Process For Buying Foreclosed Homes

Short sale can be an alternative to foreclosure

■ For a primer on short sales from the National Association of Realtors, go to Realtor.org/realtors/basics_short_sales.

■ For Freddie Mac's tips on ways to avoid foreclosure, go to Freddiemac.com/singlefamily/avoid_foreclosure.html.

■ For information on federal assistance from the U.S. Departments of the Treasury and of Housing and Urban Development, go to Makinghomeaffordable.gov.

Loretta Heagy's dream of home ownership came true in October 2006, but within years, the prospect of foreclosure loomed as she became a statistic in the downfall of the American housing market. Today, though, she's part of an evolving trend — short sales — that aims to put the home-ownership world on more stable footing.

Heagy's history reads like many from the past few years. Upon buying their home on Kelsey Drive in northwest Lexington, Heagy and her partner, Shirley McDonald, took on a loan that required them to pay 20 percent of it after two years. But during those two years, Heagy's sister and niece came to live with the couple and their two children, and resources were stretched thin.

When they couldn't make the balloon payment, the only company they could find to refinance the loan required a 13.25 percent interest rate.

"Our payment doubled almost ... but we refinanced with them because we didn't want to lose our home," Heagy said recently.

"We went into having to live off credit cards," she said. "We were buying groceries on credit cards and paying bills on credit cards.

"We tried for two years with the interest rate that ridiculous, and then we just couldn't do it anymore."

She and McDonald had paid about $110,000 for their home. Today, they owe $122,000 on the loan, she said, and they last made a mortgage payment in May 2010. But there's hope.

With the help of a real estate agent specializing in short sales, the couple have gotten permission from their lender to sell the property for $79,000, far less than the loan's amount, to satisfy the debt, with the lender forgiving the difference.

What is a short sale?

Short sales are an increasingly common real estate practice with a somewhat confusing name. It doesn't refer to the time the sale takes but that the selling price of the home falls short of paying off the existing loan. In fact, short sales rarely take a short time.

"Short sales take quite a bit longer than regular transactions," said Heagy's real estate agent, Brandi Mahon, a certified default resolution specialist with Keller Williams Realty Alternative Foreclosure Solutions.

Buying Logan Utah Foreclosures: The Truth About The Foreclosure ...

When you start looking at home and you notice that many of them are Foreclosures, do you start to get excited about the potential price?

Most buyers I work with assume that foreclosures are going to be a better deal when comparing similar properties on the market. The truth is, sometimes they are fantastic deals, but more times than not, they have a hidden surprise.

They may also have removed items before the home was repossessed, and these missing items are usually ripped from their perch. You’ll often find foreclosed homes have holes in the wall, dirty and torn carpets, and many other cosmetic problems. So, although the purchase price looks awesome from the outside, the inside may show a completely different picture.

Everytime I have a buyer talk about an amazingly priced foreclosure property they saw on my website, I always tell them to hold their horses. It’s priced cheap for a reason, and many times that reason has something to do with the condition of the interior. It’s important to look at the inside before you decide on which style of curtains to put up.

Are there other foreclosures and distressed properties in the neighborhood? Do you see a lot of vacancies and real estate signs scattered throughout the area? Is this neighborhood on it’s way up or down? These are all very important questions to consider. Declining property values could affect your property for years to come. That great asking price could turn into a major headache if you don’t consider the tangibles.

If the home has sat unoccupied for a long period of time, the problems can only compound. Banks will take the necessary steps to winterize and seal up the home, but with no one to check on it regularly, there can be some problems. Things like infestations from bugs and rodents, broken plumbing seals, smelly sewer gas, and vandalism are all potential pitfalls to be wary of.

The inside can be the most costly of your repairs, but the outside can be the most backbreaking. Overgrown shrubbery and roots pushing up sidewalks can be seriously tough to contain. Vines and overgrowth can work their way into the home from the outside through window seals and vents. Keep your eyes open for any outside invaders that can create problems inside.

Many times foreclosures have multiple bids from investors who are experienced in the foreclosure process. Don’t let the competition force you to make a bad decision. If you think the repairs are out of your grasp, move onto another house, don’t make a quick decision you’ll regret later. An experienced Realtor can give you an idea of repair costs, and it would be a good idea to get a bid from a trusted contractor before accepting an offer.

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