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Real Estate & Finance News That Affects Your Home                                                     December 2008 - Page 2

SMART BUYING

Steer Clear Of Common REO Mistakes

Understanding some of the costliest mistakes to avoid goes a long way in finding a great REO bargain in today's market. Here are seven common mistakes to be aware of:

Mistake 1. All REOs are bargains. Understand that the institution selling the property (lender, government, corporation, etc.) wants to clear its inventory. The home's condition is not their concern. Be prepared to do your homework--and rely on a professional real estate specialist (like us!) to avoid any land mines.

Mistake 2. Overbidding. REO buyers must know area home values, condition of nearby properties, neighborhood trends, street noise, airplane traffic, zoning and other issues that affect the property's value. Sometimes foreclosures are priced below market value to attract multiple bids and drive up the sales price. We'll help you bid right.

Mistake 3. No inspection necessary. Some REO buyers think a professional home inspection is too expensive--that's a costly mistake. Lenders and others who sell a property "as is" may not be obligated to repair problems and defects. Only a licensed home inspector can identify problems from electrical wiring or plumbing to radon or pest infestation to serious structural or system problems. Be sure to do a walk-through before making an offer.

Mistake 4. No clear title. A "lien" is a legal claim against a home (e.g., for unpaid property or income taxes, unpaid contractors or loans borrowed against the property). Liens can stay intact until the money is paid, which means you may have to pay off any outstanding liens as the new owner (if the institutional seller has not already done so).

Be forewarned: Having a professional title search done is critical to know where you stand. You may want to add a clear-title contingency to your offer to the seller. Without a clear title, you may not be able to get owner's title insurance to protect you against unforeseen claims. Consider upgraded owner's insurance (ALTA-R policy) to protect against last-minute or unrecorded liens. Also, ask us about any "redemption period" in our area that can allow the previous owner to reclaim the property by paying the money they owed ("cured default").

Mistake 5. Not enough cash. Be prepared to pay for closing costs and fees or any repairs and unforeseen expenses, especially if you're buying an "as is" property with FHA financing that may require buyer-paid repairs to pass FHA inspection. An REO may not be a bargain if you can't afford to make it livable.

Mistake 6. Not enough patience. To be a smart REO buyer, you must do your research, learn about other higher or lower bids (if possible), property taxes, utility bills, liens. Take time for due diligence.

Mistake 7. Not asking enough questions. Ask for copies of all relevant permits, repair receipts, surveys and inspection reports (if any). Inquire about past-due condominium assessments or homeowners association dues that might create a lien. Be clear about any brokerage commission to be paid and who pays it (seller or buyer). Then follow up with calls, on-site visits, more research, and together we will guide your REO purchase to closing.

REO Properties To Avoid Reconsider buying a foreclosed property if it: Does not come up to neighborhood standards for size or amenities (e.g., at least 3 bedrooms, 2 baths where that is typical). Is in a declining neighborhood or region due to crime, air quality, traffic, schools, job losses, high concentration of vacant or foreclosed properties, etc. Has radon gas, asbestos, mold, oil or lead contamination. Is in an unstable location, such as an earthquake-prone or land-slide area or flood plain. Has foundation cracks, uneven settling, roof or other structural or drainage problems. Has extensive pest or termite damage. Has serious building-code violations, especially illegal or un-permitted conversions or additions.