Buying a foreclosure home in NY is quite a popular investment strategy. It allows an investor to purchase property at a lower price. On the contrary, it’s considered to be a rather risky investment. If you buy foreclosure property, you usually can’t investigate it before the purchase. That’s why the building may be in far worse condition. Let’s take a closer look.
What is a Foreclosure Property?
Before making a decision whether to buy foreclosure homes or not, an investor should understand what it foreclosure property. Although the potential ROI is lucrative, you have to acknowledge the risks.
A foreclosure house is a house that has been repossessed by a lender as a result of the borrower’s failure to cover mortgage payments. The mortgage lender has the right to sell the property in order to receive a certain amount of money back, which was lost when the borrower stopped covering the loan payments.
There are five types of foreclosure property:
- Pre-foreclosure – implies a house, which may be foreclosed soon. However, it wasn’t put up for sale. The owner can manage to cover the debt or sell the house before it goes into foreclosure.
- Short sale – Such property is valued at less than the price of the outstanding mortgage.
- Auction – the house goes for auction once the owner fails to cover the debt or sell the property through a short sale.
- Real estate-owned (REO) – the property is owned by a bank. This happens in case it isn’t purchased at auction.
- Government-owned – the property becomes government-owned when its owner fails to repay a government-sponsored mortgage loan.
Where to Find a Foreclosure House
Those who purchase foreclosure homes know that finding them is a difficult task. Especially if you want to buy pre foreclosure homes. The reason for that lies in the lack of information. In other words, it’s rather hard to find out which property is about to be repossessed by a lender.
However, if you managed to find the leads that will direct you to a borrower who struggles with a mortgage, it’s better not to wait until the property goes for foreclosure auction. You can make a better deal with the borrower. Another reason for that is a long waiting time. The average period for a foreclosure is around three years.
If you are unable to contact borrowers with mortgage-covering problems, you can look for foreclosure auction. They aren’t difficult to find. The best way is just to google. You can find the information about nearby auctions online. Another way is to check local newspapers or visit a county’s sheriff’s office or courthouse.
You can also turn directly to a bank and buy real estate owned property. However, keep in mind that you are likely to pay much more in such a case.
What to Check before Buying a Foreclosure Home in New York
We have already mentioned before that purchasing a foreclosed home in New York, as well as in any other state, imposes a high level of risks. You may encounter many problems at the moment when you are already unable to opt-out. This is especially relevant for auctions. You can’t investigate the property and have to pay fast (within a couple of days) after the bid is won.
To prevent facing such negative consequences, study the list of what you should check before the purchase. If you need any help, it’s better to turn for free legal advice in Brooklyn.
1. Mortgage Amount and Other Liens
The full amount of the main mortgage lien is probably the most important thing to consider. If you buy foreclosure homes with bad credit, you have to be ready to cover it. Therefore, this aspect significantly impacts the price and overall property worth.
2. Property Worth
You have to determine whether the price is over or below its market value. Keep in mind that the auction price is supposed to be significantly lower than the market value since you have to cover the repair and renovation costs. The best way to determine property worth is to run a comparable sales search.
3. Property Overview
Before purchasing a foreclosure property, it’s better to get to know it. How can you do this? Study the report. You will find photos and property characteristics in the overview section. The characteristics include the main information like year built, usable square footage, lot size, the number of stories, building class.
Once you study all the aspects and find the property that will satisfy you, you can move to a buying procedure.
How to Buy a Foreclosure House
In this article, we will take a closer look at two types of purchases – pre-foreclosure and auction ones.
1. Pre-foreclosure Purchase
As discussed above, pre-foreclosure purchase is when you buy the property before it goes for home foreclosure auctions NYC. The first step is to contact the homeowner or selling representative. You can find an agent’s data on special websites. Another way is to turn to a real estate company.
When this is done, it’s time to inspect the house. You can do this on your own. However, it’s much better to schedule an independent professional inspection. Keep in mind that dealing with a homeowner may be difficult. Not all of them are willing to facilitate the process.
The last step is to make an offer and secure the deal. This can take quite some time, since homeowners may want to receive a big sum.
2. Public Foreclosure Auction Sales
Auctions have a set of regulations to mind. Here are steps you have to take to buy a foreclosure house:
- Get to know the requirements to purchase the house at the auction.
- Require a copy of the contract of sale document or purchase agreement.
- Arrange the property inspection.
- Carefully inspect the property.
- Visit the auction, participate in the bidding, increase your bid to exceed your opponents.
- Complete the transaction if the bid is won.