Are you in the market to buy low priced distressed properties? There are some things you should know about buying foreclosures in Texas.
Kinds of Foreclosures
Understanding the foreclosure process involves several key steps:
- Pre-Foreclosure:
- The property is in default.
- The bank may or may not proceed with foreclosure.
- Short Sale:
- The owner aims to sell the property before foreclosure.
- Market value falls short of the loan balance.
- Banks may consider offers below the balance.
- Successful short sales are beneficial for the owner’s credit.
- Foreclosure Auction:
- The bank aims to maximize property value quickly.
- Property is auctioned to the highest bidder.
- REO (Real Estate Owned):
- If the property doesn’t sell at auction, the bank repossesses it.
- The bank lists the property on the market for sale.
Highest and Best
Consider increasing your bid if other foreclosures are selling rapidly. The brisk sales indicate a competitive market, and to actively participate, you might need to initiate with an offer near or at the asking price. In scenarios with multiple offers, surpassing the asking price and minimizing contract contingencies becomes essential to secure the desired foreclosure. Keep in mind that factors such as location and amenities play a significant role, especially in sought-after areas where foreclosures tend to sell swiftly.
Prepare Yourself for “As-Is”
Typically, foreclosures are sold by banks, which means there isn’t a conventional seller responsible for pre-closing repairs. It’s unlikely that the bank will address any issues with the property, as their primary goal is to maximize returns on their investment. When making an offer on a foreclosure, it’s crucial to include an inspection contingency. This allows you to hire an inspector and gain a clear understanding of the property’s condition if the bank accepts your offer.
Funding Your Foreclosure
Many buyers in Texas opt for cash transactions when acquiring foreclosures due to the often lower-than-market sales prices. Cash purchases offer the advantage of a quicker and smoother closing process, making them favorable to banks. While a few banks may offer financing options for foreclosure purchases, keep in mind that they typically require a property appraisal, which can extend the closing timeline. When competing against cash offers, it’s essential to ensure that your offer is competitive. Additionally, if the appraisal of the foreclosure falls short of your offered amount, you may need to cover the shortfall.
Additional Costs
Buying foreclosures in Texas may come with additional costs above and beyond the purchase price and closing costs. If the owner couldn’t make the mortgage payment, you can probably assume he or she did not pay the real estate property taxes or homeowners association fees if the foreclosure is in a community. You might also become responsible for any utility bills, home equity lines of credit, or other liens on the property. Make sure the title company takes these factors into account when preparing the title commitment.
You will also have to take into consideration the additional cost of making the necessary repairs or cleaning when you buy a foreclosure. There is no cleanup requirement when these properties are seized, and the previous owners might be a little upset about the bank foreclosing on them and take it out on the property. Repairs to the home might also increase the assessed value and raise the taxes.