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The process of buying an REO is a lot like buying conventional homes, except you’re buying directly from the bank rather than a person. These auctions are held by the county sheriff, usually in person at the courthouse or another government-owned building. Historically, New Jersey has consistently had one of the highest foreclosure rates in the nation. Although this has unfortunate implications for many homeowners who are falling behind on payments, it does create an opportunity for someone new — maybe you — to take over those homes. Likewise, doing your due diligence when researching the listing’s local area is a must. What you’re looking for is an up-and-coming area in New Jersey, one that still has relatively low prices but shows high growth potential for property value.
Foreclosed properties can be found on various websites and print publications, via online real estate searches, at bank offices and websites, and in local newspapers. Finding foreclosures can be rewarding, yielding diamonds in the rough or real-estate fortunes sold below market value. The cheapest way to buy a foreclosure is to buy a pre-foreclosure or short sale directly from a distressed homeowner.
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If the servicer won’t allow it or the borrower can’t find a qualified buyer, the lender may have to foreclose. A short sale might be in pre-foreclosure, but not necessarily. Once a home is out of the pre-forclosure phase, there will often be a public auction of the home. You may have heard of this happening on the courthouse steps, and while some auctions are now done online, others are done in person, some still on the courthouse steps. Purchasing an auctioned home offers both great risk and reward.
They are now being sold by the lender or bank through an REO agent. You can buy directly from the homeowner, though the lender still has to approve of the offer. Since it’s lenders that can forgive sellers’ leftover loan balances, the home sale won’t close if they aren’t satisfied with the price — and that can take up to six months.
How to buy a foreclosed home
In spite of the coronavirus pandemic, the New Jersey real estate market is booming. But understanding exactly how to buy a foreclosed home is important before you get started. Here’s how to be informed, prepared, and ready to make smart moves if you want to buy a foreclosed home. Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
Reserve auction – Often confused with a minimum bid auction, a reserve auction means that the seller’s minimum price is kept private. Furthermore, the seller has the right to reject a winning bid within 72 hours. Pre-approval letter ready to go before you make an offer, just like with any other home purchase. It’ll assure the lender that owns the property that you’re a serious buyer.
What kind of loan do I need to buy a foreclosure?
While much of the buying process for a foreclosed home is the same as any other property purchase, property investors may find the purchase process to be more nuanced in certain ways. The lenders will probably have specific instructions on how to conduct the transaction, so be sure to follow those closely. Additionally, homeowners have up to 10 days after the auction sale is complete to pay their debt in full and retake possession of their house. As such, you should avoid making any major repairs or renovations until after the the10-day redemption period has ended. Auctions require 20% deposits to be paid on the day of the auction with a certified check or money order.
Borrowers have the option of financing the home purchase plus any required repairs in a single mortgage. If buying from a bank, you’ll need to sharpen your bargaining skills and start with a lowball offer on the property you want. Don’t get discouraged if someone else trumps your offer. Check back periodically to see if it reappears in the bank’s inventory. If you plan to finance the purchase, you’d be wise to obtain preapproval for a mortgage. Here’s how to do it WITHOUT losing money or getting ripped off by a shady cash buyer.
You can either search your local newspaper for these listings or conduct a broader search online at njpublicnotices.com. Working with an agent can be beneficial here because they have access to the MLS listings before they show up on real estate websites like Zillow. Your agent can monitor the markets of interest to you and send you regular updates on available pre-foreclosures before they hit popular sites, giving you a jumpstart on the competition. The latter, known as short selling, allows you to go and inspect the property and deal directly with the homeowner. Negotiating without a middle man means that the owner has added incentive to give a better price. Moreover, auction and realtor fees don’t factor into the price.
You might get a nice return on your investment if you’re able to buy the home below market value and if it doesn’t need expensive repairs. A professional who performs work on a home can foreclose if the homeowner doesn’t pay in full for the work. Don’t get caught up trying to outbid what you think your competitors will offer. They can help you find deals as they become available, and help to steer you away from homes with potential problems.
If you’re buying a bank-owned home, getting a mortgage preapproval letter may help you compete with the all-cash buyers who often purchase foreclosures. A property is in pre-foreclosure after the mortgage lender has notified the borrowers that they are in default but before the property is offered for sale at auction. If a homeowner can sell the property during this time, they may be able to avoid an actual foreclosure proceeding and its negative effect on their credit history and future prospects. For real estate investors foreclosures often present good investment potential because these properties are often sold below their market value. You may not be able to use traditional mortgage financing to purchase a foreclosure at auction because these loans don’t close quickly enough. The auction may require quick payment via cash, certified check or wire transfer.
A government-registered broker must be contacted to purchase a government-owned property. Buyers can find a registered broker on the website of the U.S. A more direct route is to go through websites that specialize in homes and properties in foreclosure, such as Fannie Mae’s HomePath.com. “We buy houses” companies typically promise an all-cash offer and fast closing. They’ll guide you through paperwork, help you set up your escrow account, and do everything it takes to have the property transferred into your name. Be prepared to encounter setbacks, delays, and stiff resistance, especially if the bank is selling the home at a serious loss to them.
The seller may offer additional incentives such as a reduced down payment, lower interest rate, or the elimination of appraisal fees and some closing costs. The federal Veterans Administration has a mortgage guarantee program that is open to current service members, veterans, and surviving spouses. According to Military.com, the loans can be used to buy repossessed properties, although a bit of advance preparation is needed. Some financial institutions such as Bank of America also have web search pages for foreclosed homes. REO homes have clean titles, and though they might need repairs, the bank or lender will usually ensure they’re livable. Foreclosures are not the only way to find undervalued properties in New Jersey.
We recommend you consult an experienced attorney to protect you against issues with title if you are new to the process. Most auctioned properties are bought sight-unseen, so bid conservatively. Auctions are also sometimes listed on popular websites like Auction.com or Hubzu.com. You’ll also want a good attorney to run a thorough title check and ensure you don’t run into any nasty legal surprises down the road.
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