RISMEDIA, February 5, 2009-(MCT)-The process that begins when a homeowner falls behind on the payments and ends when a property is auctioned as a foreclosure is extremely complicated, even for the experts.
In a traditional sale, buyers and sellers sign plenty of documentation throughout the transaction that could leave either side liable if something is amiss. There are preliminary title searches, inspections and homeowner disclosures that offer some level of protection.
These usual safeguards often are missing when buying a foreclosed property at an auction, said Vic Nicolescu, a broker and partner with The Alba Group in Medford, which is part of Keller Williams Realty and specializes in helping investigate foreclosed properties before they are purchased.
“It’s the buyer that’s taking the risk,” he said.
After a homeowner has failed to make payments for a certain length of time, the lending institution will send a notice of default. The number of months a homeowner can go without making payments varies but could be from three to six months.
In the default notice, lenders typically demand that the missing payments, late charges and the entire principal be paid within 120 days. After that period, the bank can sell the property at auction. The time from when the homeowner doesn’t pay his first payment to the auction date could be a year or more.
At some point, the homeowner might decide to sell the house but discover that the downturn in the market means he can no longer get the original purchase price.
If a homeowner paid, say, $200,000 a few years ago, that property could be worth only $160,000 in today’s market. The homeowner might decide to put the house on the market for $169,000 but agree to sell it for $165,000, which is known in the industry as a short sale.
At this point, the deal gets tricky because the bank has to agree to the short sale because it means there still is $35,000 remaining toward the balance. Nicolescu said these sales are extremely rare.
If the homeowner can’t work things out with the bank, ultimately the property will be auctioned off on the Jackson County Courthouse steps. Nicolescu has seen lending institutions tack on attorney’s fees, late fees and other charges. In the case of the $200,000 house example, he said the lending institution might ask $212,000 for a house that now is worth only $160,000.
Sometimes banks ask for far less because they are hoping to get rid of the property, he said.
Things get dicey when there are numerous liens on a property, or the title is cloudy or there are various loans against the property, said Nicolescu.
If a third-trust deed is being auctioned off on a property, the new owners might discover they are liable for paying off the first and second deeds if they haven’t done their homework.
Even if a bid is accepted on a house, there still are no guarantees.
A previous owner could have punched holes in the wall or have destroyed other items in the house even after the purchase. “It’s not unusual to have the appliances missing,” said Nicolescu.
On the other hand, Nicolescu has seen the previous owners shampoo the carpets and leave the key under the mat.
“I’ve seen people who have bought a house for $125,000 where the only expense was getting the locks re-keyed,” he said.
Until the deed arrives about a week after the sale, the buyer doesn’t technically own the house. Nicolescu said this period is a gray area in ownership. “What if the house were to burn down during that time?” he said.
After moving in, the new owners might encounter other problems-such as repossession of their heating and air-conditioning units because the previous owners failed to pay for their recent installation.
Nicolescu checks with the recorder’s office, the assessor’s office and lending institutions as part of his research, but ultimately he said he can offer no guarantees to investors or people who just want to purchase a home for a good deal.
Buying a foreclosed house could be a “sensational opportunity” for a first-time home buyer, said Nicolescu. But the process is so fraught with potential problems that few actually choose to go down that road, he said.
Of the two dozen properties over the past two years that he’s helped purchase, Nicolescu said about two have gone sideways.
He said that if it were an easier process, dozens of people would show up on the Jackson County Courthouse steps rather than the half dozen he normally sees.
Even though Nicolescu has carved out a niche in the foreclosure market, as have other local firms such as Gorilla Capital, he said he is neither an advocate nor a critic of the process of selling foreclosed properties.
However, he said, he would like to see lending institutions work to keep more people in homes rather than creating blight in local neighborhoods as houses are abandoned.
What to Watch For
– Check with a title company to determine the number of loans on the property.
– Before you go to an auction, find out which trust deed is being bid on. You could be liable for other trust deeds once the sale is concluded.
– Go to the Jackson County Clerk’s Office to see whether there are any liens.
– Find out how much property tax is owed
– If the previous owners are involved in a bankruptcy, that could tie up the sale.
– Even if you have the low bid at an auction, it doesn’t guarantee you’ll end up with the title.
– If someone is living on the property, it might be a problem to get them to move out once you make the purchase.
– During a foreclosure, you might not be able to inspect a house and could inherit more problems than you imagined.
– Buy insurance once your bid is accepted because ownership doesn’t transfer until after you’ve received title.
Copyright © 2009, Mail Tribune, Medford, Ore.
Distributed by McClatchy-Tribune Information Services.