What's the deal with foreclosures?
March 14, 2016 7:13 AM Subscribe
I've tried to get a basic/slightly more than basic understanding of foreclosures by googling, but it generally brings up a lot of sites/businesses offering their services. You guys always give me great insights so I want your two cents!
My boyfriend and I will be in a position to begin house hunting next year. In advance we're getting our finances/taxes in check and making sure we're ready to be desirable candidates for a mortgage.
We live in Jersey City right now. We love it here.
We have been planning to move further out to a small town within commutable distance. Property taxes get pretty expensive further out and we will be extending our commute.
We're starting to wonder whether buying within Jersey City will be possible. There are some great houses with potential but almost all are foreclosures.
If we were to go that route, what are the basics we need to know?
- Do we need a specialized realtor?
- Do we need a lawyer specializing in foreclosures? If this isn't a necessity, would it make life a lot easier?
- Is the process of finding a house and putting in an offer a lot longer?
- Are there potential issues with residents remaining in the property after we purchase it?
- Are we right in thinking there are auctions and properties directly available from the company who owns the property? It varies?
- Are short sales also worth looking into? I do know roughly how they work.
- We've also wondered about the ethical implications of buying a foreclosure. We're not wealthy ourselves, my mother died and so I'm going to be inheriting money sometime in the next year. This would give us a chance to stay in a city we love. Should we feel bad that we would be buying someone elses home? Will we run into issues with neighbors knowing our home was once owned by someone they knew?
Any other info you feel is important will really help. I think my googling will be a lot more effective if I have a more basic understanding of what I'm looking for.
My boyfriend and I will be in a position to begin house hunting next year. In advance we're getting our finances/taxes in check and making sure we're ready to be desirable candidates for a mortgage.
We live in Jersey City right now. We love it here.
We have been planning to move further out to a small town within commutable distance. Property taxes get pretty expensive further out and we will be extending our commute.
We're starting to wonder whether buying within Jersey City will be possible. There are some great houses with potential but almost all are foreclosures.
If we were to go that route, what are the basics we need to know?
- Do we need a specialized realtor?
- Do we need a lawyer specializing in foreclosures? If this isn't a necessity, would it make life a lot easier?
- Is the process of finding a house and putting in an offer a lot longer?
- Are there potential issues with residents remaining in the property after we purchase it?
- Are we right in thinking there are auctions and properties directly available from the company who owns the property? It varies?
- Are short sales also worth looking into? I do know roughly how they work.
- We've also wondered about the ethical implications of buying a foreclosure. We're not wealthy ourselves, my mother died and so I'm going to be inheriting money sometime in the next year. This would give us a chance to stay in a city we love. Should we feel bad that we would be buying someone elses home? Will we run into issues with neighbors knowing our home was once owned by someone they knew?
Any other info you feel is important will really help. I think my googling will be a lot more effective if I have a more basic understanding of what I'm looking for.
There are a bunch of different foreclosure programs out there. Generally you'd be buying from the bank, but there are banks and then there are banks, y'know? Some of the programs give priority to potential owner-occupiers (e.g. Fannie Mae HomePath) and will be a friendlier option for you guys.
I would also suggest lurking in the forums at Bigger Pockets. It's focused on real estate investors, which means that there are a ton of questions, stories, etc. from people who buy foreclosures of all kinds.
I personally would not make a bid on an occupied (foreclosure) property -- there are just too many ways for that to go wrong, and do you really want to get involved with an eviction and have that be your first memory of your new home? Probably not. (If you're still tempted, read this going-on-five-year saga from Bigger Pockets -- seriously, five years to get someone evicted. That was an extreme outlier, but still.)
posted by pie ninja at 7:42 AM on March 14, 2016 [1 favorite]
I would also suggest lurking in the forums at Bigger Pockets. It's focused on real estate investors, which means that there are a ton of questions, stories, etc. from people who buy foreclosures of all kinds.
I personally would not make a bid on an occupied (foreclosure) property -- there are just too many ways for that to go wrong, and do you really want to get involved with an eviction and have that be your first memory of your new home? Probably not. (If you're still tempted, read this going-on-five-year saga from Bigger Pockets -- seriously, five years to get someone evicted. That was an extreme outlier, but still.)
posted by pie ninja at 7:42 AM on March 14, 2016 [1 favorite]
Be careful of foreclosures because the houses are generally not in the best condition due to the careless lifestyles leading people into foreclosure in the first place. Of course I am generalizing here, but having in-laws in the house buying/flipping business, finding a foreclosure that doesn't need an overhaul is extremely rare (but not impossible--not all foreclosures are due to bad lifestyles, of course).
That being said, at one time a lot of banks were offering "cash for keys", in which the bank would give homeowers a chunk of cash (say $5,000-10,000) for leaving the house in decent condition upon foreclosure. You won't know which houses these are, but my point is that there may be hope for finding a decent foreclosed house if banks are still doing this.
Also, if you are willing to put work into a house and seek out a foreclosure, you can often offer an extremely low amount and the bank will often take it.
P.S. I apologize if my info is 5-8 years out of date, but these are points to look into, at the very least.
posted by TinWhistle at 8:07 AM on March 14, 2016
That being said, at one time a lot of banks were offering "cash for keys", in which the bank would give homeowers a chunk of cash (say $5,000-10,000) for leaving the house in decent condition upon foreclosure. You won't know which houses these are, but my point is that there may be hope for finding a decent foreclosed house if banks are still doing this.
Also, if you are willing to put work into a house and seek out a foreclosure, you can often offer an extremely low amount and the bank will often take it.
P.S. I apologize if my info is 5-8 years out of date, but these are points to look into, at the very least.
posted by TinWhistle at 8:07 AM on March 14, 2016
Response by poster: Just to clarify TinWhistle we would love to overhaul a house. We have some experience and we're likely to have plenty of cash to do so.
Also forgot to mention...
- Is there a totally different approach to getting a mortgage? Is it more difficult? Do we need to go another route than regular banks?
posted by shesbenevolent at 8:30 AM on March 14, 2016
Also forgot to mention...
- Is there a totally different approach to getting a mortgage? Is it more difficult? Do we need to go another route than regular banks?
posted by shesbenevolent at 8:30 AM on March 14, 2016
I can't speak to the Jersey City market specifically, but do want to reinforce that you will be competing with professional investor/flippers who will be able to pay the full purchase price in cash. Banks like this. A lot. If you're not in a position to to this you will likely by SOL. Something like HomePath may be an option, but there will a lot of red tape.
You won't need a lawyer who specialises in foreclosures, but that's because banks generally sell them for cash, as is. The bank will not be offering any guarantee about the state of the property. There is essentially no recourse if you discover problems post sale. More important than having a lawyer will be having a contractor or maybe even a structural engineer (esp. if you're looking at brick townhouses) whom you know and trust to inspect the property.
Foreclosures sales can be fairly quick --- if the bank has already taken the property. Zillow and other property portals do list "pre-foreclosures", properties where the legal process to take back the home has started but is not complete. That process may never complete, or may take several years. You only want to look at properties currently being marketed by the bank.
Short sales often take a long time. It may be worth your while to find a realtor with experience dealing with them if you're considering one, they'll have a better sense of the current state of the market and the quirks of the process in Jersey. The basic problem with short sales is that banks hate losing money and are inclined not to trust the homeowner and their agent's claims about whether a given offer is really the most the property can be sold for. This can make getting your offer approved a very very frustrating process. It does vary a bit bank to bank and market to market, and from what I understand there has been some improvement on this, so Jersey City might not be as bad as some of the horror stories I've heard. But if time is a factor for you I'd be reluctant to pursue a short sale unless you were completely in love with the property.
As for the neighbors, tough to say. Having a young couple move in and start maintaining an abandoned eyesore will likely get you some brownie points in most places, but it's entirely down to individual circumstances.
posted by Diablevert at 9:36 AM on March 14, 2016
You won't need a lawyer who specialises in foreclosures, but that's because banks generally sell them for cash, as is. The bank will not be offering any guarantee about the state of the property. There is essentially no recourse if you discover problems post sale. More important than having a lawyer will be having a contractor or maybe even a structural engineer (esp. if you're looking at brick townhouses) whom you know and trust to inspect the property.
Foreclosures sales can be fairly quick --- if the bank has already taken the property. Zillow and other property portals do list "pre-foreclosures", properties where the legal process to take back the home has started but is not complete. That process may never complete, or may take several years. You only want to look at properties currently being marketed by the bank.
Short sales often take a long time. It may be worth your while to find a realtor with experience dealing with them if you're considering one, they'll have a better sense of the current state of the market and the quirks of the process in Jersey. The basic problem with short sales is that banks hate losing money and are inclined not to trust the homeowner and their agent's claims about whether a given offer is really the most the property can be sold for. This can make getting your offer approved a very very frustrating process. It does vary a bit bank to bank and market to market, and from what I understand there has been some improvement on this, so Jersey City might not be as bad as some of the horror stories I've heard. But if time is a factor for you I'd be reluctant to pursue a short sale unless you were completely in love with the property.
As for the neighbors, tough to say. Having a young couple move in and start maintaining an abandoned eyesore will likely get you some brownie points in most places, but it's entirely down to individual circumstances.
posted by Diablevert at 9:36 AM on March 14, 2016
Regarding short sales - I can give you my perspective from the sellers end, as I have a house in NJ that we tried to short sell. One thing right off the bat is if you want to buy a house via a short sale, know that this can take months and months, and even then it might fall through. We had issues with our bank, it took forever dealing with them, and then after like 6 months our buyer walked because it was just taking too long. So unless you absolutely love the house and have the patience for it to possibly take a long time to close, avoid the short sale route.
I would recommend if you want a short sale or foreclosure specifically, consider finding a realtor who has experience dealing with those things. It's also easier if you have a lawyer that is also familiar with those things. My lawyer helped us navigate the short sale from our end, and our buyers also had a lawyer who knew how to deal with the short sale and what to expect. The lawyer is your best advocate here if you have very specific questions. You can ask stuff of your realtor, but in my experience, my realtor kind of lied/misled us, because really they are just looking out for themselves and not for you. A lawyer you will hire specifically to guard your own interests. So, I guess the point is, ask questions but don't be overly trusting of your realtor - they don't always have your best interests at heart (not saying you won't find a good one, just be on your guard).
Regarding potential issues with residents - this will depend on the dynamic of your specific neighborhood. Where my house is in NJ, there are something like 10 houses in the process of foreclosure, and the entire neighborhood is kind of unhappy with how things are going. I know neighbors there who probably would hate whoever moved into those homes, simply because folks have lived in that neighborhood for forever, they all know each other, and some new assholes moving in and pushing out the original tenants puts a bad taste in some mouths. On the other hand, I have some friends who bought a foreclosed house and they get along with their neighbors just fine because they like the gentrification. I guess what I'm trying to say is, it totally depends and we can't tell you what it will be like in your specific Jersey City neighborhood.
posted by FireFountain at 3:48 PM on March 14, 2016
I would recommend if you want a short sale or foreclosure specifically, consider finding a realtor who has experience dealing with those things. It's also easier if you have a lawyer that is also familiar with those things. My lawyer helped us navigate the short sale from our end, and our buyers also had a lawyer who knew how to deal with the short sale and what to expect. The lawyer is your best advocate here if you have very specific questions. You can ask stuff of your realtor, but in my experience, my realtor kind of lied/misled us, because really they are just looking out for themselves and not for you. A lawyer you will hire specifically to guard your own interests. So, I guess the point is, ask questions but don't be overly trusting of your realtor - they don't always have your best interests at heart (not saying you won't find a good one, just be on your guard).
Regarding potential issues with residents - this will depend on the dynamic of your specific neighborhood. Where my house is in NJ, there are something like 10 houses in the process of foreclosure, and the entire neighborhood is kind of unhappy with how things are going. I know neighbors there who probably would hate whoever moved into those homes, simply because folks have lived in that neighborhood for forever, they all know each other, and some new assholes moving in and pushing out the original tenants puts a bad taste in some mouths. On the other hand, I have some friends who bought a foreclosed house and they get along with their neighbors just fine because they like the gentrification. I guess what I'm trying to say is, it totally depends and we can't tell you what it will be like in your specific Jersey City neighborhood.
posted by FireFountain at 3:48 PM on March 14, 2016
I bought a short sale. It took us six months to get approved, and then we had only 45 days for all the rest of the paperwork. If you have good credit and money in the bank and a flexible schedule, it can be a way to get a house for cheap. If you don't have all those things, it's probably best avoiding them.
posted by The corpse in the library at 1:32 PM on March 17, 2016
posted by The corpse in the library at 1:32 PM on March 17, 2016
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Right now the market is ridiculous in Brooklyn though, things might be different on the other side of the rivers.
posted by newpotato at 7:33 AM on March 14, 2016