So, you Want to buy a Foreclosure?

If only I had a dollar for every phone call I received from someone wanting a copy of the foreclosure list. As if it's some great secret scroll that we all keep locked in our office. Well, it's not! And buying one isn't much of a mystery either. Let's get two things straight, number one and most important to remember during this entire process is that the banks, auction companies and/or asset management companies who are pulling the strings do NOT care about your situation nor do they care about what we believe is the real value of the abandoned meth den that they've inherited. These banks never wanted this. They did not desire to foreclose a loan and then in turn become responsible for actual real estate property. They are in the business of lending money and not owning and managing property. And unfortunately they are terrible at the latter. Secondly, there's no list! It's not a secret! There's no OZ pulling the strings behind the curtain. It's simple. Banks have an obligation to post upcoming foreclosure in a public forum that is seen or accessible to everyone. In fact in our state, the State of Maine, it's the law. Most of these will be live auctions and the majority of them can be found through mainenotices.com or other sites who use newspaper notices to store data in a searchable format. See, this blog wasn't useless after all. However, most of the time the reserve at these auctions is never met because the banks reserves are set too high for the condition of the property. Occasionally the banks go through this process 2-3 times before the property ends up in the hands of an asset company or real estate agent.

Now that we've established the first rule we must be mindful not to try and think of this as a normal transaction. Instead, let's pretend that you're negotiating this deal with a toddler, they don't listen, they move at the pace of a wounded Sloth and they never take responsibility for anything. You've probably driven by the vacant house in your neighborhood that's been empty going on 3 years now and you're as frustrated as the rest of us. Why isn't the bank doing anything? Don't they have an obligation? What about the town's responsibility? Well, the process sucks, it also doesn't help that in the interim the banks sell their crap mortgages back and forth to each other until finally some unfortunate sap gets stuck with dealing with it. In the meantime the taxes continue to get paid by whichever bank has possession and they pay those taxes at the town's current assessed rate which is typically a lot higher than it's actual current value, so why would the town be concerned?

Okay, now that the ground rules are in place, let's take a look at the reasons why it is you want to purchase this dump. Is this going to be a rehab project? Is it a long term investment? Or is this something you are going to live in as your permanent residence? If this is something you want to live in. There's a glimmer of hope that if you've got stellar credit, some money down and enjoy filling out paperwork we might be able to make this work. If this is an investment or rehab project then we have a lot more to talk about and you may need to seek out professional counseling either before, during or after. Trust me, if you're not an alcoholic now there's a good chance you may become one.

So, you want to live here? For the buyer who wants to reside in this home as your primary residence, we need to start with looking at the financing options. In the the rare case that you've stumbled upon a unicorn whereas all the mechanical systems are in working order and that there's no safety violations that need immediate attention then there's a good chance of finding a lending solution that will work. On the flip side of this reality is the fact that this house is more than likely a steaming pile of crap smothered in other peoples problems with a history completely unknown just lying in wait to suck all your money out of your bank. If you're visualizing this as something you will live in than I tip my hat to you and think that this is ultimately the best situation for these types of homes. Now, let's be honest with each other for a moment. If you don't have any money in the bank and no trade skills of your own to bring to the table then we can stop right here. I'm sorry, but NO the bank is not going to owner finance you the property. NO the bank does not want to rent the property to you. NO I don't know anyone in the world who will do a renovation loan with poor credit and no money. YES, I'm sorry that it's difficult and I wish I could help, but them are the ropes kid!

Are you married? If you answered yes then keep looking because unless you're ready for a divorce than I suggest you find something that won't be a construction site for the next six months to a year. If you have a mate that is 100% on board with this idea and doesn't mind wearing a hard hat around the house 24/7 then I suggest you get that in writing. No, I'm kidding; mostly. You've got to perceive the reality that this is going to be hard work, there's going to be surprises, compromises, fights, blood, tears, sweat and lots of beer. It's going to be costly and things aren't going to go as planned, be ready for a backup plan. Don't fall into the "we just have to have this" or you'll be disappointed when you can't have granite counter tops because the furnace blew up. Heat and hot water tend to find themselves a priority over a slab of stone. Be prepared not to have a functioning kitchen or bathroom for days at a time. You'll find eating out gets expensive and dragging the grill out everyday in the snow gets old after a while. These issues are all magnified when you throw kids and animals in the mix so take a step back and look at the entire picture. Better yet visualize what Christmas at the in-laws is like and multiply that by 10 and that's not even close to what this will be like. Let me be clear, it's not my intention to steer you away from the idea that there's values in these homes and that the right one could not only be suitable for you and your family it could likely be a smart investment. It's here that the real burden of these homes comes into play. Because EVERYONE wants something for nothing; we all want a deal. It's like being the guy at the horse track races with the inside scoop on which horse just got pumped full of equine boost and hasn't seen a mare in three weeks. It's just not that simple with real estate, and probably not with horse racing either, but it was worth the attempt. If you are strictly looking for something to live in and not just value than it's crucial to take into consideration the journey you're about to embark on. I applaud the courage and dedication, but take the time to look at not just foreclosures, but everything. Especially when there's others who will be impacted by this decision. You may very well find the home that fits your needs and is well within your budget that isn't a foreclosure. Take a step back and ask yourself if you're willing to give up all that time and energy when there's no guarantee that at the end of the project you'll be any further ahead then if you just bought something else.

Ahhhh, the friggen flippers. I love this little group of crazy bastards who actually think this is fun. So you want to buy a foreclosure because there's so much money to be made? Well, first rule is you've got to either have money or have access to money. If you don't have either than there's no way that even God himself can convince Bank of America to sell you one their properties. Are you participating in the work? Do you have an endless amount of free time and don't mind rolling up your sleeves to gut out the flea infested roach motel you just bought? Is your tetanus up to date? The last one was just a general concern, the rest are serious questions. Flips will drain your time and your money. They will ALWAYS cost more than you anticipated and no matter how much time and energy you spend on your project when the time comes to sell the Buyers will ALWAYS find things to complain about. It's a good thing that I tend to handle those complaints because frankly if those Buyers had to deal with my partner he would eat their still beating heart with a nice Merlot. So, flipping has become some kind of HGTV craze that all the cool kids are doing. Well, my parents were flipping houses 25 years ago and they still aren't cool. Just kidding I love my mom, who doesn't? If you've got the time, energy and better yet the skill then this can be a lucrative journey. BUT, and that's a huge BUT! You've got to know your market area inside and out, if things start shifting then so does your profits and the market can change quickly over just a few months time. Our market here is seasonal so timing is everything. Buy the worst house in the best neighborhood, stick with what is selling, hit the target (median) price points. Don't over buy, don't over improve, don't do it on your own. I've seen it a dozen times and I know it sounds cliche, but for the love of everything holy please find yourself a Realtor who lives and works in your market. It doesn't have to be the first one you meet, feel them out and get to know them and pick the one that seems the right fit for you. I'm probably not that guy; and that's okay; it's me not you. An agent is the biggest asset you can have in your arsenal. I'm a firm believer that you make your money when you buy. The only reason I believe this is because I do my homework and as a Realtor myself I know my market, I know who my buyers are, I know when a purchase makes sense and I can forecast what I can expect for a list price and more importantly a sales price. What you don't want to be is the guy who's calling up an agent once his project is finished to find out that your market analysis for the home that you have 150,000 invested is only worth 120,000 tops! Trust me, I've delivered that news and in fact that property is yet to be sold.

We are not talking about buying and selling antiques or even cars. Buying property is a massive purchase and needs to be taken very seriously. I know there's a million excuses for not working with a Realtor and I'm sure I'll hear the same complaints about how it's too expensive and we don't earn our commission and blah, blah, blah. That's another conversation for another day, or another blog dedicated all to itself. Do yourself a favor and just have a conversation with someone who knows the market, it won't cost you a thing. They are really the ones who not only have access to most of these properties but can steer you in the right direction. I can't imagine starting my ventures without using someone who knows the ins and outs and for me that's always been my Mom and it turns out that she's actually pretty cool too.

                                                   By: Jason Fish


                                                 "Real Estate isn't for Sissies" - Carolyn Fish