Buying a foreclosure ?

rusty105October 17, 2008


My wife and I are looking at a foreclosure in the area we wish to move to. It is already bank owned (HSBC) and the previous owners have moved out, so we would only be dealing with the bank's rep. From the photos we have seen, it does need work, at least paint and floor coverings (at least!) the price is good, from what info I have on the property. We are scheduling a time with our realtor to go out and see in person, which I am sure at that time more items that need work will present themselves. my questions are....

Say the price is 150K, and needs ~25K in work (still a deal) will a mortgage company write the mortage for 175K? If not what options are there, we have available room on credit cards, but don't want to go down that road.

Do mortgage companies expect more from a buyer of a foreclosure, then a regular property? ie. larger down payment, better credit?

Will the Bank (HSBC) accept a lower offer then what it is listed for? It has only been on the market for 3 weeks, and already had the price reduced ( about 3%).

And aside from all the damage the previous owners have left, what should I look out for? Hidden damage...



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Both houses on each side of us have been foreclosed on. One has already been sold. There was a debt of $160,000 and they bought it for $62,000. The other one has a debt of $150,000. It has not gone up for sale yet. I would never offer what they are asking.. Make an offer and they will counter back. You could save a ton of money.. Just go with it and see what happens...


    Bookmark   October 17, 2008 at 10:51PM
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I would never offer asking price in this market, just too many homes to choose from, and now short sales and foreclosures are on the rise. The Bank owns the property, so I was wondering how far they will move from the price, I guess we will have to wait and see. We are going out there soon, Maybe next week, it's about 1.5 hours away. The Realtor we have been working with is scouting it out today, hopefully I will have a report back by Monday :)


    Bookmark   October 18, 2008 at 4:56PM
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Start your offer around 60% of the current listing price.

Depending on what you want to do with the property, your income, your credit score, & the amount of your down payment...combined with the appraisal...yes, you can get a loan that will include both the purchase price & repair costs. FHA as well as the GSEs offer such loan programs. Dave will come along here eventually...he's our resident permanent financing guru & he'll be able to offer some financing assist.

You'll need good credit in today's market no matter what you purchase. Ask the bank if they have special financing available for their REOs...some banks do & others don't.

Good luck!


    Bookmark   October 18, 2008 at 5:06PM
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tricia --

I notice that you suggested offering 60% of the asking price on the home (which is a foreclosure).

Just there something unique about a foreclosure transaction that favors a prospective buyer as far as getting a property at a lower price compared to a "traditional" transaction of a equivalent property where a buyer deals with a homeowner?

Is a bank more likely to let a foreclosed property go cheaper in exchange for a speedy transaction?

    Bookmark   October 19, 2008 at 12:24PM
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Yes, there is something "unique" about a foreclosure that favors a prospective buyer in today's market. Banks are trying to raise capital. They want those houses sold! The larger the bank the better the odds such an approach will work. Most smaller, regional banks are well capitalized & are not sitting on thousands of REOs &, hence, are not under the same degree of pressure to unload inventory.

Now, on the flip side of Ben/Hank Capital (aka TARP). I'm hearing lots of flack that lenders are sitting on REOs & waiting for Paulson to start handing out the greenbacks. Still, I believe if a buyer went in at 60% & settled in the 70% range...they'd have a deal with any of the larger financial institutions.


    Bookmark   October 19, 2008 at 1:52PM
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OK, thanks again, tricia!

    Bookmark   October 19, 2008 at 3:01PM
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Rusty asked if he could borrow more than the sale price and the anwser is no by conventional means. You will find that the house will appraise out at very close to the sale price. There is FHA and HUD money available for rehabilitation letting you finance the purchase and pay cash for the refurb (what I did on my first REO), or get HUD money (free paper until you sell or refinance) which is what I'm doing on my current deal. HSBC was fairly slow
to respond, don't be surprised if you get no pulse with a 50% offer. Sometimes I think there's a newbie in the asset management department trying to grease the hub in that corporate wheel by holding out for top dollar. Your agent will become the squeaky wheel in this case by keeping those emails going out. I would pursue this aggressively
as REO's and short sales are going to come to a grinding halt with this bailout. That's my .03 (inflation).

    Bookmark   October 19, 2008 at 6:38PM
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If you try to purchase REO from a bank be prepared for delay.

Banks specialize in diffusion of responsibility by using a committee to make all decisions.

I have purchased REO a number of times, and each one has involved a new set of excuses delaying any decision.

    Bookmark   October 19, 2008 at 7:59PM
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Thank you everyone so far...
I had no idea to start my offer so low, I was thinking 80%, I thought a 60% offer would be a joke to the bank, but looking at it again, banks do not want to own homes, and the buyers are few and far between. Are there any programs that I should look for when attempting to buy this home, if we decide to? The payments would be low enough, that we could incur some Credit card debt to do the remodel/repair, but like I said in the fist post, not what I would want to do. I think we have an appointment for Nov 1st, which is just under 2 weeks away, well see if it is still there at that time. I think it may still be. in the mean time I am waiting for my Realtor's report of what he saw when he went out there this weekend. I have done some research of listings that are in the same area, and they are somewhat higher. Higher to the point I am wondering what is really wrong with this house. I will just have to wait an see.
' Rusty

    Bookmark   October 20, 2008 at 11:41AM
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The bank I work for has been very successful selling the homes it owns, there are buyers out there like yourself, who know a good deal when they see one.

You can apply for an FHA 203K loan (Rehab) or a Fannie Mae Homestyle, which is another rehab loan. The thing is with these programs, the house has to appraise for the value you purchased it for PLUS the cost of the improvements you are financing.

And there are specific requirements about what improvements can be financed.

Google FHA 203K and you'll find out more.

    Bookmark   October 20, 2008 at 12:37PM
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TO TRICIA: Are you suggesting the 60% below asking price even in So Cal? We are looking at a foreclosure in the Woodland Hills area and the agent said he already had 5 offers in on the property after being on the market only 7 days. Our realtor told us the bank takes "biggest & best" and that we would need to go in $50K OVER asking price to get the property. No way we're doing that! Anyway...just wanting to know what your thoughts are on this. Thanks!

    Bookmark   October 22, 2008 at 12:29AM
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Hi Tulips

We are looking in Newbury Park (Thousand Oaks). The same thing happened on the bank-owned house we wanted  5 offers on the first day. We were told that some of the offers were over asking price and we were not willing to do that. I still donÂt know what that house went forÂ

I donÂt have any answers for you and will be watching for Tricia (and others) to respond. For myself, I think there will always be folks who have more money than I do and they donÂt have a problem paying more than asking for that "special" house. Even though the one we wanted went the first day  there are many more that are still sitting. So, IÂm going to guess the house you wanted was a "special" house too. Maybe the lot size is larger than other homes? Maybe it is more secluded? Perhaps it has a unique bonus room or pool? :-)

We are writing an offer today on a short-sale. WeÂve been through the short-sale route before - never successfully  so this will probably not go anywhere eitherÂ

Good luck.


    Bookmark   October 22, 2008 at 4:23PM
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So...the house we were thinking about went into escrow for $70K over asking price with multiple backup offers after 7 days on the market. This is the 2nd home this week that I've run into with this. Who says the California market is slowing down??? I'd like to have a chat with them...

    Bookmark   October 25, 2008 at 1:14AM
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I don't understand the logic of offering a percentage off of listing price. Like any other listing, you'd have to do your homework on comparable sales/listings, take into account the condition of the property itself, and make an offer based on that. Sometimes banks do list high to match the last appraisal they have on file; when they don't get any offers, they can justify making reductions. Ultimately, the sale price will be what the market dictates.

    Bookmark   October 25, 2008 at 11:33AM
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The problem now here on Cape Cod is you are competing against the end user, and the house goes for at or slightly over listing price. I have an offer in on a 3/2 Cape on .6 acres in my town and it looks weak 140K, lp is 175900.

    Bookmark   October 26, 2008 at 6:48PM
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It makes a difference too on how much cash down you are willing or able to offer the banks. I know one person who offered a low bid all for cash and the bank took that bid over higher offers BECAUSE it was for CASH.

    Bookmark   October 26, 2008 at 8:09PM
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Tulips  I would love to understand this too. IÂm sure there are many homes in your area that are just sitting  so why did this one go so fast and for over listing? Have you looked at the comps? How does it compare???

I mentioned we were going to write an offer on a short-sale. The asking price is 825. We wanted to offer 775 but the listing agent refused to accept our offer. He told our agent that she can submit it if the price drops to 795. Just so you know, we have great credit, 20%+ sitting in the bank, are pre-approved, and have nothing to sell first  so we are qualified buyersÂ

Kelpmermaid  I expect there to be some negotiating which is why I would never offer full price. Anyone who pays the slightest attention to the news knows that we are in a market where home prices are falling and are expected to do so for a while. I canÂt see why anyone would make a full price (or higher) offer unless money is no object and it is the "perfect" house. But, IÂm just a buyer, so what do I knowÂ

    Bookmark   October 27, 2008 at 1:37PM
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Sorry for not responding. I missed this that this thread was still going.

Well, after seeing September's home sales report it looks like there was lots of sales activity in CA during September. I'm familar with the Thousand Oaks area & would be surprised if there are not thousands of available REOs and/or shorts on the market.

My advice remains the same as last week...

Keep looking & making your offers at 60%. If YOU are flexible you'll get your deal. Remember, there are literally thousands of "dream" & "perfect" homes on the market today. If you miss out on one because some idiot is bidding up the price...keep looking & making offers.

We purchased a home near the bottom of the last housing bust (1992, New England) & had to make 11 offers before we hit. So what? We ended up with a great house at our price. Sold that place in '03 & purchased our current home with the profit.

Don't get discouraged. And, especially don't get caught in the trap of, "If we don't offer more than list we'll NEVER get the house of our dreams!" Bad buying strategy. Keep an open mind & keep on keepin' on until you land the catch.


    Bookmark   October 27, 2008 at 2:47PM
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Thanks for writing that Tricia. Even though I know what you say is true, it really helps to hear it from someone I respect. Being in this position, I can see how easy it is to get caught in the trap and make the wrong choices. I can understand why so many did in the run-up.

    Bookmark   October 27, 2008 at 3:50PM
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bCarol offers are always cash, reo banks don't want contingencies. Highest and best wins but as triciae says keep on putting offers in on the right one.

    Bookmark   October 28, 2008 at 8:49PM
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I'm not sure why we are having such a difficult time but...We need to find a qualified agent who is willing to WORK for us and their commission. One agent told us that the house we asked her to check on was already sold and I sent her an email explaining to her that it was "sold" back to the bank out of foreclosure. She thanked me for the tip...
We've spoken to several realtors, had several realtors "disappear" and are left with one who only looks at houses that we find and specifically ask her to look at for us (our target area is a bit of a drive from our current location so it helps if we have someone to pre-screen potentials for us). I don't get it but I am not a realtor so I probably shouldn't throw stones. If I were a realtor, I would hope I would be out each Tuesday at broker's open and be more interested in inventory.
Back to agents...I've called listing agents on several properties. One agent, representing an REO, told me that he wouldn't even show the house to me unless we faxed him over our pre-APPROVAL (not qualification) letter prior to setting up an appointment with him. I told him I wasn't ready to BUY the house yet, just wanted to look at it. We never came to an agreement but we did go to particular house on our own only to find out that it was WIDE OPEN and falling down a hill. One strong earthquake and she'd be buggering off down the hill.
All said, WHERE would I find an agent willing to submit offers below listing and even as low as 60%??

    Bookmark   October 29, 2008 at 1:26AM
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tulip & jeri:

I can see why ReO (or anything with a decent price) would fly off in those 2 locals -- woodlands hills & Newbury park/TO both have very good schools. There are few REOs there to compete against each other as well. I think if you can get 2002-2003 price on those you are VERY lucky!! And prime properties will be sold above that price, even as REO. Unlike Oxnard where things have gone a lot further south. But even in Oxnard, my cousin (who's looking to buy rental properties) reported that REOs are selling fast as well with multiple bids. And prices there only go down as far as 2002 price or so. It's the same story here in coastal San diego (good school, beach close). REOs are often sold the week it got on the market, and price is above 2003 level for those REOs (and the condition is far from perfect that's for sure). One in our neighborhood (the only 1) was offered at 2003 price (750K) but sold at 850K on the 1st day (peak price in 2006 was 1M so I guess it's a deal) :-)

You can submit an offer, but if an agent already has 14+ offers (like they often do on these REOs) a low offer won't get much notice. You can always wait however since price is not going up tomorrow anyway. :-) If you have time & patience, the market is on your side. I know it's frustrating. :-)

IMO you need a new agent -- one who can research the history of the REOs, who owned it, what are the loan amt, that sorta thing. Not just one to open the door & let you in. There are agents who even searched the pending foreclosure lists & watch it for you. Unfortunately I don't know any from your area to recommend.

Good luck and be patient.

    Bookmark   October 29, 2008 at 4:58AM
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tulips ~

One agent, representing an REO, told me that he wouldn't even show the house to me unless we faxed him over our pre-APPROVAL (not qualification) letter prior to setting up an appointment with him. I told him I wasn't ready to BUY the house yet, just wanted to look at it.

It isn't really so hard to understand why the agent wanted a copy of your pre-approval letter. When my hubby and I were house shopping three years ago we had that done beforehand so the agents would know that our "ducks were lined up in a row". It didn't mean that we wanted to buy each home we looked at but just that we already know what we could afford since the bank (or other lending institution) had stated so.

Given the mess our country is in because of underqualified borrowers it makes sense to know that won't happen again. I believe that the borrowing has really tightened up and it is best to know that you are free to look because the lender is ready to support you when you find the perfect place.

Try not to be too frustrated with this requirement. When I sold our home in California 4 1/2 years ago it meant a lot to have an offer from a person that had that preapproval letter.

Good luck and I may be joining you in the next year or two. There may be a move back to SoCal and getting a forclosure home will be the only way we can make it work.


    Bookmark   October 29, 2008 at 8:55AM
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Well.... to get back to the original story... we finally looked at the 'house' It is listed for $159,900, has had 2 offers, but not accepted by Countrywide. But that is only the beginning of the story. it is a 4 bed, 2 bath 1800sf Modified cape, partially finished basement, on 3 acres. SF does not include the basement. Comps in the area are about 225k - 275k, depending on who you talk to, and because the house was in such condition, it was hard to estimate. We thought even with 40k in 'minor' repairs, and maybe Central Air installed it would be good. We could live downstairs and completely remodel the upper level, and switch when it came time to remodel the 1st floor. The basement would get done as time allowed. Well.... the kitchen was the only livable room in the whole house! And that was being generous. It reeked of Dogs, cats, and whatever other wildlife. The insulation in the basement is now home to a variety of furry creatures. I have remodeled 2 condos with my brother, and probably looked at over 100 or so properties for rental income purposes, even a few foreclosures, BUT NEVER saw anything like this. 80% of the windows were broken, all the floors and walls had to be redone. Basically it would have to be gutted to the studs and sub-floor. Have it hired out, I would guess at almost 175K in repairs. I really doubt the bank is going to get anywhere close to what it is asking. I would offer 50k, and even then it would not be worth the headache of repairs. Sadly the house was nicely laid out, nice size rooms, etc... And to those who think the damage was done as a result of the previous owners being forced out... Not here, this damage was years in the making. :(


    Bookmark   November 3, 2008 at 8:20AM
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I've been in the market trying to buy a house for about 6 months. Most of the houses I came across were getting offers right around asking and even above the listing price. I agree to do some research and find out what comparable houses are selling for. In my opinion, I would think that a 60% offer sounds a bit low for the area, but after doing some research, you may find it is possible to find a home with that sort of discount. We recently went into escrow and we were within 10% of asking price. I did do some heavy research to make sure that it was a comparable amount.
Also, unless you are a seasoned homeowner, I would not try to buy a house with so many repairs. The prices usually come out higher than expected.
When you do make offers, make sure you are armed with a preapproval letter because it really does help. Just so you know, not all foreclosures want you to prequalify with their particular lender even though agents may try to tell you that.
Good luck and let us know what happens:)

    Bookmark   November 12, 2008 at 9:45PM
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