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  1. #1
    on by skijor's Avatar
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    Bidding on foreclosed homes

    The one I looked at this morning needs at the very least:

    • new carpeting throughout due to pet odors. Pew!
    • repairs to a leaky skylight in one of the bathrooms.
    • both bathrooms redone, one of them has a cheapo "whirlpool".
    • new flooring in the kitchen, pantry, etc. With two dogs, I'd likely put in a better quality laminate.
    • exterior needs some siding repair (vinyl), not too bad. I could likely handle this work.
    • deck needs a few boards replaced and staining. I'd do this work too.
    • some woodwork replaced or fixed (doors, cabinets, molding). I'd probably do some if not all of this.


    It was very neglected for a house that's only twelve years old. But at <$70k for 1350sf on 1/3 acre in a quiet subdivision not too far from work (bike-commutable at ~15miles)....
    Yeah, I won't be getting much done at work tonight.

    Please share your experiences/nightmares (hopefully not) with foreclosed property purchases. And how'd you tally up the costs to come to a decision?
    Thanks!

  2. #2
    Pentapointed Member ahsposo's Avatar
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    We had a couple of foreclosed homes in my subdivision sell recently. The new owners got a real deal from the bank and I'm glad the neighborhood doesn't have those two properties neglected any longer, but those bargains really hurt the rest of the neighborhood's appraised value; at least in the short run.

    Shortly after those properties sold my property was appraised for refinancing. The mortgage company's hired appraiser inspected my property and concluded, based on recent sales (the two foreclosures), it seems my home lost around 30% of it's value since my purchase 6 years ago.

    The 'salt in the wound' was receiving a letter from the county tax commissioner's office a couple of days after seeing this property appraisal. The tax collectors office re-appraised my house for tax purposes and decided it had gained 10% in value from the original valuation.

  3. #3
    derailleurs are overrated bigbenaugust's Avatar
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    Quote Originally Posted by ahsposo View Post
    The 'salt in the wound' was receiving a letter from the county tax commissioner's office a couple of days after seeing this property appraisal. The tax collectors office re-appraised my house for tax purposes and decided it had gained 10% in value from the original valuation.
    I love the annual tax letters.
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  4. #4
    Administrator CbadRider's Avatar
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    Quote Originally Posted by ahsposo View Post
    The 'salt in the wound' was receiving a letter from the county tax commissioner's office a couple of days after seeing this property appraisal. The tax collectors office re-appraised my house for tax purposes and decided it had gained 10% in value from the original valuation.
    In my county you can appeal the tax collector's valuation. You fill out a form and send a copy of an appraisal done within the last couple of months.

    If you're not planning on selling your house, the tax rate from the lower appraisal would be a benefit.
    Quote Originally Posted by toddles View Post
    So Tom only hires people that are nutty? Is part of the requirement to be a moderator on this site is that you have to be nuts??
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  5. #5
    Senior Moment Member Gee3's Avatar
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    My nightmare was giving the bank a viable offer but after dilly-dallying for several weeks they rejected our offer. Then seeing the same house listed for less than what we offered a few weeks later.
    This day will be over... one of these days!

    "I have cancer, cancer doesn't have me."
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  6. #6
    Super Moderator no1mad's Avatar
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    Might want to check for any liens put on the property by the taxman or HOA before bidding.
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  7. #7
    on by skijor's Avatar
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    [QUOTE=no1mad;14619601]Might want to check for any liens put on the property by the taxman oHOA before bidding
    I'll check on that, thanks. I doubt it . My realtor her act together and would red flag that if it were the case.

  8. #8
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    Find a very good inspector and have them give the house a very thorough examination. Do not have your Realtor recommend one, they want you to make a purchase. I'd use Angie's List to narrow down the options.

  9. #9
    Pentapointed Member ahsposo's Avatar
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    Quote Originally Posted by CbadRider View Post
    In my county you can appeal the tax collector's valuation. You fill out a form and send a copy of an appraisal done within the last couple of months.

    If you're not planning on selling your house, the tax rate from the lower appraisal would be a benefit.
    Oh, I have an appeal in. Waiting for the date. In my county it's a face to face thing. I read in the local fish wrap that only 60% of appellants actually make the meeting. I'm sure this factors into the county's plan. But I'll be there unless I'm dead.

  10. #10
    Pwnerer Wordbiker's Avatar
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    It all seems so ghoulish.

    I was once offered the very profitable carpentry opportunity of buying an infant coffin business. I passed. I have a hard time making a profit based upon the misfortunes or grief of others.
    Quote Originally Posted by ahsposo View Post
    Ski, bike and wish I was gay.

  11. #11
    on by skijor's Avatar
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    Quote Originally Posted by Greg_R View Post
    Find a very good inspector and have them give the house a very thorough examination. Do not have your Realtor recommend one, they want you to make a purchase. I'd use Angie's List to narrow down the options.
    Absolutely. Angie's List hadn't occurred to me. Thank you.

    Quote Originally Posted by Wordbiker View Post
    It all seems so ghoulish.

    I was once offered the very profitable carpentry opportunity of buying an infant coffin business. I passed. I have a hard time making a profit based upon the misfortunes or grief of others.
    I don't see it as profiting. After all, I have no intention to flip this house. The previous owners' situation will not change if their former residence goes unsold, so why not? A neglected slightly rundown property gets lifted back up, the neighborhood gains an upstanding taxpaying Neanderthal, and the local diner has to increase its order for more bacon to satisfy said Neanderthal. It's a win-win-win

  12. #12
    Caustic Soccer Mom apclassic9's Avatar
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    My son has an accepted bid in on a foreclosed home - it's a HUD house. We're all awaiting the inspector's report. It has to pass muster for a VA loan, so our fingers are crossed! 3 bedroom, 2 bath brick on 2+ acres for 65K!!
    As with mud, life, too, slides by.

  13. #13
    Pentapointed Member ahsposo's Avatar
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    Quote Originally Posted by skijor View Post
    Absolutely. Angie's List hadn't occurred to me. Thank you.



    I don't see it as profiting. After all, I have no intention to flip this house. The previous owners' situation will not change if their former residence goes unsold, so why not? A neglected slightly rundown property gets lifted back up, the neighborhood gains an upstanding taxpaying Neanderthal, and the local diner has to increase its order for more bacon to satisfy said Neanderthal. It's a win-win-win
    Yeah, I agree. There is a difference in buying them to flip, which is ghoulish in a way, and buying it to live in and maintain.

    As painful as it is to see the paper reduction in my home's value due to foreclosure sales I know it's a short term devaluation. A long term problem is neglected property.

    Good Luck, skijor.

  14. #14
    Pwnerer Wordbiker's Avatar
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    Quote Originally Posted by skijor View Post
    I don't see it as profiting. After all, I have no intention to flip this house. The previous owners' situation will not change if their former residence goes unsold, so why not? A neglected slightly rundown property gets lifted back up, the neighborhood gains an upstanding taxpaying Neanderthal, and the local diner has to increase its order for more bacon to satisfy said Neanderthal. It's a win-win-win
    You had me at bacon...
    Quote Originally Posted by ahsposo View Post
    Ski, bike and wish I was gay.

  15. #15
    location:northern Ohio
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    Buying a bank owned home is always a good idea(most are "as is" condition.
    Waiting for those half wit drones at the bank to complete the paper work in less than 3 months is annoying.
    --------------------------------------------------------------------------------

  16. #16
    Senior Member tizeye's Avatar
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    Quote Originally Posted by spry View Post
    Buying a bank owned home is always a good idea(most are "as is" condition.
    Waiting for those half wit drones at the bank to complete the paper work in less than 3 months is annoying.
    Bank owned and short sale are totally different. On bank owned, it is after the foreclosure and the bank now owns it. On those, the bank gets back with an acceptance or counter usually within 48 hours. It is the short sale that takes forever as it is in the mortgagees name, but the bank has the final say. It is there that can take forever and may never happen. If it is clean involving only the bank, will usually go fast. However, if the owner took out a second, the bank has to negotiate with the second on how many pennies on the dollar they will accept -where they would get nothing on a foreclosure as nothing is left over after the first bank (and lawyers) are paid. If the second doesn't cooperate, they can actually veto the deal.

    One thing to consider if uncertain of the state of the roof, heater, AC and other major systems is a home warranty.

  17. #17
    Senior Member DannoXYZ's Avatar
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    Note that the term "foreclosure" can mean different things to different people. There are three parties involved:

    1. lender: a bank, trust or private institution that fronts the money
    2. trustee: an impartial 3rd party that holds the title/deed to the home (title company)
    3. trustor: the borrower of the money to buy the property, signs promissory note to lender and deed of trust to trustee

    The process goes along normally when you pay back the bank over time and on your last payment, the bank notifies the trustee that you've fulfilled your obligations and then the trustee sends you the deed/title to you home. However, when things go wrong, there are different types of foreclosures involved:

    1. if you default on the promissory note, the lender notifies the trustee that you've done so. The trustee then auctions off your home for the balance of the loan and gives that total back to the lender. This is often known as a trustee sale or lien sale. The deed/title goes to the winning bidder. The caveat here is:

    - buyer's premium, typically 5%, which you don't face if buying through traditional means
    - there is often little time to inspect the property, you buy it as-is
    - bidding emotions, you may get too caught up in the moment and bid more than prudent, and the repair bills may end up throwing your final costs over FMV
    - going up against pros, developers, contractors and investors. They have inside access to info that you may not know
    - large cash-outlay, you have to pay entire bid that day (or within days at most, terms based upon auctioneer)

    2. if the auction does not fetch the balance of the loan, the trustee repossesses the property and gives it and the deed/title back to the lender (bank). This property then becomes an REO, real-estate owned or bank-owned property. Once the bank owns the property, they typically will do a facelift rennovation and resell it at market value. The bank is the owner of the property, they've invested time and money in taking it back and prepping it. They aren't dumb and will get as much money for the property as possible in the current market.

    Don't get #1 and #2 confused, they are two completely different processes. The vast majority of discounts and fortunes to be made lies in the #1 track. Most suckers fall for #2 when they see ads saying "buy real-estate for discounts" or "bank-owned REO foreclosures". They are really buying from just another seller in the marketplace and the bank's no different than Billy-Joe down the street who's trying to get maximum-dollar for his house. Even worse, is that banks and investors don't have to provide all the disclosures about a home that a private-owner does. Buyers fall on their emotional swords and often don't hire their own comp study, appraisals and inspectors to verify pricing.

    The real profits are in the #1 technique and those don't show up in advertisements. Just the barely noticeable postings required by law; one or two lines in the classifieds.
    Last edited by DannoXYZ; 08-20-12 at 04:14 PM.

  18. #18
    Banned. ModoVincere's Avatar
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    Current abode was a foreclosure....it was an almost finished property but had some major issues.....The bank was asking well below "finished" market value for the house, but it didn't have a Certificate of Occupancy. Before buying the place, I had several contractors come in and give me ball park figures on fixing up the house. Because I wasn't using a general contractor, I had to take out all the permits in my name and have the inspections done. The zoning and building department were very helpful as they were quite familiar with the property.

    My advice.....estimate the value of the house in pristine condition. Subtract the cost of all materials, labor, and whatnot that needs to be repaired....then deduct another 10% of the estimated costs of repairs. That's your starting point....bid lower than that.
    Example: Lets say the house would be worth $150K after all repairs. Estimates average out to $60K in repairs. 10% additional would give you 6K, so deduct $66K from that $150K. That means $84K would be the maximum I would bid for the house, but I'd actually try to low ball it a bit more, depending on how much activity there is with people viewing the property.

  19. #19
    Senior Member DannoXYZ's Avatar
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    Follow up to synopsis posted above, I've only done #1 as I consider any money I spend an investment and it better have a quantifiable ROI in 1,5,10 years. Sometimes, I've gotten out in less than a week and made a profit. However, I have helped numerous friends and family with #2 track and guided them through many pitfalls. Many before 2008 crash and they were able to ride it through as a result of precautions taken before purchasing:

    1. hire a realtor/broker that works full-time at their profession for +10 years. No part-timers that have full-time job and shows properties on weekend. Those part-timers spent a whole 4-weeks on night-classes to get their license and have zero experience.

    2. hire someone that knows the area you're interested in. They don't have to live there, just know it well. The trends, business-cycles, demographics, city-politics of the area will play a huge role in whether your property will appreciate or go downhill in the next couple decades.

    3. hire your own appraisers and inspectors to do comp study and verify the integrity of the house in question. Don't ever deal with the seller's agent or appraisers.

    4. consult with real-estate attourney who's familiar with the area in question. Get to know about taxes, building-codes, transfer-requirements, etc.

    5. if buying into cooperative, check out HOA's CC&Rs, budget and minutes for previous 12-months (at least, even better 24). And interview many of the current residents for their views and opinions on the HOA policies and board-members.


    Case studies in point:

    1. my cousin worked in a start-up tech-company in silicon-valley and went out and excitely bought her 1st home, an REO foreclosure condo in a fairly new 2007 complex. She didn't investigate the HOA beforehand and ended up with over $500 in fees each month on top of her mortgage. She also wasn't able to have family gatherings (parties over X-numbers of people prohibited as well as outdoor fires, BBQs). Not to mention the fact that the complex, while brand-new and very yuppie-ish next to a golf-course, was surrounded by a slum and the values of each sale in the previous year was lower and lower. When she got better job with Intel and moved to Oregon, she had to sell at a significant loss.

    2. my brother in Berkeley wanted to buy a duplex in Oakland after getting married. Seems like prices were cheaper after 2008 crash and they could get larger place in larger lot for the same mortgage payments. Consultations with tax-attourney revealed that Oakland had a sewer-upgrade law cleverly worded to sound optional. All new buyers had to verify that their sewer-line to the street can withstand 4500psi. Well... concrete turns back to sand at 3000psi. Pretty much ANY construction material commonly used for a sewer-line between the house & street would fail. That was their sneaky way for the sanitation/water district to pass on the cost of sewer maintenance to new property-owners. And only city-approved contractors were allowed to replace the line, at a cost of $16,000+. On a $150k property, that jacks up the price significantly. Not to mention the week or more of living out of hotels because you can't use your plumbing. However, if you're a bank or investor buying the property, you don't have to do the sewer replacement.

    So... hire your own people to check and verify EVERYTHING.

  20. #20
    location:northern Ohio
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    Quote Originally Posted by tizeye View Post
    Bank owned and short sale are totally different. On bank owned, it is after the foreclosure and the bank now owns it. On those, the bank gets back with an acceptance or counter usually within 48 hours. It is the short sale that takes forever as it is in the mortgagees name, but the bank has the final say. It is there that can take forever and may never happen. If it is clean involving only the bank, will usually go fast. However, if the owner took out a second, the bank has to negotiate with the second on how many pennies on the dollar they will accept -where they would get nothing on a foreclosure as nothing is left over after the first bank (and lawyers) are paid. If the second doesn't cooperate, they can actually veto the deal.

    One thing to consider if uncertain of the state of the roof, heater, AC and other major systems is a home warranty.
    Regardless,bank people are lumps.
    --------------------------------------------------------------------------------

  21. #21
    on by skijor's Avatar
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    Quote Originally Posted by DannoXYZ View Post
    Follow up to synopsis posted above, I've only done #1 as I consider any money I spend an investment and it better have a quantifiable ROI in 1,5,10 years. Sometimes, I've gotten out in less than a week and made a profit. However, I have helped numerous friends and family with #2 track and guided them through many pitfalls. Many before 2008 crash and they were able to ride it through as a result of precautions taken before purchasing:

    1. hire a realtor/broker that works full-time at their profession for +10 years. No part-timers that have full-time job and shows properties on weekend. Those part-timers spent a whole 4-weeks on night-classes to get their license and have zero experience.

    2. hire someone that knows the area you're interested in. They don't have to live there, just know it well. The trends, business-cycles, demographics, city-politics of the area will play a huge role in whether your property will appreciate or go downhill in the next couple decades.

    3. hire your own appraisers and inspectors to do comp study and verify the integrity of the house in question. Don't ever deal with the seller's agent or appraisers.

    4. consult with real-estate attourney who's familiar with the area in question. Get to know about taxes, building-codes, transfer-requirements, etc.

    5. if buying into cooperative, check out HOA's CC&Rs, budget and minutes for previous 12-months (at least, even better 24). And interview many of the current residents for their views and opinions on the HOA policies and board-members.

    So... hire your own people to check and verify EVERYTHING.
    Thanks for such a thorough response!

    1. check
    2. check. I am also discussing (with my financial advisor, whom I've known and done business with for nearly 20 years) the max price that would fit in with the retirement plan.
    3. check. Once the offer is approved (knock on wood), I have an inspector lined up who has a good Angie's List record. One of the two inspectors recommended by the realtor has some bad feedback on AL, but that was only one reviewer.
    4. I'll have to look into this. It's better to be over-cautious/anal, even though this property is in a small village (pop. ~1,000). I'd just like to be taxed fairly. My last home sold for 23% below the tax statement's fair market value.
    5. n/a

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