Buying a foreclosed home brings challenges, mixed feelings about capitalizing on someone’s misfortune, and opportunities to gain a foothold in the housing market.
For those who are up to the challenge, it can have a big payoff — whether that’s gaining access to a highly-sought-after neighborhood, customizing a home to suit your style and needs, getting a good deal, or flipping and reselling the property for a profit.
Dick Lee, an agent with eXp Realty and chief client relations officer at Independent Mortgage, said that to find foreclosed or pre-foreclosed homes on the market, interested buyers can check the Multiple Listing Service (mls.com), call the town or city tax department, or talk to sheriffs and constables.
Other experts cited additional sources:
■ Newspaper ads — Peter Souhleris, a real estate investor, broker, and cofounder of CityLight Homes who also starred on “Flipping Boston’’
Don’t go it alone
After you’ve identified a home you want to purchase, do your research and assemble a team, Valliere said.
“My recommendation would be finding the right people, even before starting the process,’’ said Young Lew, a loan officer at Boston Mortgage Solutions. Lew, who is also president of Gaia Realty & Advisors and Gaia Management Inc., recommended finding a lawyer to do a preliminary title search on the home to ensure there will be no obstacles to the sale — or surprises.
The title search should uncover any outstanding liens, Glasgow said.
Lee agreed, noting that you as the buyer would likely be responsible for paying off the liens, outstanding utility bills, and more.
“It’s super important when you’re buying a foreclosed home to make sure that you understand all of the things you’re agreeing to in the purchase-and-sale agreement,’’ Glasgow said.
If you’re allowed in the house at the auction, you should bring a home inspector with you to help you determine how much you’re willing to bid, Lee said.
Lew suggested bringing a licensed and insured contractor. Although the contractor wouldn’t be able to give an exact quote for any work, you could glean valuable information about the home’s condition.
Bring a check
Don’t expect a standard bidding process. The procedure depends on what state you’re in, and each company often follows its own business models, experts said.
Despite these differences, you’ll probably be required to bring a certified check for several thousand dollars to the auction in order to participate, Lew said. (It’s often $5,000, but can vary depending on the listing.)
Online auctions, however, may require a $5,000 deposit in order to bid, Seymour said, but it will be refunded if you don’t win.
Valliere suggested researching how much a house of the same size in that area should cost in order to determine how much to bid. She also recommended looking for “short sales,’’ which occur in the pre-foreclosure stage when the current homeowners are trying to negotiate with the bank. In a short sale, the house is being sold for less than what is owed on the mortgage, Lee said. You can find short sales on hubzu.com, auction.com, and foreclosure.com.
Those can be difficult to come buy in the region’s hypercompetitive market, however.
Paying for it all
If you win, congratulations. Now on to the financing.
Lew suggested taking out a rehab loan, which covers the cost of the house and renovations.
Financing options include loans from Fannie Mae, Veterans Affairs, and Freddie Mac, as well as a 203(k) from the Federal Housing Administration. Local lenders also have loan products.
Adding to the list of unknowns is the true condition of the home. Frequently, homes are auctioned “sight unseen,’’ Souhleris said.
He suggested searching online for photos of the home the last time it was on the market and trying to figure out how much damage it may have sustained.
“Make sure that you’ve got the reserve funds to combat any of the unknown,’’ Glasgow said, “and be patient.’’
Sealing the deal
The process of buying a foreclosed home can be complicated and drawn out. Foreclosure closings can be delayed several months, Glasgow said, given that there are so many players, including, but not limited to, the former owner’s lender, legal teams, and the auction company.
“You have to understand that you’re likely getting a good deal, but there’s going to be a lot of unknowns,’’ she said.
Buying a foreclosed home can also take an emotional toll. Sometimes the buyer may be responsible for evicting the previous owners, which can draw out the process, Lee said.
You may find yourself bidding in front of the home while the current owners are still inside.
“The toughest part for me, personally, is to see that situation where a little kid’s looking out the window, going, ‘What’s going on, Dad?’’’ Souhleris said.
While buying foreclosed homes can get very complicated, it can yield great results. “Go into it with the mindset that: ‘Hey, this might take a long time. I might not be able to get what I’d normally want to, but I’m getting a good deal. This should be a long-term plan for equity,’’’ Glasgow said.