Homes that home owners can longer maintain are known as distressed properties. This can usually be seen when the property is suffering from neglect or are at the risk of foreclosure due to non-payment of the mortgage and/or taxes. Typically, if the home owner misses two consecutive payments, the lender files a notice of default, lis pendens, in the public records. Unless the payments are paid to date, the lender will sell the property to the highest bidder. At this point, unfortunately, the home is considered a foreclosure property.
There are advantages in foreclosures for investors and some savvy buyers because they’ve purchased the home often for what is owed and picking up the home owner’s equity for free. However, there are those “as-is” contracts to be aware of…This means that while the current home owner is living in the house, they may not be fixing anything before the sale, hence buyer beware. Furthermore, if the property is below market rate it may not meet the requirements of some lenders.
If you are eager to become a homeowner or just want to invest, an experienced REALTOR® in distressed properties can assist you to making the right purchase that will increase in value eventually. Rates are still at an all-time low so you can take advantage now to sell it later for a profit.
The disadvantages of distressed properties are that when purchased sometimes you are not able to have an inspection, and if you do, the repairs will still be up to you. Depending on the condition, the lender will need an appraisal to determine value and most importantly, is it habitable?
Now, all that aside, if you have experience fixing things and have access to reliable and trustworthy contractors that are licensed and insured then, this is for you. If not, work with a REALTOR® and a home inspector to give you a better sense of what you’re about to get yourself into.
Investors tend to purchase distressed homes with cash, so, be ready for the competition. If you don’t have that kind of money laying around or in your mattress, work with a lender that can secure a strong loan prequalification and have a larger than normal down payment or earnest money deposit ready to bid.
It is important to educate yourself and surround yourself with professionals that can guide you to ensure that you maximize the value of the distressed property instead of it sitting because it requires too much work or it’s in an undesirable location.
Finally, be prepared for loads of paperwork, so breathe in and breathe out. It will be over soon and the keys will be in your possession!
Looking for a bank owned, foreclosure or short sale? We can help explain your options and guide you through your difficult days, it’s these times that you are best served with a trusted REALTOR®. Contact us to find out how we can help you whether selling or buying.