5 Tips For Buying a Foreclosure

When lenders take over a home through foreclosure, they want to sell it as quickly as possible. Since
lenders aren’t in the real estate business, they turn to real estate brokers for help marketing their
properties. Buying a foreclosed home through the multiple listing service can be a bargain, but it can
also be a problem-filled process. Here are five tips to help you buy smart.

1. Choose a foreclosure sale expert. Lenders rarely sell their own foreclosures directly to consumers.
They list them with real estate brokers. You can work with a real estate agent who sells foreclosed homes
for lenders, or have a buyer’s agent find foreclosure properties for you. To locate a foreclosure sales
specialist, call local brokers and ask if they are the listing agent for any banks.

Either way, ask the real estate professional which lenders’ homes they’ve sold, how many buyers they’ve
represented in a foreclosed property purchase, how many of those sales they closed last year, and who
they legally represent.

If the agent represents the lender, don’t reveal anything to her that you don’t want the lender to know,
like whether you’re willing to spend more than you offer for a house.

2. Be ready for complications. In some states, the former owner of a foreclosed home can challenge the
foreclosure in court, even after you’ve closed the sale. Ask your agent to recommend a real estate
attorney who has negotiated with lenders selling foreclosed homes and has defended legal challenges to
foreclosures.

Have your attorney explain your state’s foreclosure process and your risks in purchasing a foreclosed
home. Set aside as much as $5,000 to cover potential legal fees.

3. Work with your agent to set a price. Ask your real estate agent to show you closed sales of
comparable homes, which you can use to set your price. Start with an amount well under market value
because the lender may be in a hurry to get rid of the home.

4. Get your financing in order. Many mortgage market players, such as Fannie Mae, require buyers to
submit financing preapproval letters with a purchase offer. They’ll also reject all contingencies. Since
most foreclosed homes are vacant, closings can be quick. Make sure you have the cash you’ll need to
close your purchase.

5. Expect an as-is sale. Most homeowners stopped maintaining their home long before they could no
longer make mortgage payments. Be sure to have enough money left after the sale to make at least
minor, and sometimes substantive, repairs.

Although lenders may do minor cosmetic repairs to make foreclosed homes more marketable, they won’t
give you credits for repair costs (or make additional repairs) because they’ve already factored the
property’s condition into their asking price.

Lenders will also require that you purchase the home “as is,” which means in its current condition.
Protect yourself by ordering a home inspection to uncover the true condition of the property, getting a
pest inspection, and purchasing a home warranty.

Be sure you also do all the environmental testing that’s common to your region to find hazards such as
radon, mold, lead-based paint, or underground storage tanks.

5 Tips for Buying a Foreclosure