5 things You Must Know Before You Buy a Foreclosure in Lansing, Michigan
Foreclosures can be very tempting. They are quite often the lowest priced homes in the neighborhood and here in the Greater Lansing real estate market they still make up a fair portion of sales, even if the numbers of foreclosures have been decreasing in recent months. As a home buyer, it makes sense to consider purchasing a foreclosure, but here are a few things you must know.
1) Condition. While the condition of foreclosures varies widely, they are most often in poor condition relative to the other nearby homes. If someone was struggling to make a mortgage payment they probably didn’t have extra money for home maintenance either. Sometimes we even see malicious destruction of foreclosure property. For all of these reasons, a home inspection is particularly critical before purchasing a foreclosure.
2) Bank Addendum. You need to be aware that most likely when you write an offer on a foreclosure, the actual offer will never even be seen by the bank. Most banks negotiate deals on a computer system and do not sign anything until the details are hammered out. Then, you will receive a bank addendum. This is a purchase contract from the bank, written by their lawyers and thus very much written in their favor. It will say things like, “If you don’t close by the contract date there will be a late fee. If we don’t close by the contract date we will extend the date.” Frustrating and annoying…yes, but if the deal is good enough often still worth it.
3) AS-IS. Bank owned properties are (most often) sold in their “as-is” present condition with no representations or warranties. This means that their will be no disclosure about past issues with the property and after you sign on the line all issues are yours.
4) Nuisance Fees. These are fees placed on the property for work done by the municipality. For example, if no one is mowing the grass the City may come in a mow it but place a special “lawn mowing” fee on the tax bill. You need to double-check and make sure these have all been paid as some title companies will not pay claims for these types of fees that pop up later.
5) Non Homestead Taxes. In Michigan if you do not live in a property you pay a higher property tax rate. Since the bank does not occupy the house they are paying this higher tax rate. While you will qualify for the lower tax rate if you intend to occupy the house, you lender may have to base the estimated taxes for your mortgage payment on the current higher rate. Check with you lender for details.
Short Sales – Info for Buyers
As a buyer in Michigan right now you have certainly been unable to avoid the multitude of foreclosure properties available for sale. But there is another type of sale that you may have seen cropping up as well. A short sale. So what is a short sale? And what does it mean to you as a buyer?
Strictly speaking a short sale is a sale in which the price the house is listed for will not be enough to pay off the mortgage. The seller will be “short” on their payoff amount. Unfortunately, that is about the only thing that is short in a short sale. This dauntingly long and frustrating process means that as a buyer, you could be waiting 3-6 months for an answer on your offer. And after the long wait there is no guarantee that it will be accepted. But why?
As a buyer in a short sale you are negotiating not only with the seller, but also with their lender. The seller will not get a dime at closing and thus their entire motivation rests in the fact that a short sale will not mess their credit as MUCH as a full blown foreclosure. The lender has to be convinced that if they do not complete a sale for less than what they are owed that they will get the property back as a foreclosure anyway. The two things that the lenders are looking at are: 1) Is the property really worth less than what the mortgage amount is 2) Can the seller truly not afford the monthly mortgage payments. It sounds simple enough, but in order to check these two facts the lender requires a mountain of paperwork including the sellers personal fiancingal information, appraisals, realtor price opinions and more. On top of all that the lenders are absolutely OVERWHELMED with the volume of short sale requests they are receiving. One employee at the bank may have 400 files they are working on. That is a LOT.
The long and short of it for you as a buyer is that you can get a great deal on a short sale, but make sure you are prepared for a long and grueling wait to get a response once you find a house you like.
Lansing Real Estate: Buying a Foreclosure
There is a lot of talk out there about foreclosure property within Lansing real estate. On one side of the coin people are talking about how horrible foreclosures are. And they are. No doubt. But a savvy buyer can turn this crazy market into real opportunity if they are not afraid to get a little dirty. So what follows is some tips and advice from one Realtor who is on the foreclosure front lines to potential foreclosure buyers.
1) Sweat Equity- Basically this is a nice way of saying that the house is going to need some work. Certainly there is the rare exception, but the vast majority of homes have some “deferred maintenance issues” which is Realtor-speak for nobody has been taking care of the regular home maintenance for quite some time. Remember that the foreclosure process itself is quite lengthy and by the time the bank puts it on the market, it easily could have been sitting empty for a year or more. That is a year or more of no one taking care of the lawn, running the plumbing, etc.
2) Inspection, inspection, inspection – While you should ALWAYS do a home inspection when you purchase a property, it becomes even more important when purchasing a foreclosure property. Don’t be suprised if the bank requires that you pay $100-200 to “dewinterize” the property for the home inspection. Basically this just means that they will hire someone to come out and get the utilities on, which includes pressurizing the plumbing system.
3) Negotiating – Best to defer to your agent on this one. It is true that you know the bank is going to sell the house, don’t automatically assume that they are asking too much for the house. Just as often as I see overpriced homes I see properties selling with multiple offers on the property and the price actually gets bid up. Have your agent pull up recent sales from the neighborhood to see what homes are actually selling for.
4) Hire an expert – Buying a foreclosure can be quite a road to navigate, so it is especially advisable to hire a real estate agent who has been selling foreclosure properties. Remember you can hire a buyer’s agent at no cost to you since the bank has already agreed to pay the commission!
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