Existing Home Sales, Foreclosures, Real Estate

Bargain Hunting Real Estate In Porter County Indiana

December 21, 2010 by · 2 Comments 

Porter County Real Estate Bargains by Steve CardwellDo you know the difference between Foreclosure, REO and Short Sale? Bargain hunting prospectors seeking the diamonds-in-the-rough sometimes use these words interchangeably, so let’s review the basic terminology so we can be more precise when discussing any plans to invest in a Porter County Indiana distressed property. Pictured here are two Portage Indiana distressed homes which are priced below market value. Both are located in top quality neighborhoods. They seem like bargains on the surface. But without lengthy research on the property, and negotiation with the lender, will a buyer find out how much of a “bargain” she will actually be purchasing.

Foreclosure

Foreclosure is the process that occurs when a homeowner stops paying the mortgage and eventually surrenders the home to their lender. This process has several steps. It starts with overdue notices, kindly asking the borrower to catch up. There will be a series of workout people who will try to help get things back on track. Under the Federal HUD Home Affordable Foreclosure Alternative program they may reduce the interest rate or modify the mortgage.

If it all fails the lender will issue a default notice, and eventually a legal suit through county court and eventually an eviction from the property if the borrower has not already vacated. This is a lengthy process and you can imagine that the property is likely to be poorly maintained during this time period of “distress”. Sometimes owners or renters will strip the home of appliances and cause damage, as things turn from bad to worse.

Finally, the lender will salvage whatever residual value, by listing the home on the real estate market. In most cases these homes are sold in as-is condition without the disclosures and clean chain-of-title that a conventional seller will offer the buyer. The entire time period can often a run a year or more while the various steps in the process run their course.

Bank Owned or REO

Real Estate Owned is what happens at the end of the foreclosure process, and it is the worst outcome. The property ends up being vacant, neglected, often vandalized. Banks and lenders don’t really want to own and maintain empty dilapidated homes, but due to the recession they have many on their list of “assets”. The word asset being somewhat euphemistic since the house is probably worth only a fraction of what it once was,  by this point.

So now that lender, often being out of state, and having a list of many of these so-called assets, now goes through another process of selling these homes to bargain-hunters, rehab contractors, and handy homeowners who are willing to buy them and invest in turning them around. After trying to determine it’s salvage value, they will list it with a broker and hope for the best.

In short, REO properties are bank-owned.  And they likely are in need of some restoration and maintenance work, may to need fixtures or appliances.

Short Sale

The short sale is another type of work-out that can take place during the early phase of the foreclosure process, if the homeowner and the lender can’t work out a modification. This is about the only scenario where a Realtor can help out a trapped and struggling owner. Once the homeowner realizes they are in pre-foreclosure trouble they ask their lender permission to conduct a short sale. They write a letter explaining their hardship, such as loss of job, medical issue, or other reason. And th lender will provide a list of supporting documents and questions they will want answered. An experienced agent can assist through this process.

When accepted, the homeowner can then hire the Realtor to market and sell the home at a discounted price to a new buyer. The home, sold in good condition, maintains much of of it’s value. The bank recovers a decent portion of it’s equity. And most important, the home seller walks away from the deal with his credit intact.

There are several advantages for doing the short sale versus the full foreclosure.  Compared to a court ordered foreclosure, where all a defendant’s asset are liquidated to pay the mortgage debt, in the short sale . If the assets don’t completely pay off the debts & fees, the court will issue a “deficiency judgment” for the balance. This will leave the convicted debtor responsible for the remaining debt which will cloud their credit rating for for years thereafter.

By settling with the lender and selling the house to a new and more solvent buyer, the deficiency judgments are usually released making it a win-win for both lender and debtor. And since the homes are often still occupied until the end of the process, the buyer gets a better maintained property.

Buyer Beware

Bargain hunters must always be extra careful with their diligence when choosing a distressed home. Such factors as

  • the home’s condition
  • whether the home can be financed at all or will requires cash
  • the selling bank’s  deal
  • the chain of title

are some of the main considerations to closely examine. Like anything that seems too good to be true, buying a “scratched and dented” home is like anything else–you need to do your homework. It takes extra diligence on the part of the agent and the buyer to make sure that one of the many possible “gotcha’s” doesn’t sneak up on the unaware. If you need help navigating the short sale or foreclosure real estate market in Portage Indiana, or the other Porter County communities, allow me help you select that diamond-in-the-rough. Send me a text message with your question.

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Steve Cardwell

Steve Cardwell is an Indiana Realtor working with residential buyers and sellers throughout Northwest Indiana. He likes to stay current on the housing market by analyzing real estate trends with a focus on the towns of Highland and Munster Indiana. His broker affiliation is Red Key Realty Leaders in St John, Indiana. Learn more about Steve and visit www.SteveCardwell.com.

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2 Responses to “Bargain Hunting Real Estate In Porter County Indiana”
  1. Distressed homes, short sales and foreclosures often are discounted for a reason. Make sure that those reasons do not prohibit the type of financing that is required to complete the purchase transaction. For instance, if the home has no furnace than it will have to be replaced and functional under Fannie Mae lending guidelines and FHA standard guidelines. Make sure the home loan that you qualify for matches the home you desire.

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