Foreclosures
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The Basics on Foreclosures
Regardless of whether it is a Buyer’s or Seller’s market, there are always foreclosures available to buy.
In order to get the best results when purchasing a foreclosure , whether it is a single family home, condominium, multi-family, or commercial property, it helps to understand how a foreclosure happens and when/where you can purchase one.
In Georgia, we are a non-judicial foreclosure state, which means a court/judge does not have to be involved in the foreclosure process. Instead there is a prescribed process that addresses every stage of the foreclosure from notifying the property owner, to final sale at the County Court steps. The Security Deed (signed by the owner when purchased with a loan) has the provisions for the non-judicial foreclosure within it.
Judicial Foreclosure: (source-RealtyTrac)
A court foreclosure occurs when there are title problems or the mortgage or trust deed lacks a clause permitting an out-of-court proceeding. The process begins when a lender files a petition describing the situation, the property, and the default amount. The borrower then receives a 30-day written notice in which the default must be paid to the court. If the default is not resolved, a foreclosure sale is scheduled.
After court-ordered foreclosure sales, a confirmation hearing is scheduled and the borrower is notified within five days of the hearing. If the sale price of the property is at least market value of the property, the court confirms the sale. If not, the court may order a new sale.
Non-Judicial Foreclosure (Source-RealtyTrac)
The out-of-court process is more common, as most mortgages and trust deeds contain a clause giving a lender the power to sell the property outside of the court system. The lender starts the foreclosure process by scheduling a foreclosure sale. Georgia does not require lenders to warn the borrower before starting the foreclosure process, although the mortgage or deed of trust might demand this.
If the mortgage or deed of trust allows, the borrower can stop the foreclosure by paying off the default amount plus applicable costs, but Georgia state law does not automatically give this reinstatement right to the borrower. The borrower can always stop the foreclosure by paying the total loan balance.
A notice of sale is (also called a notice of trustee’s sale) published once a week for the four weeks before the sale. The notice is also sent to the borrower a minimum of 30 days before the sale date. The notice must include the date, time, and location of the sale; a description of the property; mortgage information; and the lender and borrower names.
The foreclosure sale is at the county courthouse on the first Tuesday of the month between 10:00 a.m. and 4:00 p.m. The winning bidder, if other than the lender, is required to pay the full bid amount to the person conducting the sale immediately following the sale. If a foreclosure sale is cancelled, the foreclosure process starts over again.
There is no right of redemption for the borrower following a foreclosure sale in Georgia. The right of redemption is where an owner could solve the matter/pay the debt owed after the foreclosure (usually up to one year in those states with this right) and redeem the home back to his/her ownership.
Find from the web
This link shows the comparison overview of the Foreclosure Laws by State:
http://www.realtytrac.com/foreclosure-laws/foreclosure-laws-comparison.asp
There are three main sources for purchasing a foreclosure.
1) At the County Court steps
a. must pay in all cash
b. receive title on the spot
c. title may not but fully cleared and have remaining tax liens or other liens that survive foreclosure.
d. The advantage to the Buyer is the opportunity to purchase at the most deeply discounted pricing. However, 95% of the time, the Bank will bid the amount of the loan (via proxy/attorney) and this loan amount could be higher than market value. When the Bank fails to bid or the loan amount due is significantly below market value, the Buyers at the Auction get the opportunity to buy a property at a great price!
2) Auction Houses/ Company
a. Some Banks after foreclosure decide to sell the property through an Auction house
b. The advantage to the bank is that the property will likely sell at Auction
c. The risk to the bank is that it might sell for less than they desired or not sell if the price is below the bank’s reserve pricing. In rare cases, the bank has no reserve and this can be a good opportunity, unless many buyers bid on it, driving the price back up.
d. The smart Buyer can find the occasional deal here, but keep in mind many buyers attend these auctions, leading to bidding wars. Anytime there are multiple bidders strongly desiring the same property, the price will go up! Buyers are often disappointed by the fact that the final bid is often very close to fair market value/appraisal pricing (i.e. not as much instant equity as anticipated).
e. Buyer will also get clear title and have the ability to get a loan for the home.
f. Buyer may or may not have the opportunity to a due diligence period (the time to inspect and back out without penalty) and a full inspection by a professional. In most cases, the Buyer must do their own visual inspection at an open house prior to the auction. This can present risks and surprises unless the Buyer is experienced in this area.
3) Traditional Multiple Listing Services
a. Banks sell over 80% of their inventory through an agent on a listing service (this does vary by State- in Georgia 80% or more is listed with an agent).
b. The advantage to the Bank is that they get the best exposure for the property, and they can better control the pricing and process.
c. The advantage to the Buyer is similar in that the best selection of foreclosures is available through the listings.
d. With a good Realtor, the Buyer can successfully negotiate great pricing and terms especially if no one else is bidding on the property.
e. The Buyer can get a due diligence period and the opportunity to carefully inspect the property fully.
f. The Buyer can purchase with loan or cash.
g. A key advantage with the help of a good Realtor, is finding a Bank motivated to sell, thus getting a very deep discount. In most cases, the price will be better than Auction House pricing. This is due to the fact, that the Buyer has a better chance of being the only bidder and the Bank maybe worried about losing its one and only Buyer. Your Realtor will also help you avoid paying too much. The list price may or may not be over market value and the Bank will always try to get the most it can. Many times the Bank is quite ready to sell for less, if not a lot less!
The Numbers behind the Foreclosures.
As you begin to shop for a foreclosure you will soon discover there are a lot of numbers behind a foreclosure. Many Buyers think the Bank will simply sell the home at or above the amount of the loan that was due on the home. While the Bank would love to do this, they often cannot especially in a declining market.
The Bank is aware Buyers will not pay more than market value (keeping in mind true market value is what Buyer will pay and Seller will sell for). As a result they get an appraisal ordered once they have foreclosed. They also hire one to three Realtors for what is called a Buyer Pricing Opinion (BPO). These Realtors are proving a “real world view” on what a buyer is most likely going to offer or pay for a particular property.
The Appraisal will give a full market value perspective and will often be the high price in the range. The BPO will be a more aggressive look at pricing and fall to the low end of the range. Both the BPO and Appraisal are being sent to the Bank with pictures and detailed report on the current condition of the home. The Bank is very aware of highly damaged properties versus like new, and is prepared to price according to that current condition. This doesn’t mean you have to pay the price they are asking you to pay, it just means a good Realtor will guide you on how to handle such knowledge in the negotiation.
Example: Bank forecloses on a home with a loan of $200,000
Appraisal completed shows value of $175,000
BPO from 3 Realtors shows average of $150,000
Now the Bank has a very detailed pricing range and assessment of the property. They then go through a corporate approval process to set a list price and choose a Realtor to list the property for sale. They are also working to clear title and pay off liens, address utility bills and HOA fees. They know the home must be ready for sale!
Continuing the Example:
The Bank has decided to list for $175,000
Why? Most likely they won’t go above $175,000 because they know a buyer will likely need a loan. That Bank giving the new loan for the Buyer will order an appraisal. Should that appraisal show a price lower than the contract price, the loan would be declined. So the Selling Bank is careful to avoid this pitfall.
But the Bank is prepared and most likely willing to sell for $150,000 based on the data they have received. Think of a Selling Bank much like an individual. The list price that the Bank chooses to market the property can be below or above market value. Many cases, the Bank is overpriced hoping to mitigate losses, however in some cases the Bank is very pragmatic and wants to sell a property right now. That Bank may choose to list at $149,000 (using the current example), and this will produce a fast sale, and it may even produce multiple offers creating a bidding war! A good Realtor may advise you in this case to offer $152,000 to win the bid.
What??? The Realtor wants me to pay over list price?
Be sure to get good comparables from your Realtor before deciding. Comparables are similar recently sold properties within a half-mile radius within the last 6 to 12 months. This is the best guide to market value. From here you can get a good picture on the current list price versus market price.
Continuing the Example:
The Bank has listed for $149,000
Your Realtor found 3 sales from the last 6 months on a similar property:
$165,000, $172,500, & $183,000
So the current list price is $16,000 less than lowest sales price. Other Buyers are seeing the same data.
While a Buyer would love to buy at $149,000 or less, he/she may love the property enough to pay $3,000 more and win the bid. Had this property been listed at $200,00, the same Realtor should know that the Bank is unlikely to get any offers, and guide his/her Buyer to make an offer of $149,000 more or less. So you can see how market value is very important and list price is not as important. In some cases the advice will be to make a deeply discounter offer relative to list, and others it might be higher than list price.
Remember the key to determining a good deal is an accurate understanding of the current market value. Do not rely on list price!
There is a fourth source of foreclosures, better known as the Pre-Foreclosure or Short Sale. Click here for more information on Short Sales.
Looking for Foreclosures? Click here to search now. Or send me a request for a private client gateway that updates you daily. Admin@JamesMarotta.com
Looking for the latest market news on Foreclosures and more? Click here
