Buying a Foreclosed Home

Buying a home that recently foreclosed upon can be a daunting experience, but many new homebuyers are finding discounted properties through short sales and bank owned property auctions. Search the most updated and accurate home foreclosure listings at no charge. Countrywide Financial Corp. of Calabasas, the largest U.S. home lender, reports a nearly 60% increase in short sales nationwide in April, the latest month for which statistics are available, from the same period a year earlier.

What can I expect with a short sale home purchase?

While a short sale typically offers more discounts because the bank has not lost as much money as a with a foreclosure, there are a lot of other factors you should consider before engaging in the short sale home buying process. To start with, the lender is the one who gets to choose whether or not to agree to a short sale, not the seller. And, any offers you make to the seller must also be approved by the lender. And, there are several things that can derail a short sale home purchase including:

  • Although lenders lose a lot of money when they foreclose, the payout from private mortgage insurance could reduce that loss enough to make the lender choose foreclosure.
  • Lenders holding second mortgages, such as home-equity lines of credit, can also kill the sale. Although second mortgage lenders are junior lien holders, they can nix a short sale if they feel they're not going to get enough of the proceeds from the sale.
  • If there are unpaid contractors holding a lien on the property, they too can nix a short sale due to their fear of not getting enough from the proceeds of the sale.
  • If the seller is still making mortgage payments, the lender has no motivation to approve a short sale.

If you try to buy a home through a short sale, be prepared for the deal to fall apart. Don't spend money on appraisals or inspections until you have received some sort of commitment from the bank. And, we recommend that you do not start the short sale home buying process without the representation of a qualified, knowledgeable licensed realtor. We also recommend that you include a provision in the contract that allows you to withdraw at any time up until the lender approves the sale. This way you can get out of the contract without penalty if it looks like the transaction has little chance of closing.

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