Nolo's Essential Guide to Buying Your First Home (47 page)

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Authors: Ilona Bray,Alayna Schroeder,Marcia Stewart

Tags: #Law, #Business & Economics, #House buying, #Property, #Real Estate

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Buying a House at Public Sale or Auction
 
If the seller doesn’t pay what’s owed and the lender forecloses, the property will be sold at a public sale or auction. This is rarely a good time for a first time homebuyer to get a good deal, for several reasons.
First of all, the lender will probably make the first bid on the house, for the amount owed on the mortgage. Unless the amount owed is low in relation to the home’s value (rarely the case), you won’t want to bid any higher. And if the price is right and you want to bid, you’ll be competing with savvy real estate investors who know what they’re doing. Even if you’re the highest bidder, you have another giant hurdle to overcome: You’ll be expected to have come with cash in hand, without a traditional loan or financing, which is rarely a realistic option for first-time buyers.
Add to this the fact that you’ll know very little about the house itself. You may never have even seen the place, and you’ll have to take it “as is,” without the benefit of an inspection. It isn’t uncommon for disgruntled homeowners to trash their former homes or to strip them of all valuable assets when foreclosure happens (light fixtures, appliances, even copper wires). Even worse, you may have to go without title insurance, leaving you open to the risk of an unpaid lien or a later claim to title.
Unlike a preforeclosure, when you buy a foreclosure, you aren’t working directly with the homeowner anymore. But that doesn’t mean the homeowner isn’t involved. If a stubborn homeowner or tenant hasn’t moved out, you will likely have to proceed with an eviction action or exchange “cash for keys”—that is, give them some money to vacate the place, to avoid the hassle and expense of the eviction.
Buying a Bank-Owned House
 
If no one else buys the property at the foreclosure sale, the bank will then own it and likely try to sell it, usually by listing it with a local real estate agent. You may come across these deals if you browse MLS listings. At this point, the bank may be willing to sell the house for less than the seller owed, because it isn’t in the business of owning property, and wants to get as much of its cash out of the place as possible. Still, lenders want to get as close to market value as possible, and that may mean it’s not such a great deal for you.
Even if the price is a little lower than you’d find on a house that isn’t bank owned, a bank-owned property comes with additional complications. By the time the bank gets to selling it, it may have been vacant for months, which means it probably won’t be in the best shape. Banks usually do little more than pick up debris and do a basic clean up, so you won’t see any expert staging here, and you may find that the lower price is balanced by the hard work you’ll have to put in to make the house liveable.
 
Buy a bank-owned home.
Anjanelle and Alan were looking to buy a house in the Sacramento, California, area. “When a wave of bank-owned properties flooded the market at rock bottom prices, we thought it might finally be affordable,” says Anjanelle. “But it was an uphill battle, and it took several months.” They bid on three houses before striking a deal, offering a little above the asking price to avoid being outbid. But then the house didn’t appraise for the amount of their offered price. “We thought the deal was going to fall apart, but the bank was so anxious to get rid of the place, and we already had a deal on the table, so they dropped the price. It worked out great for us, and then we had enough cash to do some of the major repair work the house needed, like painting the smoke-damaged walls and having the worn-out hardwood refinished.”
Also, banks usually sell properties “as is.” At this stage, you’ll at least have the benefit of an inspection contingency (discussed in more detail in Chapter 11). That means that while you can’t expect the bank to do anything about repairs that are needed, you’ll at least be able to have the property professionally inspected and back out of the deal if you don’t like what you see.
If you do find a good deal on a bank-owned home, chances are you’re not the only one. It isn’t unheard of for well-priced bank-owned properties to garner as many as ten to 20 offers. (Your real estate agent should be able to find out this type of detail on properties you’re interested in, with a little legwork.) To make your offer stand out, you may have to pay more than other bidders. You’ll definitely want to be preapproved for a loan, and it could help if you preapproval letter comes from the selling lender—they’ll trust their own assessment of your finances better than anyone else’s.
Houses Sold at Tax Sales
 
When a homeowner fails to pay property taxes, the state may take title to the property, then sell its claim (its “lien”) at auction. The buyer of the lien will have to allow the current owner a legally specified amount of time to pay off the lien and reclaim the property before stepping in to claim title. The procedural requirements are complex and definitely not recommended for first-time buyers. For related articles, go to
www.lienexchange.com
.
 
 
CHECK IT OUT
 
For information on foreclosures, see the following sites.
Most offer free house listings for one week, then require a paid subscription:
•
www.propertyshark.com
(includes 50-state law summaries)
•
www.realtytrac.com
(includes 50-state law summaries)
•
www.homesales.gov
(for listings of houses foreclosed upon by the federal Department of Housing and Urban Development after owners failed to pay their FHA loans)
•
www.foreclosures.com
(note the “s” after “foreclosure”).
 
 
Buying in Probate
 
Usually if a homeowner dies, and either left a will or didn’t leave any instructions at all, the property must be “probated.” A court reviews the case, orders a division of assets, and more. Without getting too deep into the legal details, some properties end up being sold, usually at a court-supervised public sale or auction. This is the classic “probate sale.” Another variation on this theme is that the estate’s executor, administrator, or personal representative may sell the house privately, with or without a broker, so that cash can be distributed to the heirs.
It’s possible to get a bargain on a house in probate whether it’s sold at auction or through negotiation. If it’s sold at auction, a minimum bid is set based on its appraised value, and you may be the only bidder. Even if you’re not, California real estate agent Annemarie Kurpinsky points out that, “Unlike competing for nonprobate properties, you know exactly how high the other bidders are willing to go, and you therefore have no feeling of having overpaid.” And with a negotiated purchase, you may benefit from the heirs’ desire for a quick sale—they may regard any money that they get as a windfall.
But the disadvantages of buying a probate property include:
•
Legal and procedural hassles.
Court procedures vary by state but almost always involve paperwork and deadlines—and often a trip to court to bid on the house.
•
Risks of undisclosed repair needs.
You’re waiting for a property whose physical condition may be going from bad to worse. And many states lift their disclosure rules for houses in probate. Worse yet, in many probate sales you must buy the property “as is,” without making the sale conditional on the results of inspections.
 
If you’re interested in probate houses, find an agent who specializes in them. Or, if you happen to know about a person who has died, there’s nothing wrong with checking the probate court records to find out who’s administering the estate and contacting that person. Attorney Fred Steingold explains, “The executor (or “administrator” or “personal representative”) is probably an amateur—a relative of the deceased—and may be grateful for a way to liquidate the real estate without the expense of a commission or the hassles of an auction.”
Housebuying Fantasies
 
For when reality hasn’t yet delivered the house of your dreams, here are some fantasies to indulge in:
•
Buy an island.
Whether you’d fancy an Irish island with a castle or a coral reef atoll in Belize, they’re listed, with photos, at
www.vladi-private-islands.de
.
•
Buy an airplane.
A California woman paid $100,000 for a 747; disassembled it; and turned it into a curvy, eco-friendly cottage. (The plane’s nose was used as a meditation temple.) See
http://news.bbc.co.uk/2/hi/americas/4926216.stm
.
•
Build a treehouse.
You can buy plans—including for a treehouse that’s 64 square feet and requires two trees to support it—at
www.thetreehouseguide.com
.
•
Live on a houseboat.
You provide the boat, and lease the dock or slip. But first, visit Amsterdam’s House Boat Museum:
www.houseboatmuseum.nl
.
 
Okay, now get back to reality.
 
What’s Next?
 
Your home search may continue for a while, but that’s all right. Don’t settle for anything less than a home that meets your minimum requirements (even if those had to be adjusted), one where you’ll be happy living for long enough to strategize your next move. Once you find the right house, things will move quickly—and your first step will be to make an offer to the seller, as described next.
 
CHAPTER 10
 
 
Show Them the Money: From Offer to Purchase Agreement
 
 
Meet Your Adviser
 
Richard Leshnower
, a New York-based attorney with specialized experience in real estate.

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