How do foreclosures work? How do you go about purchasing one? In this article, we’ll outline what a foreclosed home is and how to snag one for yourself.
What is a Foreclosure?
A foreclosure is when a homeowner defaults on their real estate loan and the corresponding lender tries to recoup money by selling the home. In these cases, the house or condo has been financially “seized” and is now in possession of the lending institution.
Why Purchase a Foreclosure?
The main reason is to save money. When a home is in foreclosure, a lender’s primary goal is to recoup the money – and the quicker, the better. Profit is ideal, but the main goal is to unload the home and do it fast, which is why the houses are often sold at an auction. You can benefit financially by bidding low and winning the bid.
The Types of Foreclosures are In Texas
There two kinds of foreclosures in Texas: judicial foreclosures and non-judicial foreclosures. Here is how each works.
Judicial foreclosures are much like they sound. A judge, rather than the lender, instructs the sale of a home.
Most often, this option I used to resolve issues when the mortgage paperwork doesn’t have a “power of sale” clause indicating who can sell the property. Judges are also mandatory for home equity loans, property owner’s associations, and property tax issues. Using a judge also protects the homeowner from opportunistic lenders taking advantage of additional equity in the home or skyrocketing property values.
In judicial foreclosures, the judge is ruling if the mortgage is in default. If it is, a sale is conducted, so the lender can recoup funds. If the foreclosed home for sale doesn’t sell high enough, the funds still in debt are the homeowner’s responsibility.
In this process, a Notice of Sale (NOS) is filed with the county clerk and advertised in the local newspaper (and sometimes online) under headers like “Notice of Substitute Trustee’s Sale” or “Notice of Trustee’s Sale.” The home is also posted in the courtroom lobby. The advertisements provide useful information, such as the home debt and when the sale will happen.
These notices indicate the date, time, and location where the auction will take place. Typically, the home sale takes place in the county courthouse. The auction is held on the first Tuesday of each month, no earlier than 21 days before the sale and no later than three hours after the time designated. The Notice of Sale must also go up 21 days or more before the sale date.
Non-judicial foreclosures are outside of a courtroom, and these are the most common in Texas. These homes can be sold by auction, directly through the lender, or through the US Department of Housing and Urban Development (HUD) website.
The foreclosed home for sale must be filed with the county clerk and posted on the county courthouse door with a corresponding date, time, and place for the sale. The corresponding lender must also publish it in the newspaper. It may be posted online, too.
Auctions are conducted by the lender or a representative of the lender called a “trustee” at a date, time, and place they dictate. It can be any month as long as the sale details are posted 21 days prior to the sale. If the lender doesn’t specify their own date, time, and place, then the auction will take place on the courthouse steps on the first Tuesday of the month with the same 21-day notice.
What is the Buying Process?
To enroll in auctions, you will be required to provide proof of funds or proof of financing with a pre-approval letter from your mortgage lender. You will also need a cashier’s check in hand the day of the sale for the down payment. There may be additional requirements depending on each sale.
The sale works like most auction processes. In some cases, there is a starting price. Once the bidding begins, each participant bids a higher dollar amount until no one is willing to go higher. The home is sold to the highest bidder.
Avoiding Austin Real Estate Auctions
As mentioned above, you can buy a foreclosed home for sale directly through a lender via an auction or as a standard sale. You can find a list of homes on the lender’s website. Lenders also sell through real estate agents, so it’s a good idea to ask your real estate agent for opportunities. Here at Smart Austin Realty, we can provide agents who will review options with you.
You can also purchase homes through the (HUD) website, in which case you will need a buyer’s agent to buy one. The agent will be responsible for putting in your bids. We often recommend agents for this purpose.
How to Make a Good Home Purchase
A foreclosure can be a good deal if the property isn’t in high demand, but there is a catch. Buying a foreclosure is hard to do, and it takes preparation. In these cases, you are purchasing the real estate as-is. There is no warranty, and there are no takebacks.
There are a few tricks to ensure you minimize your risk:
- Do your homework. You can compare the pricing history of other homes in the area and get important details from the notice that help you understand what you are up against. Drive by the neighborhood and see the home for sale for yourself, and look at all online interior shots closely.
- If you can, have the home inspected before buying. The condition of a foreclosure property is not always the best because the previous owner didn’t have funds to keep the home, let alone maintain it.
It is a smart idea to enlist a real estate agent for the inspection process, especially if you are moving to Austin. An agent can better aid you in securing an inspection before the sale date, and he or she can lay out the pros and cons of the property clearly, whether you plan to keep it long-term or purchase it for resale.
Using a Realtor at Auction
When purchasing during an auction, realtors aren’t always required but strongly recommended. Bidding wars are aptly named. Part general and part lawyer, your realtor knows the process, can handle all the work for you and will fight for you because he or she benefits financially from the sale.
Using a Buying Agent to Buy Real Estate
If you are interested in this option and in need of a real estate agent well versed in foreclosures, Smart Austin Realty can help. We can connect you with realtors who guide you through the entire foreclosure process. They can help with your Austin home search by connecting you with real estate foreclosure listings from courts, lenders, and HUD. They can help you with timely home inspections, provide helpful information on local home prices, and provide knowledgeable evaluations based on a strong history in the local Austin market. Along the way, you can read our helpful guides and articles to make moving into your new home easy. And our realtors can secure your home for you, whether it be through judicial or non-judicial means.
Our realtors know how the process works and can save you time and anguish by guiding you through the process while ensuring you don’t overbid.
Contact us to find out more.