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What You Need To Know About Buying A Foreclosure

If you are looking to purchase a Foreclosure property in Arizona there are a few things you should be aware of ahead of time. First you should know that foreclosures are also called REO’s (real esate owned), or lender owned properties.

  • Lender owned properties are plentiful. If you are looking for single family homes under $200K in a decent area be prepared for multiple offers. First time home buyers and investors are everywhere buying single family homes in this price range. You need to be realistic with your offer. Do not think you are going to purchase these homes at great discounts. If anything these properties can possibly go for over the asking price. Be realistic. DO NOT LOOK FOR THE DEAL ON TOP OF THE DEAL.
  • Many foreclosures, where the property is owned by Freddie Mac or Fannie Mae have 15 day 1st look periods. This is part of Neighborhood Stabilization Programs where investors cannot make offers until this 15 day period has expired. It also prevents owner occupants from having to compete with investors.
  • If you are in a multiple offer situation count on the lender requesting that you come back with your “highest and best” offer. You will not know what the other offers are. Often these requests are done verbally or via an email from the listing agent. You will have a certain time frame to respond, usually 24 – 48 hours.
  • If you are an investor, there may be some properties that you cannot put an offer in on before what is called a “first look” period expires. That period is usually 15 days. This is a blocked out period for buyers that will be purchasing the home and plan on living in it as there primary residence.
  • If you are planning on paying cash you will need “proof of funds” attached to any offer you submit. You should have this ready to go ahead of time if you are serious about finding a property.
  • If you are planning to pay cash for a property, the lender in all likelihood will request a shorter closing.
  • If you are paying cash for a property, you can still have an appraisal of the property. HOWEVER, the lender in all likelihood will not want the appraisal to be a contingency in the contract.
  • If you are financing the purchase of the property an appraisal would be a contingency in the contract, as well as being able to get a mortgage. Should the property fail to appraise or you are unable to satisfy the mortgage contingency in the contract, you may cancel the contract and have all earnest monies returned to you in full.
  • If  you plan on financing your purchase you will need to have a Pre-qualification Form completed by an Arizona licensed mortgage broker/lender attached to any offer you submit.
  • The Pre-qualification Form is not just a form that has the results of your credit being pulled. It is much more in depth and you need to attend to getting this completed prior to looking a properties. This way you are assured that you are looking in the right price range and a lender realistically feels, subject to additional underwriting criteria, they will be able to finance your purchase. If you need the names of licensed Arizona mortgage brokers contact us and we will provide you with referrals.
  • Lender owned properties are usually sold  “AS Is”. What you see is what you get. You need to know that many of these properties have deferred maintenance, and the interiors need repairs, possibly new carpet, paint, appliances etc. That said we are seeing some lender owned properties where the lenders are getting some of their properties in shape and taking care of many of these items to make them much more salable.
  • You will be able to have a home inspection. If the home inspection reveals anything that is not to your liking you may cancel the contract and receive the return of your earnest monies in full.
  • The lender will have a series of their own addendums to any offer that we submit. These addendums have been written by their attorneys. The lenders are not looking for us to counter back on these addendums. They are what they are, their attitude is pretty much sign off on it or we move on to then next buyer.
  • We of course don’t want you signing anything that we find to be detrimental to you or your situation or that you are uncomfortable with. We will go through these addendas with you and advise you accordingly. If for some reason you are not comfortable with the contents of these addendums you can withdraw your offer.
  • Many of the REO properties that are showing as “Active” have offers in on them. Either the listing agent has not had a chance to change the listing status, the listing agent is not following the MLS rules and is keeping the property active trolling for additional offers, or the bank has offers they are sitting on waiting for higher offers to come. How can any of this take place, all I can tell you is IT DOES.
  • If you are buying an REO in a condominium development you may have to pay cash for the unit. This happens when there have been too many foreclosures in the development, the HOA reserve is too low and a lender will not finance in the development.
  • Purchasing a lender owned property in a higher price bracket will have more negotiating room on the price. The reason for this is that higher priced properties are not selling as quickly as the lower priced properties. The days on the market are substantially longer. There are also fewer buyers for these types of properties.
  • Once your offer has been approved by the lender you will have specific time lines to get things done, i.e. inspections and your due diligence usually within a 7 day time frame. You may be informed that you have to pay and make arrangements to have the utilities turned on in order to complete your inspection. The date you requested for closing could also be altered by the lender.
  • With all foreclosure properties you will receive what is called a Special Warranty Deed. This is typical when buying a foreclosure. Basically the lender is only warranting the property from the time they took title and not before.
  • Last most foreclosures come with deferred maintenance, especially if they have been on the market for a substantial length of time. Some need cosmetic repairs, landscape work etc.  Just be prepared that you may have to put additional monies into the property.