Trulia’s consumer advocate, Tara-Nicholle Nelson, tells WalletPop that’s not necessarily the case. But, she warns, “Like everything in real estate, risk and reward are proportional: the big potential reward comes with big risks.”

Nelson set the record straight on the 10 most common myths based on the survey and her own experience with bank-owned properties as a San Francisco Bay Area real estate broker.

Myth #1: Foreclosures need a huge amount of work. In all, 92% of respondents said they would be prepared to do significant work on a foreclosed home. Yet, despite memorable news stories about homes stripped to the studs, many foreclosures need little more than the standard spruce up duo of many a home: paint and carpet.

Myth #2: Foreclosures sell at massive discounts, compared to other homes. More than a third of respondents expected to receive a discount of 50% or more. Nelson says that bank foreclosures may be discounted as little as 10%, in part because they owe it to their investors. “Banks, in my experience, do not take super low-ball offers,” she says.

Myth #3: Buying a foreclosure is risky, according to 49% of respondents. This may be true for those sold at the courthouse or in other venues, but Nelson points out that most people will be buying bank-owned properties. “Buying a home, period, involves risk, for sure, but would I say buying a foreclosed home involves more risk? Not usually,” she says. “By the time they’re bank owned, the bank really has sanitized the title” so that no lingering debts or other hidden costs can pop up later.

Myth #4: You can’t get inspections on a foreclosed property. While county auctions may preclude inspections, virtually all bank-owned foreclosures allow them, in part to avoid future liability claims.

Myth #5: There are hidden costs to watch out for, according to more than two-thirds of those who sensed a negative stigma to buying foreclosures. This is where Nelson’s mantra, that foreclosures are “not a monolith,” is particularly key. Auctions can include buyer’s premiums and hefty fees, but bank-owned properties offered by a real estate agent likely carry the same closing costs as any other house purchase.

Myth #6: Foreclosures are more likely to lose their value than “regular” homes, said 35% of those who saw some negatives in buying foreclosures. Instead, the discounts on foreclosures may offer a bit of “insulation from further depreciation.

Myth #7: Most foreclosures happen when homeowners just walk away. In fact, most occur when the owners’ financial situation changes or the loan adjusts, Nelson says.

Myth #8: When you buy a foreclosure, you should low ball the bank, which is desperate to get these homes off its books.
Instead, many “would rather lower the list price in bite-sized increments and see what kind of new traffic is attracted once they lower it, Nelson says.

Myth #9: You need to be able to pay in cash in order to buy a foreclosure. Once again, for county auctions, you may need a cashier’s check, but bank-owned foreclosures typically can be bought with regular mortgages, although there are exceptions for properties in bad enough condition to worry lenders.

Myth #10: If you have bad credit, it’s easier to get financing from the bank that owns the property. Though banks do offer incentives like lower fees or closing cost credits for buyers who use their bank for their mortgage, they aren’t likely to bend their qualification rules. “Think about it,” Nelson writes in her blog, “why would the bank want to end up with the same property as a foreclosure, again?”

Source: walletpop

When it comes to the housing market for foreclosures, buyer beware.

“One mistake that we see all the time is buyers going in and assuming all the mechanicals are working,” said Brandon T. Johnson, president of GTJ Consulting in Roseville, Mich., which maintains foreclosed homes. “You have to be careful you don’t get burned that way.”

He recommends that buyers get private inspections on houses they want to buy to avoid surprises such as missing plumbing or water damage.

Here’s a list of 10 things to watch for in foreclosed or vacant homes, from Ross Kollenberg of On-Site Specialty Cleaning & Restoration in Troy, Mich.:

1. Air quality tells a lot about the home’s condition. Air and surface testing is a few hundred dollars well spent.

2. Black cobwebs, greasy gray residue on walls or a strong oily odor means soot damage points to a malfunctioning furnace and requires professional cleaning. It could be a tip-off that there was a fire.

3. Discolored subflooring, which can be checked from the basement by looking above for stains and small holes, indicates mold.

4. In an older home with extensive renovations, check with the city for permits, which will give remodeling details. Be sure disturbed asbestos or lead paint has been remediated by a certified specialist. If the home has four or five major changes, it may not be up to code.

5. Peeling, bubbling and discolored paint; swelling in walls or ceilings (especially around kitchens and bathrooms); and a musty odor indicate water damage and possibly moisture and mold.

6. Missing sinks, toilets and other fixtures could mean the previous owner took them and didn’t shut off the pipes. If a pipe was cracked during the fixture removal, it could start a slow leak in the wall that is not easily seen.

7. Fungus growth inside cabinets, behind drawers and built-ins could mean water damage. Since water falls down, look for the source above the mold. One trick inspectors use to determine whether there could be hidden water damage is to pull out the kitchen drawers and look inside to see whether the back wall has been rebuilt. If it has, that could mean water damage has been covered up.

8. Excessive painting of every nook, cranny, door and floor may have been done to cover up mold. “When you go to a home that is ‘landlord white’ and the trim is flat, we tell people there is a reason the house was painted this way,” Kollenberg said. “When we see it is over everything, it is a tip-off that it is just covering something up.”

9. A heated house in winter months may show the home was winterized improperly. If that’s the case, pipes will burst and cause water damage.

10. Blocked drains or pipes will cause problems and may have created sewage backups. Check for a telltale water ring in the basement, Kollenberg said.

Source: Modbee

Whether it’s investors looking to buy cheap and sell for profit, or families who want to bring their renting days to an end, foreclosed homes have a sure market.

In the last couple of years, foreclosed properties being sold by banks have been gaining popularity on the idea that they fit more easily into the budget than brand new homes.

Banks regularly hold auctions to bid out these second- or, sometimes, third-hand homes to prospective buyers. But they also book effortless sales just from taking dozens of calls a day from clients.

The secret is to give people incentives to entice them to take a risk on a foreclosed house, Janette Abad Santos, assistant vice president of Philippine National Bank’s (PNB) Asset Management Group, told abs-cbnNEWS.com in an interview.

Foreclosed homes could sell for a fraction of their worth in the market, and may seem like a steal. However, if one’s not careful in choosing, these kinds of homes could also harbor unpleasant surprises and could run into a lot of money for those who don’t have much of it to start with.

Banks’ bad assets

Simply put, foreclosure happens when a buyer fails to make timely repayments for a bank loan it used to pay for a property. The lender, after filing a notice of default, will then initiate the legal process to reclaim ownership of the particular asset.

This is perhaps the last thing in the mind of home buyers. Yet, many times, they are confronted with the problem due to unexpected circumstances like when they lose their jobs or incur huge medical expenses.

Meanwhile, in as much as banks want to repossess a property from a delinquent borrower, they don’t really like keeping it.

Once banks take a property back, this falls in the list of their real and other properties acquired (ROPOA), which they sell at market value or below, depending on the condition of the properties.

Banks are in the business of lending and investing money, so naturally, they want cold cash. To them, foreclosed properties are bad assets that if they don’t dispose of, would pile up and get too costly.

Bad assets punish banks in three ways. Banks do not only get stuck with an asset they could not collect and earn from, they also have to spend resources–from lawyers to security guards in the property–to justify why the asset should beawarded to them.

And, as a lesson from the 1997 financial crisis when aggressive bank lending fueled a real estate boom, Philippine banks are also mandated to set aside buffer funds–usually resulting in the need for the owners to cough up more funds to increase their capital base. The buffer funds are required to cover the banks’ risk of eventually not collecting what they lent out, most of which are actually their depositors’ and investors’ money.

Lastly, having too many bad assets in their books doesn’t speak well of the banks’ claim of business prudence. Bad assets show off their poor lending decisions.

At end-September, Philippine commercial and universal banks’ ROPA stood at P142.39 billion, down by 1.97 percent from P145.25 billion in the previous month, data from the central bank showed.

Big discounts

The buildup in banks’ bad assets can’t be helped, especially when the time between foreclosing a property and selling it takes too long, said Abad Santos.

“Before a property is foreclosed, the owner is given a year or so to remedy the soured loan. If he fails to, then the foreclosure proceeding begins. Even when the property is already transferred to the bank, we cannot sell it until a year after to give the former owner a chance to redeem his property,” she explained.

As banks get loaded with foreclosed assets, they become more willing to negotiate with interested buyers who often pull an offer off the table and haggle. Such is the case with PNB.

In the industry, according to Abad Santos, PNB holds the largest inventory of foreclosed properties, with roughly 15,000 real estate products, of which 11,000 are residential houses, lots or the combination of both priced at P1 million and less. The bank’s properties in all are worth a hefty P30 billion in market value.

But it does not expect to recover the full amount anymore.

“The bank normally sells a property at market value. However, like a tiangge (flea market), if you want to sell fast you should be willing to bring down your prices,” she noted.

Abad Santos said PNB offers discounts of between 10 to 30 percent on homes. Aside from this, the bank also provides in-house financing carrying a fixed interest of as low as 8 percent over a period of one to 10 years, for properties worth P1 million and below; and up to 12 percent over five to 10 years for those that are above P1 million. Industry rates are basically in the same range.

Behind the discount

These discounts have a story that wise homebuyers need to know to fully understand why foreclosed properties are priced as such.

Banks are wise. In this centuries-old business of lending, they are fully aware that it is inevitable to encounter borrowers who couldn’t pay up, whether due to bad business bets or because of issues that are beyond their control, such as the tumbling of the entire local economy.

Thus, right at the start when borrowers apply for a loan, banks already asses the collateral offered–usually a real estate property–based on the most conservative of standards. The most prudent banks in the Philippines usually value the collateral property being offered a few notches below their current market price.

For example, a Fort Bonifacio condominium owner might have bought the unit at about P5 million, but the conservative banks would asses it at P4.8 million or lower, depending on the banks’ perception of price risks, which could be influenced by oversupply or inflation in construction materials.

It is from this assessed value that the banks would now base how much they will lend to the borrower.

Currently, banks lend only the equivalent 60 percent of the assessed value of the property. In the Fort Bonifacio unit example, that means the bank will only lend P2.88 million to the borrower.

Banks say the property owner should shoulder the remaining 40 percent of the property’s value (equivalent to P1.92 million in the Fort Bonifacio example) as a proof of the borrowers earnestness. By shouldering a portion of the property’s value, the banks don’t end up financing the entire deal.

But that’s just one way to put it.

The other way is this: Banks know that when bad assets pile up, they will have to spend that 40 percent (that P1.92 million) in legal fees during numerous court proceedings, and litigation and documentary requirements, and in some instances, even hiring security guards to make sure illegal settlers don’t inhabit the property, thus further reducing its resale value.

Obviously, banks would like to recover 100 percent of what they lent out, and hopefully the legal and other costs they incurred in trying to recover the property and cashing it in.

To the second—or third—hand homebuyers, discounts in foreclosed assets that go up to 40 percent mean the banks are already willing to absorb their legal and other costs.

In the Fort Bonifacio example, it means the bank is willing to swallow the P1.92 million (the 40 percent portion) as a foregone resource just so it could recover the P2.88 million (the 60 percent portion) that it lent out.

In other words, the discounts depend on how desperate the individual banks are to convert these foreclosed properties into cash. The more foreclosed properties they have, the more the probability that they are selling these foreclosed assets at firesale prices.

Buyer beware

Buyers also need to beware of deep discounts. More often than not, there is a catch.

Usually, foreclosed properties at rock-bottom prices have “defects”– from an impending legal case to the perennial problem of squatters. Sometimes, it could be that the title of the property has not been transferred under the bank’s name yet, the reason why an irked former owner won’t leave the place.

“These are some of the encumbrances that a buyer will have to take on when purchasing cheap properties. They have to keep in mind that all banks sell properties on an ‘as-is, where is’ basis,” said Abad Santos.

A buyer is therefore advised to thoroughly inspect a foreclosed home before purchasing it. Or else, he could be snatching up a deal that’s not as good as he first thought.

Diverse market

Abad Santos described the market for foreclosed homes as “vast.”

“We have buyers coming from the A, B and C segments. These include big businesses, individual investors, overseas Filipinos and start-up families,” she said.

And behind every home purchase she witnessed was an interesting sub story.

There were those who have turned buying and selling properties into a business while some just wanted an affordable place they can call their own.

Abad Santos recalled that they had foreign clients who got homes for retirement purposes or simply to have a proof of investment in the Philippines.

Overseas Filipinos, in particular, would usually buy homes for their families in their hometowns.

Many times, however, a former owner of a foreclosed home and his family would share expenses to win the property back because of its sentimental value.

“Largely, purchases here are emotional. But you see, that’s how we Filipinos value our families and the things we share with them like our homes,” she added.

source: abs-cbn news

Foreclosure occurs when a lender or other lien holder (person or organization that has the right to seize your property for payment on a debt) takes possession of a property because the property owner has failed to make regular, timely payments, and other efforts to collect the money have failed.

Most people know that foreclosure can occur when a homeowner fails to make mortgage payments, but foreclosure can also occur if a homeowner fails to pay property taxes, homeowners’ association assessments or contractor’s bills.

After a creditor takes possession of a home through foreclosure, the creditor usually wants to quickly sell the property, rather than bear the expense of maintenance, security and upkeep. If you are a potential homebuyer, you may find good deals on homes being sold through foreclosure.

You can find information about homes in foreclosure from:

* Local newspapers
* Subscription newsletters
* The county deed recorder’s office
* Lenders’ Web sites

Buying from a Bank after Foreclosure

There’s little risk involved with property a bank has seized through foreclosure. The bank will generally pay any other outstanding debts, such as property taxes or amounts owed to the IRS, in order to sell the house with a clear title. Plus, the bank will have already evicted the tenants or former homeowners, and appraised the house before attempting to resell it.

A bank has the flexibility to negotiate on the selling price, down payment, interest rate and closing costs. Added together, these factors can make a big difference in whether you can afford a home, especially for first-time homebuyers.
Buying from the Homeowner Prior to Foreclosure

If you can communicate with a homeowner whose property is facing foreclosure, it may be possible to buy a house by giving the homeowner a small amount of cash in exchange for any equity in the house. You’ll then be responsible for paying any outstanding debts.

But it’s important to thoroughly check out any existing liens or other debts on the property, so you know what you’re getting into. You may be able to negotiate a discounted settlement with any lien holders.

You’ll also want to inspect the property and estimate the costs of necessary repairs. If the costs of paying off the lender, cashing out the homeowner and making repairs are more than the fair-market value of the home, it’s a bad deal.

If you decide to purchase the property directly from the homeowner, it’s important to have a local real estate lawyer draft the purchase agreement.
Buying at a Foreclosure Auction

Buying at a foreclosure auction is the riskiest way to purchase foreclosed property, and shouldn’t be attempted by a first-time buyer.

You may not be able to inspect the property, and will likely have to come up with the entire purchase price in cash in a short period of time (sometimes measured in hours rather than days). Plus you’ll still end up owing any unpaid property taxes and junior liens (debts put on the property after the debt which caused the property to kick into legal foreclosure).

Buying at auction also comes with the possibility that the former owner will exercise their right of redemption by coming up with the cash to buy the house back within a certain period of time. The IRS also has 120 days to redeem the property if back taxes are owed. A local real estate lawyer can fill you in on the redemption laws in your state.

If you’re tempted to buy at a foreclosure auction:

* Research the condition of the property and any existing debts such as liens, unpaid taxes and previous construction debts, by ordering a full title search on the property
* Scope out land use problems such as zoning or toxic waste issues
* Find out how the auction process and rules work
* Sit in on some other auctions ahead of time
* Decide what your maximum offer will be and don’t go above it
* Arrange any financing you may need ahead of time

Buying a HUD Home

The US Department of Housing and Urban Development (known as HUD) often has houses for sale which are sold to the public after HUD or FHA mortgage foreclosures.

HUD properties are sold “as is” on a cash basis through a conventional lender other than HUD. You can only purchase HUD property through an approved HUD broker or agent, who will submit an offer for you. Buyers can also request that HUD pay some or all of the financing and closing costs.

HUD maintains an online list of homes for sale.
Disadvantage to Buying a Foreclosed Home

One disadvantage to buying a foreclosed home is that the property may be sold “as is,” so it’s important to inspect carefully and budget for any needed repairs. As foreclosure rates have increased, some unhappy homeowners facing foreclosure have been known to damage a home before moving out. Before buying a foreclosed home, it’s important to get a complete assessment of all damage and understand how much it will cost to repair the home.

source: lawyers.com

The lenders or the bank who owns the property through a foreclosure have a problem. Why? Because lenders are in the banking business and the banking regulators don’t like it when the lender forecloses. It is seen as evidence that the bank does not observe good lending practices because if it did the property would never have gone into foreclosure.

Secondly, Lenders don’t like to take real estate in their foreclosure because they must carry the real estate “ free and clear” which means the they have to tie up a lot of cash , when they can lend out the money instead at a higher rate which is how they make most of their money.

Thirdly, Banks don’t like to take real estate because it is considered a depreciating asset and appears as expense on its financial statements. Now you understand why banks would want to sell the foreclosed properties as soon as possible.

The simplest way to see if foreclosure buying is right for you is to go to some of the foreclosures in your area and just watch. You will quickly learn the process and the players and you can make a much better decision after you see what happens. You may find that you don’t like the process, but that you can develop a good relationship with someone who does. He may be willing to flip some of his properties to you for a small, but quick profit.

Now on the conditions of the foreclosed properties, many of these properties have damages…such as leaking roofs, clogged toilet bowl, about to fall roof ceiling, dilapidated wall coverings, etc. due to neglects of the former owners. These properties are sold at bargain prices. Experienced foreclosed property buyers will have a good assessment of the damages and costs involved to put it back into livable condition, sell it at a profit or rent it out.

If you are interested to purchase BDO foreclosed property, you will have to submit an offer or a bid for the particular property. Depending on your levels of interest, you may submit an offer or a bid which may be higher or lower than or equal the indicative price. This you will have to do immediately after receiving information that the property is still available. BDO Management will deliberate on several bids or offers of different buyers and the highest bid or offer will win the bidding.

Source:  How To Buy & Sell Real Estate For Financial Freedom By James Dicks and JW Dicks