What Kind of Foreclosed Home Are You Buying?
To answer the question, “How do I buy a foreclosed home?”, let’s talk about the different ways foreclosed homes are sold.
First, there’s the ‘tax sale’ or ‘Sheriff sale’. These are auctions held at the county level – at least in New Jersey. The properties are being sold by the County for unpaid property taxes. In northern NJ, you can go to scheduled auctions at the County seat in Hackensack for instance (Bergen County). The auctions are held approximately once per week and the properties to be sold are published online here. The published information will include an “upset price”. This is the bid amount you’ll have to exceed in order to outbid the mortgage holder.
You should know that many of the homes on the list for a given auction won’t actually be sold – the owner and lender often work out a deal just before the auction allowing the owner to keep the property. You should also be aware that you don’t get to preview the property – you can’t go inside and you can’t walk the property.
If you purchase a foreclosed home, you may have to evict an occupant at your expense. And all issues with the property become your issues, whether it’s a leaky roof, leaky oil tank or termite damage. So buyer beware.
If you are the winning bidder at the live auction in Bergen County, you’re required to post a deposit of 20% of the total bid price in cash, certified or cashier’s check immediately. The balance of the bid is due in 30 calendar days from the date of the sale.
The second way to buy a foreclosed property is to search your local MLS for bank-owned properties. You can find Bergen County foreclosed properties here. In most cases, banks want their foreclosed properties exposed to as many buyers as possible, so they list these properties in the local MLS.
FYI, bank-owned properties are also called REO’s, short for real estate owned. In most cases, you can preview these listings. You would make an offer through a real estate agent. Typically you have a limited amount of time to perform a home inspection after your offer is accepted. However, be prepared to make moderate to significant improvements on your own dime. Major issues uncovered during an inspection are sometimes credited by the bank. The timing of the closing is not in your control as the buyer. The bank may be able to close very quickly or they may take some time to determine if your bid will be accepted.
A third way to buy foreclosed homes is by online auction. Auction sites include Hubzu.com and Auction.com. Some of the properties listed on these auction site are also listed in your local MLS and can be viewed in advance using a real estate agent. Others properties are still occupied and are not available for viewing. As a buyer, you can place bids yourself, or you can use a real estate agent to bid for you. Be warned – other bids on some of these auction sites are not from actual bidders, they are false bids placed by the auction company to drive up the price. Many of the properties will come back on auction again and again and again – either the winning bid was not a real person or the winning bidder did not complete the transaction. I suspect many bidders don’t view a property until they win an auction, and then decide they bid too high. The auction sites will try to prevent bidders from making a pattern out of this behavior by blocking them for a period of time. If you are the winning bidder, you typically have 48 hours to sign a contract and submit your deposit. During that 48 hour period, you may have an opportunity to conduct a home inspection if it the property is not occupied.
The market for foreclosed homes is quite active. In Bergen County, investors are out in droves looking to buy and hold or buy and flip properties. Sometimes its better to buy MLS-listed dilapidated homes that are still privately owned. They could be receiving less attention from the buying public.
So keep an eye out for new listings for Bergen County Foreclosures, REO, Bank-Owned properties. Call me when you’re ready to go preview them! – Michael Shetler, 201-421-0506 cell