Monday, July 16, 2012

How Rural Foreclosures in the US Might Be Purchased



     At long last, our daughters purchase of a repossessed home, is finally complete.  I wanted to pass along some general information about how the process may go, for those of you who might want to try also. I would urge anyone interested, to not only pick up a home, but to try to pick up acreage sufficient to grow some vegetables or fruit trees, etc.  Properties with acreage do exist, but also you should check and find out whether chickens, rabbits, goats, etc. would be permitted there, as zoning could prevent this.  While you are checking out areas in advance of looking at houses, find out what their restrictions toward dogs are.
                  When one takes on a mortgage, technically the bank or the government agency who holds the lien on that house can foreclose on it, when you are 3 months and 15 days passed having made a mortgage payment. In better economic times, banks and government agencies used to work with people, and often a forbearance arrangement could be reached.   This means that although you can't pay the whole payment for some reason, and although they are not excusing you, they might cut you enough slack to take two months off from paying, and then add those as two more payments on the back end of the loan later, or some such similar arrangement for good reason.    However, with the economy in the US in many places, being so bad, banks and government agencies who hold mortgages, aren't nearly as flexible or as seemingly kind as they were in years past.   I learned this week that they are unable to foreclose on an active duty military person who is in default. They also need to follow a lawful course which includes notices to the person in default, newspaper listing of the default, etc.   Eventually, people turn up,  with a local sheriff, and they take everything out of the house, and leave it there for the owner to remove and either take to storage or elsewhere. They change the locks, take over the house, and try to sell it to, often some other shmuck !
                  There is risk in buying a foreclosure.  You have no idea whether someone operated a methamphetamine lab in your kitchen, and that those chemicals are in and on the areas in the room in which you prepare your food.  You have no idea whether they are drug dealers, and if their partner heads back to look for something hidden in the home, while you are sleeping.   You don't know whether relatives of the person who was foreclosed on, will wait until you move in, and then, use his knowledge of how to get into a particular window, and then rob you.
                  The first and most important thing, is that after you take occupancy and receive the keys to your home and garage, that you change those locks immediately.  Some government agencies who repossess houses, use just a couple of keys for all their houses.  Have a friend teach you to replace your own door locks.  This is not difficult and Lowes and Home Depot sell some very good locks, which you can change yourself simply by reading the directions.  I recommend a keyed exterior knob AND a deadbolt keyed lock above it. I can replace locks with a couple or screwdrivers, and this means that you can too.    Having an inexpensive security system doesn't hurt either and might be a fabulous idea.   
                   A lot of home break-ins occur in and around the time you have taken possession of a new home. Criminals know that often security is something families consider AFTER they have moved in all their stuff.   A robbery could occur between moving and your beefing up security or getting around to calling ADT or someone else.

                 Locks are great, but locks will only work if your door frames are secure.   Hardware stores have a number of things which can be added to beef up the security of doors, locks and particularly the door frames themselves.  You don't want to live in a place where the front door can be knocked down with a jump and a blow from an adults foot, yet many front doors can be opened in exactly this way.
                 Once you are sure that you are up to dealing with this much grief in purchasing this way, in the US and Canada, you need a realtor who likes to work as a buyer's agent.  A buyer's agent really works for you.  Their job is not just to sell a house, but to find you the right thing. They should send you to a mortgage banker whom they feel is reputable, and after you provide a lot of rather personal financial information, they should qualify you for a certain price house.  Then, your realtor can send you via internet (they all love the internet) pictures and particulars of available homes.  Some with be regular people selling them.  Other listings will be foreclosures owned by banks, and a few will be foreclosures owned by government agencies.  You should look at a number of homes to get an idea of exactly what is available in your area, and at what price.  This is time consuming and sometimes frustrating work.   Eventually, you may find a house in your target area, which meets your needs.  Chances are, there will be cosmetic defects.   People who are being foreclosed upon are not happy people. Most of them (but of course, not all)  are angry, and some of them do everything from sell the stove, to selling the copper in the air conditioning system.  A few go as far as genuine damage and broken windows.    If you do find a house you want, then you should have your realtor write a contract immediately, contingent on your receiving the financing and contingent upon a whole house inspection.   With contracts being written, signed and sent over the internet, the process is much faster than it was just a couple of years ago. Good homes which come up as foreclosures may often be gone at the end of the first weekend showing day or even after the first day it was available.    After you offer a Contract, which is often a full price offer on an already reduced property, the bank or agency takes a bit of time to accept it, or counter offer.  You will also need to offer a thousand dollars in check (downpayment deposit), and the paper which proves your mortgage company considers you mortgageable.


              Once the seller accepts your offer, you begin the paper chase process of proving everything except perhaps your beanie size (for a new hat) to a mortgage company.   Mortgages ARE being written, but the federal government has odd new restrictions and paperwork requirements.  Our daughter actually had to sign a paper, at both loan application and at closing which said that she understood that no government agency would make her mortgage payments for her, and that she would have to make them herself.  Being a person who has not yet received anything from the government, she laughed out loud. I am afraid that all she really expects from them is annoyance and trouble. An inspection of your septic tank, including a pumping out of same, an inspection of your well, and a termite inspection of your house may be done.  A radon level is determined in some states by law. An inspection of the general structure and operating systems is also customary and likely necessary.  If something is wrong, the seller may need to pay for certain repairs, or you terminate your contract and get your downpayment deposit back.  Finally, you go to a closing, either at an attorneys office, or at a closing agents, and the house becomes yours.  (Of course contingent upon your making monthly payments.)
              At the closing, there are a number of things which must be paid.  You must pay attorneys fees for this process.  Our daughter's home appraisal and home inspection was paid by her independently of closing.   She also needed to pay for two types of title insurance.  This covered both the lender and our daughter should someone pop up who says they are owed some money with regard to this property or they have a claim of some kind.  She also paid for a survey and plat,  a home warranty, and a variety of county taxes, and recording fees.    She also paid to have her property taxes and homeowners insurance saved in an escrow account so that her mortgage company could pay taxes and insurance each time they are due.

These are potential fees.   Some of these were not charged to our daughter, but are charged in other areas, or depend upon other factors, like which mortgage company you used.
(Graphic and Photo:

              In a nutshell, this is the process.  There are some variations state to state and province to province,  and all transactions and acquisitions are somewhat unique, these are the highlights.   Despite all of this, the purchasing of a foreclosure can be an excellent way of purchasing a viable home in a good neighborhood for much less than it's appraised value.  Our daughter says that after all the headaches, she would do it again.


Matt said...

During the legal process was she able to get assurances that the foreclosure had be done correctly and not by a robo-signer and that the previous owner can't come back later and cause trouble?

That's been one of my hold ups on looking at foreclosure property.

JaneofVirginia said...

Every case is different, but her attorney carefully reviewed all of the paperwork in association with the government agency who took back the property. Incidentally, the precious owners had never made ONE single mortgage payment. She also has title insurance which also looked at the same issue. I personally would not purchase a home from Bank of America, as I know several people who had the issue of which you speak, in terms of buying from them.