How to Land a Foreclosure House By Amy Hoak The Wall Street Journal 09-27-2009

How to Land a Foreclosure House
By Amy Hoak
The Wall Street Journal
September 27, 2009

Buying a foreclosure home often is appealing to house hunters trying to stretch their dollars. But finding a good one can be a challenge.

"The vast majority of the banks don't want us to advertise [foreclosure homes] as 'bank-owned' because it comes with a negative connotation," says Ryan Melvin, co-owner of More Realty Group in Las Vegas.

That means there's no sign on the front lawn indicating that it's a bank-owned house. And a buyer probably won't find a property advertised as a foreclosure in marketing materials, says Mr. Melvin, who specializes in real-estate owned properties, or REOs, those that have been reclaimed by a bank, typically after an unsuccessful foreclosure auction.

Where to Find Them
So, if you're considering the purchase of a home that's owned by a bank, you'll need to do some homework.

One option: Go straight to the bank. Banks' Web sites will list properties that the financial institution has reclaimed. To find a list, do a Web search for "REO" and the name of the lender. Contact information for the property's listing agents is usually provided for each entry.

For a fee, other sites will hunt down properties for you. RealtyTrac.com, which helps people find foreclosure and pre-foreclosure properties, charges $49.95 a month, after a free seven-day trial. The company also recently launched BankHomesDirect.com, which charges $19.95 per month and lets people search just for REOs. Foreclosures.com charges $49.95 per month, after a free seven-day trial.

You also can enlist the help of an experienced real-estate agent. Someone who works regularly with REOs might be able to track down the properties more easily than a traditional agent. The National REO Brokers Association has a searchable database of brokers on its site, nrba.com. The REO Network, reonetwork.com, offers a free listing of real-estate agents specializing in REOs.

Get a Thorough Inspection
When shopping around for a foreclosure property, it's important to know just how much work you're in for -- and how much it's going to cost you. Foreclosure homes are in various states of disrepair; some fixes are cosmetic, while others can be extensive.

Sometimes, people set their sights on bank-owned properties "like the word 'foreclosure' equals 'good deal,' " says Mark Goldman, a mortgage broker with Cobalt Financial and a real-estate lecturer at San Diego State University. But that's not always true.

Lenders aren't held to the same disclosure requirements as sellers who have lived in the home, mainly because the lender hasn't occupied the home to notice leaks or other problems. So an inspection is crucial.

"If there are lessons out of the last couple of years, it's certainly buyer beware," says Dan Steward, president of home-inspection firm Pillar to Post, which has a U.S. headquarters in Tampa, Fla.

"We have all heard the stories of people ripping the copper pipe and wiring out. People have literally gone to the light switch, disconnected the wire from the switch box and have pulled the wire through the drywall," Mr. Steward says. Some have ripped out toilets and kicked in walls or left faucets running before vacating the house, often out of anger.

While you don't need an inspector to tell you that the toilet is missing, he or she can tell you if there is damage 20 feet down the water line because of the way the toilet was ripped out, Mr. Steward says.

Other issues could pop up due to the property being vacant. Large banks will often hire a service to cut the grass, shovel the snow and winterize a home. But when homes aren't occupied, it's harder to catch small problems before they become big ones.

Come Prepared
To increase your chances of getting your offer accepted and having a quick closing process, have all paperwork and requirements in order before making an offer, says Duane Andrews, chief executive of Clear Capital, which provides valuation products for the mortgage and lending industries.

That includes having any financing approved and writing a clean offer -- not asking for minor repairs, for example.

Most bank-owned properties are sold "as is," Mr. Melvin says, so if there is something you want fixed, it's best to just factor that into the price you're offering.

But don't expect to bargain the listing price way down. Banks typically price their properties at a 20% to 30% discount to begin with, he says. If the property has been on the market for a week or two, don't expect the bank to drop the price; if the listing is older, you might have some wiggle room.

Make sure to follow directions when submitting the offer. "Most listing agents will have instructions on how we want buyers' agents to submit the offer," Mr. Melvin says. Delays can occur when instructions aren't followed.

And don't be surprised if the bank asks you to get approval from its mortgage operation. You often don't have to take the loan from their company, he says, but they may want to get a closer look at your finances to make sure you're a solid buyer.