- Mar 9,2010
- In: Foreclosure
Buying Foreclosed Units is a Tough Job
Buying foreclosed units is not an easy but a tough job. A couple made a price offer on a house just prior to its foreclosure but it was refused. The offer was not acceptable to clear the dues of the total number of lien holders. The question being posed is would the bank be amenable to the offer or counter it?
Foreclosure numbers are at an all time high and this is resulting in more people fishing for the catch deals. But it is difficult to purchase a house at a low price then is generally believed. Most of the houses are over-encumbered with too many liens. It means the original owners have gone underwater – or the value of the house is less than the loans piled up. This problem has become very common with not only multiple loans but also accrued penalties like interests and fees. The second mortgages cause more worry. Simultaneously the value of property has dropped during the previous three years. Many of the house owners who had bought during the boom years are now upside down.
This makes it difficult to find a satisfactory deal during the 90 days prior to the foreclosure. This grace period is granted between the serving of the notice and the start of the foreclosure proceedings. One might have to inspect over one hundred units that are in pre-foreclosure before a satisfactory one can be located that has equity left to make sense of the purchasing.
When a house is put up for auction the liens are cleared and the title is clear. For instance if a house worth $300,000 is in foreclosure and has a first mortgage loan of $280,000 pending on it (inclusive of late fees and interest), a second mortgage due of $20,000 and $25,000 due on other different liens then the total loans are $325,000 while the worth of the house is $300,000.
At the auction the first lender opens the bid with an amount equal to what is owed to it. In the above example it would be $280,000. If there are no other bidders then the first lender gets the house and the other holders are left with zero; all records are erased. If there is another bid for say $300,000 then the first and second loan holders will get paid but again the others will get nothing.
Anybody wanting to out bid the loan holders would have to pay cash and here they get defeated by the investors. Hence it is no easy job to buy a house in a foreclosed auction.