With thousands of Americans losing their homes every month, and banks eager to recoup some of their losses, this is perfect time to buy a foreclosed property--if you know what you're doing.
The foreclosure market offers a slew of temptations, the most alluring and basic being the opportunity to get a great house at a low price.
But the road to that new cut-rate luxury McMansion is fraught with landmines. They include undiscovered liens, daunting maintenance issues and even the potential to overpay that makes the process one to enter only with eyes wide open and a team of experts close at hand.
"I'm seeing millions of dollars of defaulted paper coming onto the market on a daily basis and this would probably be about the best time for anyone to buy either a foreclosed home or a non-foreclosed home, depending on the city you're living in," says Steve Hochman, president of Friendly Note Buyers and author of "How to Sell Your Real Estate When Real Estate is Not Selling."
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Foreclosures -- when banks or lenders actually take possession of the property -- have been soaring over the past year. The states with the biggest foreclosure rates include economically depressed areas like Ohio, Indiana and Michigan, as well as those where the housing boom was biggest: California, Florida and Nevada. (Click here for slideshow)
"There are some places such as Florida that are in a desperate situation that can't possibly come out of this problem for at least five years," Hochman says.
The way to capitalize on the trend is through basic diligence. Making sure you do your homework before going to an auction or approaching a bank that has foreclosed on a home -- the two principal ways to acquire such properties -- makes all the difference in how successful the experience will be.
A basic checklist:
Know Your Neighborhood
Of course, every market is different, and knowing your own region, how prices are trending and where the best buys can be found is paramount.
"I think if people know what they're doing it's a good time to get into it," says Lisa Breier Urban, a residential real estate attorney at Breier, Deutschmeister and Fromme in New York City. "You can definitely get a deal for your money if you know what you're looking for and you know what the value of the property is that you're looking at."
Manhattan is a good example of how knowing a market is important in the decision about going the foreclosure route. The market there has been consistently hot, and Urban says even foreclosed properties often end up going for near market value.
Urban also advises caution with public auctions, where many of the participants are skilled in the practice and can take advantage of novice bidders. Also, auctions usually require up-front non-refundable cash, sometimes for the entire price of the transaction, offering no leeway for buyer's remorse.
"While property can be purchased for deep discounts, buyers should take steps before arriving at the auction," says Charles J. Kovaleski, president of the Attorney's Title Insurance Fund, the largest insurer in Florida and the sixth-largest in the nation. "Buying a foreclosure is not for everyone, especially a novice with little financing. "There's likely to be competition, especially at an auction, with people quite experienced at the process."
Information, Kovaleski says, is the key.
"With home foreclosures at the highest level since record-keeping started nearly four decades ago, more properties will be sold under duress in the coming year," he says. "If you're tempted to buy, know what you're getting into."