Purchasing a foreclosure with HM?

Question

Hi all

I am looking at a foreclosure that was listed two days ago. I have two questions that I would appreciate your feedback on...

1. They’re asking way too much for the property. How much of a discount could one expect to get from a foreclosed property? For example, it’s listed at 111 k but my offer would be 71 k. I know, way off. Is there a minimum percentage that the lender will accept or is it variant based on every lender?

2. I’ve read that foreclosure require all cash at close? Is this always the case? I would be using hard money and all cash is not even close to being a possibility for me.

Thanks in advance

Odie Ayaga · Answer

This is often misunderstood verbiage area of real estate. When a property is in pre-foreclosure it means the borrower still owns it, but is on the foreclosure route. It then goes to foreclosure auction and if it isn't purchased by an outside party it becomes the property of the lending institution (real estate owned or an REO). Most of the time people say they "are looking at a foreclosed property" they mean an REO especially if it's been listed. Most homeowners won't list a property and put in there that it's in pre-foreclosure, if it's underwater they would list it as a short-sale otherwise they would just list it as any other property would be listed.

If it's an REO there is no benefit for the bank to sell it at less than market value. It'll probably go down in price over measured period (e.g. every month, 2 months, etc) and be a very mechanical process. It doesn't matter if you're paying cash or financed unless you're financed and up against a cash offer for example.

Phil Z. · Answer

1. Don't expect a 'discount' because it's REO.  They are expecting to sell it for Market Value.  They want 95-100% of list price.  Over time they will accept less, but more than likely they will want to reduce the price before taking a low offer (sometimes even lowering the price to meet the offer).

2. You do not need all cash.  You can use any financing type including Hard Money.

Ron S. · Answer

Chances are the bank/servicer/lender/finance company that has listed the property for sale knows as much about the market value as you do. That said, if its a true foreclosure auction, they aren't "listing" the property for sale, they are auctioning the property with a bid that meets their criteria, typically total debt or, a percentage of total debt (ie; 90% of total debt) to entice 3rd party bidders so they don't have to take it back into REO. You'll bid what you think its worth. The lender/servicer/bank/finance company/seller will determine if your offer is acceptable or not.

If it's in foreclosure, AND its listed for sale, there are two competing players here. The bank, and the seller's agent. Both trying to get to the finish line first. Whoever does, wins (so to speak).

If its listed for sale, you have a chance to use hard money if you can get financing in place before the foreclosure sale. If it's the foreclosure auction, you have to have cash at the time of bidding, in almost all circumstances (Depends on county/state rules). I'm not aware of any hard money guy that is gonna give you a dime prior to him slapping his lien on the title, which he won't be able to do while there is another lien on the property, which there will be until after the foreclosure auction so, if it is a true foreclosure sale, and you don't have cash, doesn't sound like you are going to be the successful bidder.

Mike Rice · Answer

Answer to Q1:   You dictate the price of your offer.  Throw out the list price.  You know your market.  You are the one having to rehab it.  You come up with YOUR best price regardless of any variables from the seller.

Answer to Q2:   in some cases your HM lender will need variable things in order to place a lien on the property. None of these puts a contingency on your offer.  The seller is stating that all purchase offers are “cash at closing”.  You are providing the seller with a market offer with NO financing contingency (most banks selling REO, they should be fine with your HM financing - as long as you aren’t asking for a contingency contingency)

Gooood luck.  Sometimes being the highest offer isn’t always the best when it comes to the TERMS of your offer.  Some higher offers want special items or special requests.  Make your offer and don’t move after you inspect.  This always angered our sellers when the investor should have known about things when they did their visual inspection of the home.  just my 2 cents!!!

Brent Paul · Answer

That varies from lender to lender.  Some will let the property sit over a year or two til they get their price they want.  Best you can do is submit and offer and they will either accept, decline or counter a different offer.

Depends.  If it's a foreclosure auction then yes they will require cash.  There is a county near me that accepts HM loans for foreclosure auctions.  If it's listed on the MLS than they might accept financing.  Best bet is to talk to the lender and find out.