The Purchase of Foreclosures

We’ve sold more than 240 foreclosures. Because of our involvement with foreclosure transactions we are often asked if there is a good strategy for purchasing foreclosure properties. The best advice we can give you when purchasing Freddie Mac and Fannie Mae Foreclosures is to find a real estate agent who is certified as a Freddie Mac Homesteps Listing Agent, and Fannie Mae HomePath Listing Agent. If the agent you are working with is an experienced foreclosure listing agent they will know negotiation and pricing practices of asset managers, and special offers by both government sponsored enterprises Fannie Mae and Freddie Mac. This gives the buyer an edge against other contract offers.

Freddie Mac and Fannie Mae set the standard of how foreclosure properties are managed, maintained, released to vendors for marketing and sales, and any contributions or special incentives provided to purchasers upon closing.  Due to the number of homes they own across the country, foreclosed homes not insured by these government sponsored mortgage entities have to give the same buyer assistance offered by the foreclosure leaders.  The Moyers Team are registered listing agents for Homesteps and HomePath foreclosures, and we’ve worked with asset managers assigned to Northern Virginia. This gives us an edge when representing clients purchasing Freddie Mac and Fannie Mae Foreclosures.

Freddie Mac (Homesteps Program) & Fannie Mae (HomePath Program) Foreclosures.

Homesteps: After Freddie Mac acquires a residence the Homesteps Program allows for repair and conditioning of the home in accordance to ‘Good Neighbor Standards’ and will either give repairs for any items which are contingent on loan approval, or cut contributions to the buyer toward closing. Usually, the Homesteps Program allows 3% of the sales price toward closing costs, and a limited 2 year warranty.

HomePath: Using HomePath Mortgage allows the purchase of a Fannie Mae home with a low down payment, no mortgage insurance, a low down payment, increased contributions toward closing costs (usually no less than 3%), no lender requested appraisal, and flexible mortgage terms. These benefits apply to a primary residence, second homes, and investment properties. There are also financing options which allow more funding for renovation if necessary.

Buyer beware when purchasing a foreclosure. There are several unanswered questions when these transactions occur. Locating the earlier owner and receiving their cooperation on earlier maintenance performed on a foreclosed home is not likely to occur. We doubt this needs to be explained any further. NEVER PURCHASE A FORECLOSURE WITHOUT A COMPLETE HOME INSPECTION. Additionally, a legal plat will not be available on these homes. We encourage a search of local land records to make sure property lines are clearly defined, and there are no encumbrances associated with the lot belonging to the foreclosure before entering into a contract. Contract acceptance by the bank is another issue.

Contract Ratification Problems

Listed below are four main reasons contract offers are stopped by bank representatives after a foreclosure listing agent has placed a foreclosure on the market for purchase.

(1) Title issues are found by the foreclosing attorney.
(2) A federal tax lien was placed on the property, and discovered after the foreclosure process was complete.
(3) Repair issues. Eliminating the liability of hazardous conditions (mold immediately comes to mind) requires banks to instruct the listing agent to temporarily withdraw the home as available for purchase, arrange to neutralize the hazard, and place the home on the market again as active and ready to accept offers.
(4) If the home was part of the improper signing process done by foreclosing attorneys, it will be taken off the market, and the foreclosure process will go back to the beginning after the foreclosure has been verified for accuracy. Most of these homes are now coming back as active listings and available for purchase.

Like any blog post we develop, the information provided here is only an outline of the foreclosure process. If you have any question about foreclosures, and other residential real estate matters, please feel free to contact us. Advice is always free. The information provided here is based on our experience.