Foreclosures Buyers Tucson Vail AZ

Foreclosures: A Buyers Overview

This article is one in a series on Short Sales and Foreclosures. Eighteen articles are currently planned, but more will be added as needed. A complete list of articles appears at the bottom of this page.

What is a Foreclosure?

A Foreclosure occurs when an Owner falls behind in their monthly mortgage payments and the Lender “takes” the property as collateral on the loan. When borrowing money on a home loan, the property is almost always used as the Lender’s security in case the Owner defaults – fails to make payments – on the loan.

In most states, Foreclosure is a Judicial process that requires legal proceedings and requires a judge. These proceedings usually take at least 180 days or more. In Arizona, Foreclosure is a non-Judicial proceeding that can be completed in as little as 90 days. A Lender usually does not start foreclosure proceedings until a Homeowner is at least two and more often three or more payments behind.

The Owner receives a legal notice from the County that advises them that their property will be sold in a “Trustee Sale”. The notice must give the Owner at least 90 days to respond, in which they can make up the payments and stop the proceedings.

If not stopped, these sales are conducted daily on the Pima County Courthouse steps in downtown Tucson. Interested Buyers must bring $1,000 in Certified Funds which becomes their deposit if they win the bid. The remaining funds are due at 5:00PM the following day.

Here is an example: Let us say the sale was on a Tuesday and the winning bid was $80,000. The Buyer gives the Trustee $1,000 in certified funds as a deposit and on Wednesday they must pay the remaining $79,000 by 5:00PM.

Trustee sales happen very fast and are not for the inexperienced or faint hearted. If you are considering making a bid on the property, you should consult with an attorney or financial advisor first to protect your interests.

Most Trustee Sales result in the Lender “Buying” the property for the amount of the outstanding loan balance. If there are no bids or no acceptable bids, the Trustee retains “buys” the property for sale on the open market.

Buying Foreclosure Property – A Good Opportunity?

Foreclosure property is usually priced below the market value of comparable homes in the area, so they appear, at least on the surface, to be excellent values. In most cases they are good buys, but you must thoroughly inspect the home to be sure.

Some foreclosure properties are missing appliances, fixtures or other parts that have been removed by the owners. Knowing they are losing the home, owners often remove and attempt to sell items that have value within the home. I have seen toilets removed, brass door hinges, fans, lights, plumbing fixtures, even light switches and plugs. They may also have been vandalized and if there is a pool, it may be in disrepair due to neglect.

The cost of all these items must be considered when comparing the sales price of the foreclosed homes to other properties without those deficiencies. You should always have a professional home inspector evaluate any property you are considering for purchase, and with a foreclosure it is even more critical. Foreclosed homes often suffer from neglect, and a good home inspector must be hired to uncover problems that could affect your decision to purchase the property.

Previewing and Inspecting Foreclosed Property

It is not uncommon for the utilities to be off when previewing foreclosed properties. You should always preview them during the light of the day and take a flashlight with you for dimly lit areas such as closets, bathrooms and the garage.

Utilities will have to be restored in order to conduct inspections, and your agent will work with the Seller’s agent to have them turned on. In some cases the Lender will not pay to have utilities restored, which then becomes the responsibility of and a cost to the Buyer.

Making an Offer on a Foreclosed Home

The Arizona Purchase Contract is used for submitting an offer on a foreclosed home. An “As Is” Addendum is usually required, as the Lender will not make any repairs. Of course, you will still inspect the home and withdraw the offer if the condition does not meet your expectations.

With a Short Sale, you can wait months before receiving a response to an offer. With a Foreclosure, you will likely receive a response with three business days.

The response might be verbal at first, followed by the Lender’s Addendum(s). The Lender Addendum restates much of what is in the Arizona Purchase Contract, plus some additional provisions. The Lender’s Addendum overrides any language in the Arizona Contract, therefore it is critical that both you and your Realtor go over this document very carefully.

The Addendum includes many dates & deadlines that must be met and there are often penalties for missing them. The Addendum also includes instructions on closing costs, which may have an impact on what you are required to pay at Closing.

For example, Closing Costs and who pays for them are covered in The Arizona Purchase Contract, where it states that the Seller will pay for Title Insurance and ½ of Escrow and Recording Fees. The Lender’s Addendum will also cover these costs, and it may make the Buyer responsible for paying them. Remember, the Lender’s Addendum overrides what is in the Purchase Contract.

Contract Accepted, Now What?

Contract acceptance of a foreclosed property is a little different than a “normal” purchase. In a “normal” purchase, the signed Purchase Contract is returned to you. Written Contracts, however, are required by Federal Law when selling Real Property (Land & Homes), yet you may be given verbal approval first, followed by an unsigned Lender’s Addendum – what security is there in that?!

Worse, there is usually language in the Addendum that states the Seller may cancel this contract up until the time you receive a signed Contract from them. You may not receive the signed contract for days, even weeks, but unfortunately this is common practice.

You are given ten days to fully inspect the property, so you should schedule that immediately upon acceptance. The property is sold “As Is”, so the Seller will almost never consider paying for any problems you may discover.

There are a few exceptions but they are very rare. The Seller may agree, for example, to pay for repairs that are required by law before the property can be sold.

If you decide the condition of the property is not what you expected and the costs to repair the problems are more than you are willing to take on, then you may cancel the contract providing you do so, in writing, before the end of the Inspection Period. If you attempt to cancel after this date, you may lose any funds you deposited when the purchase was accepted (Earnest Money).

Once you are past the Inspection Period, the sale can proceed to closing. If you are borrowing money to pay for the home, then an Appraisal will be ordered by the Lender. The Lender may also require certain documents before final approval of the loan.

After the loan is fully approved, the lender will send the documents to the Escrow Company for signing. Once you and the Seller sign all the required documents AND the funds to purchase the home are received by the Escrow Company, the sale will be recorded by Pima County and the property is yours.

That’s it, in a perfect world. Each Short Sale is unique, and new issues come up frequently. There is also a major, government sponsored Short Sale program called HAMP to be released in April. Participation by Lenders is voluntary, so it will be interesting to see how they respond.

In closing, please know that Short Sales are complex transactions and there are many steps and details involved in each one. Each Lender has different rules, and they often change them as well. If there are two Lenders involved, the difficulty increases substantially as Realtors must negotiate between both Lenders and the Seller.

Short Sales are not for inexperienced Realtors. Do you recall the messages on Reality Shows that state, “Warning: Do not attempt this at home. Professionals only. ” Realtors should have a minimum of three and preferably five Short Sale closings to have the experience required to be successful in this market.

Disclaimer:The above article is, to the best of our knowledge and belief, an accurate representation of the facts. It is informational and not intended to be a source for financial or legal advice. We are not qualified to provide financial or legal assistance; however, we are licensed and experienced in the sale or purchase of Real Estate, and we will gladly provide guidance and recommendations in this area.

Rob & Catherine Hallberg, CSR, GRI, ABR, SFR, MRE

Associate Brokers, Long Realty

More Articles on Short Sales and Foreclosures

Buying Lender Owned (Foreclosure) Properties

Foreclosures: A Buyer’s Overview

Lender Addendums: Buyer Beware

Getting Your Offer Accepted

Foreclosure Lists: What They Are & Are Not

Inspections: Protecting Your Interests

Reality Show: Short Sale & Foreclosure Lore

Frequently Asked Questions

Next Article: To Be Determined

Buying Short Sales: The Good, The Bad & The Ugly

Short Sales: A Buyers Overview

Getting Your Offer Accepted

Negotiating the Lowest Possible Price

Short Sales: What is Taking So Long?

Will Lenders Pay Your Closing Costs?

Reality Show: Short Sale & Foreclosure Lore

Frequently Asked Questions

Next Article: To Be Determined

Short Sales & Foreclosures: A Homeowner's Perspective

Short Sales: A Seller's Overview

Pricing a Short Sale For Success

Should I Short Sell My Home?

Negotiating With Lenders

Help! I Received a Foreclosure Notice

Future

The Short Sales Package

Reality Show: Short Sale & Foreclosure Lore

Frequently Asked Questions

Next Article: To Be Determined

More Help For Buyers

What about Short Sales? Are these a bargain and what are the pitfalls? How should I start my Home Search? What would my payments be on a Conventional, VA or FHA Mortgage? As a First Time Home Buyer, what do I need to know? Answers to these questions and more may be found above.

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