended to shed light on what the term foreclosure really means. Moreover, I have included a purchase offer strategy for each foreclosure category and description.

What does foreclosure really mean to the laymen?

The word foreclosure is a broad term. Let’s break it down into 3 categories in the general sense.

1. Pre-Notice of Default:

Mortgage is behind in payments but the bank has no legal statute to begin any type of proceedings.

In order to rescue this homeowner from default you must have inside knowledge that the homeowner is behind on payments. There is no public record of this.

The Offer:

You must approach this homeowner individually with some sort of rescue strategy and mutually beneficial purchase offer. This is a very uncomfortable situation. Suffice to say, you better have thick skin, be well researched, and know the legal process to protect yourself after the sale. This is a predatory situation. Do not make a mistake with respect to disclosure or this predatory action will come back to haunt you.

2. Notice of Default (NOD):

The mortgage company has now filed legal proceedings. That fact that the mortgagee is behind in payments is now public knowledge. The mortgagee now has 90 days to bring the mortgage current or risk losing their house.

The Offer:

Now the competition kicks in as this homeowner’s situation is public knowledge. Everyone from Institutional Investors to Hard Money Lenders is approaching this client with a rescue plan. Investors willing to make all cash offers take center stage. All cash offers are quick and easy for the homeowner. They do not require long escrows periods. The purchase approach here is identical to the Pre-Notice of Default but with extreme competition.

3. Foreclosure / Bank Owned

After 90 days the property goes to auction/ trustee sale. If the home does not sell then it becomes Bank Owned.

The Offer:

Go to auction and go for it all. Foreclosure auctions are a world of their own. They require tremendous preparation and operational know how. I know very few realtors that truly know the culture of auctions, have the operational know how, and know the preparation needed to make an offer at auction. This facet is a course in and of itself. This type of agent is a specialist and in my opinion completely different from the majority of traditional Realtors. It is easy to make a brutal financial mistake if you do not know what you are doing.

If the rate of return does not pencil out and no one buys the home at auction it then becomes Bank Owned. It is then given to a local Realtor to sell in a traditional sense. The bank asks the real estate broker to research proper market value in addition to having a licensed appraiser do the same. Bank personnel (asset manager) then sets the price.

The Offer for Bank Owned:

You never know what type of market price you will get on these as a Realtor. Sometimes the asset managers price the home similar to other listings and sometimes they are a bit under value. In any event, you need to work with your Realtor to research what he home is really worth. You may find that a majority of these homes are not a bargain at all.

Give it a shot!! If you like the home then make the appropriate offer and see if the asset manager takes it. Be prepared for a slow process. Asset managers can take weeks to respond to offers. Patience is definitely a virtue when buying Bank Owned homes and especially on short sales.
The moral to the foreclosure story is to be patient and know what to expect. There is a lot of competition. As I write this article I do not want to dissuade you from exploring the foreclosure market, but aware of the challenges and experience you will need to really execute a foreclosure purchase. It is not easy but it can be done.

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