Buying Foreclosures

March 27, 2009 12:00:00 AM PDT
Low prices and low mortgage rates have many in the Valley diving into the foreclosure market.32-year old school teacher Audrey Perez is a first time homebuyer looking for a deal. "I figured foreclosures because they're at a more discounted price."

Audrey was priced out of the market during the housing boom. She's been looking for a month now with her realtor, Javier Gonzales from Midstate Realty. He said foreclosures make up 75-percent of the Fresno area housing market because private sellers are having a difficult time competing with bank owned properties.

But for clients like Audrey, finding a move in ready foreclosure can be tough. "I've seen holes that lead from one wall to the next. I've seen homes that every square inch of it is graffitied," said Gonzales.

Javier's boss, Shannon Martin is known as "Shann the Man" for his hold on the foreclosure market in the Fresno area. He believes with a federal tax credit, low interest rates and low prices, the market is ripe for first time homebuyers. "Our sales are up from this time last year and its predominately first time homebuyers using FHA financing their first home and was priced out of the market the first time."

Midstate Realty has about 200 listings in the Fresno area, but a 90 day moratorium on foreclosures ends in April, meaning more eviction notices are going out and foreclosures are expected to flood the market.

More than 600 foreclosures are for sale right now in the Fresno area and "Shann the Man" knows about the good, the bad and the ugly.

So how do you know if a foreclosed home is right for you?

Here's the good..

The price. Banks want to get rid of the homes in 30 to 90 days so they're priced to sell. The banks are also willing to help with closing costs, saving you thousands of dollars up front. And third, you're not dealing with a human being and their emotions. "You have no personal attachment on the seller side. The seller is making rational business decisions and are motivated to get the property sold," said Martin.

But what about the bad?

Audrey has seen this side when she checked out foreclosed homes up for auction. "Those homes were really destroyed and that kind of turned me off and I thought 'hey were going to be exactly like that.'"

Many foreclosed homes need some type of upfront work such as new carpet and painting. The condition of the homes can be less than ideal and some of the savings you get in the purchase price will have to go back into making the home livable.

Second, once the bank accepts your offer, it may take you a while to move in. "Some escrows go for 15 days; some escrows go for 60 to 90 days. It just depends on the legal issues that the seller has with the property," said Martin.

And then there's the disclosures; or lack thereof. Consider the purchase "as is".

Now, the ugly..

Javier has seen homes that can't get financing because of how damaged it is inside and out. But the worst he's seen?

"There was even a case where somebody put a dog inside of a house that I showed, yeah, a dog."

It may be a mess inside, but you can bet it took a big bite out of the price.

Shannon Martin recommends people buy a one year warranty for the home and also do a professional inspection. The bill can be rolled in to your closing costs and paid by the bank.

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