Buying a Foreclosure can be tricky but not with the right people by your side 

After many years of prices steadily rising, the market is seeing a decline in values and subsequently due to some very bad mortgage products so are foreclosures. In our area of Connecticut and Fairfield County we are seeing a hig number of foreclosures especially in Bridgeport where are large portion of borrowers had financed using creative mortgages like 2/28 (2 years fixed and variable for 28 years) Piggy back loans (80% 1st loan and 20% 2nd loan usually at a substannily higher rate) No income verifications (many which have been dubbed Liar Loans)& SubPrime loans where borrowers and or their mortgage brokers fudged the numbers on what folks where making in order to qualify for a loan. This epidemic of irresponsible lending has come home to roost and has left many in dire straits. Let's not forget that the economic conditions have also worsened which oonly adds fuel to the fire and creates futher hardships.  

That means a would-be homeowner could potentially save even more money by buying a home that's been taken over by a bank or lender seeking to recover money still owed on the property.  

Many of these foreclosures are new homeowners who had built little or no equity in their property; therefore, the amount the lender is trying to recover may be close to the full market value of the house or at most only a 10 percent discount.  

Buyer Beware
Most if not all foreclosure homes are sold "as is" which means that the 25 percent you just saved on the purchase price can easily be eaten up by unforeseen expenses such as repairs not immediately apparent in an exterior inspection. That's because when you buy a home in foreclosure, you may not be able to look inside let alone have an inspector detect structural problems that you'll need to fix before moving in.  

Something else to think about -- people who lost their home in foreclosure very likely couldn't afford to maintain their property.  

So be prepared to pay for any problems such as electrical or plumbing repairs, leaky roofs, or even vandalism by angry homeowners who break things or punch holes in walls and doors, an unacceptable but not that uncommon way that some homeowners deal with the angst of losing their home to foreclosure.  

Just remember that they're losing a home and you're benefiting from their loss so they may want to take out some of that rage on the new buyer the only way they can, by trashing the home that they've lost.  

Three Ways to Buy
There are three ways you can buy foreclosures and each one has its own distinct discipline.  

They are:  

• Pre-foreclosures, where you buy directly from a homeowner before the bank forecloses;
•At auction, where you place a bid, possibly in competition with others;
•From a real estate company. This is called an REO.  

Pre-foreclosures/Short Sale Listings are appealing because they require the least amount of capital, you can get a property disclosure from the current homeowner to the condition of the home and often they are in better shape.

At Auction or Foreclosure by Sale is usually conducted by an appointed attorney representing the bank. Only done when it is determined that there maybe some equity in the property from what debt/liens are on title. You are typically required to bring 10% of the value in a certified check to bid and the winning bidder has to close in 30 days or forfiet the deposit. Pretty risky to purchase with a mortgage because the banks are not known for extending the time here. This is a viable option for cash buyers and investors.  

Auctions also carry the most risk but can yield the highest reward. The key is to know what you're doing.  

(REOs) Real Estate Owned represent the third way to buy foreclosures.  

Reo is least risky in terms of what you're buying. You get to fully inspect the property, demand a clear title, and the sale can be subject to getting a mortgage. 

Most banks sell foreclosure properties through a broker. They are considered the safest and also the least financially rewarding of all foreclosure buying options. But properties sold this way also tend to be in better shape.
 

Financial Considerations
When considering buying a home that's gone into foreclosure there are a number of financial considerations that have nothing to do with the property but which could put you between a rock and a hard place.  

For example, when you go to an auction, you may need a letter from either a bank or lender that you have the money to buy the property.  

On the other hand, many banks and lenders will refuse to even give you a mortgage on a property being sold "as is" because that means their appraiser can't inspect it first.  

If the amount owed is less than what the buyer paid, and if the buyer bought the property by bidding on it at auction, and he probably did, then the buyer loses that money. He also loses any money spent on repairs or upgrades.  

But you may be able to have this redemption right waived, so make sure you check into the situation in the state where you are purchasing the foreclosure.  

Another possible complication is something mentioned earlier, a "lien." A lien is a legal claim against a home.  

There's a fairly good possibility that someone who can't make mortgage payments may owe money elsewhere. Therefore, you have to conduct what's called a "title search" that should uncover any liens.  

Common liens stem from unpaid taxes -- either property taxes or income taxes -- in which case the federal, state or local government could have a claim against the foreclosed property.  

Other liens include unpaid contractors or loans borrowed against the property.  

These liens remain intact until the money is paid which means that you will have to pay off the liens on the foreclosed property you are buying, even though it wasn't your water heater the plumber repaired, and even though you're not the one who didn't pay the property taxes the last few years.  

Be forewarned -- you won't be able to get title insurance that provides protection against anyone challenging you for ownership of the property.  

Still interested?  

If so, here are some tips to help you to safeguard against foreclosure headaches that may come with the territory.  

•If possible only consider houses owned by people who have lived there for a minimum of two years. The longer someone has lived in a home, the more equity will be built in, even if they made interest only payments because property values have risen steadily over the last two years.  

•Stay away from owners who bought their home with "no money down." This cuts into the equity that's been built up. 

To obtain lists of foreclosures in your area, Velvel recommends contacting the local office of the Real Estate Investment Association.  

"You can get everything you need there from lists of foreclosures, to other services such as the best Title company or the best bank for mortgages," says Velvel.  

What's Required
Decide what paths you want to take and seek professional advise and help.  

"You need to be able to do your own title searches," he says. "You need to be able to price or appraise property to determine any equity. You need to know how to fix up a property and then how to market it. And finally, if you're buying at auction, you need to have enough cash."  

To put it simply, buying a foreclosure is not just risky business, it's one gamble where the house doesn't always win.  

"If you're looking to live in a house, it's more important to find an area that you like than to find a good foreclosure deal. But then, if there are foreclosures in an area you like, buy the foreclosure."
 

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