What Is Foreclosure In Real Estate: Buying A Foreclosed Home In Indiana

Real estate foreclosures are attractive to homebuyers and real estate investors. The low prices for these homes compared to other homes nearby is enticing. But, have you ever wondered why are foreclosed homes so cheap? There must be a catch, right?

I can assure you there are plenty of reasons for those low listing prices. This post will help you better understand the foreclosure process, answer how does buying a foreclosed home work in Indiana, and how to find the right Indiana real estate agent to help you with knowing where to find foreclosed homes and complete the purchase.

What Is A Foreclosure?

Foreclosure meaning in real estate is a legal procedure where a lender (the mortgagor) takes legal action to take possession of a property from the homeowner (mortgagee). A foreclosure typically ends with the property being sold by the lender. Foreclosures almost always occur due to the homeowner defaulting on the mortgage.

Foreclosure is a long process. Both the federal and state governments want to protect homeowners. Also, the mortgagee does not want your home. So, most lenders try to work with the homeowner to get the loan caught up. If the borrower cannot get caught up, the mortgagee will begin the foreclosure process.

A mortgagee, again this is the lender, will utilize legal remedies and the courts to initiate and complete the foreclosure process. The end result of the finalized foreclosure is the homeowner is removed from the home and loses his or her ownership interest in the property. The home has now been foreclosed on and is owned by the bank and any other creditors.

Eventually, the mortgagee sells the property. This gives other people an opportunity to buy a foreclosed home.

How Foreclosure Works

A mortgage is a secured loan meaning the lender has the right to repossess, take, and sell the home which is used to secure the loan. However, a breach of the agreement between the homeowner and the lender must occur to trigger the foreclosure process. The most common triggering event to start the foreclosure process is defaulting on the loan. A default occurs once the borrower-homeowner has missed one or more mortgage payments.

Once a foreclosure triggering event occurs the lender will send a notice to the borrower stating the lender has begun the foreclosure process. This usually occurs after 90 days of missed payment. However, some mortgages state different terms. Oftentimes, the lender offers the borrower an opportunity to get caught up on the loan or restructure the mortgage. The lender does not want your house. They want their money.

Unfortunately, a resolution can not always be found to catch up or restructure the mortgage. In these instances, the foreclosure process proceeds to publication of a sale of the property in the future. Typically, the borrower is still living in the home at this time. After publication of a foreclosure sale, the lender can put the home up for public auction. The lender is required to follow the federal and state statutory foreclosure notice and sale timelines.

There are two outcomes of the public auction. If the home is sold, the lender sells its rights to the property to the winning bidder at the auction. This person or entity will then begin the process to evict or vacate anyone living in the home, remove their possessions, and secure and take the property. On the other hand, if no successful bidder purchases the home the property becomes a real estate owned (REO) property. Upon becoming a REO, the lender will then vacate and evict anyone living in the home, remove their possession, and secure and take the property. Soon after, the property will likely be listed for sale.

The Foreclosure Process

Pre-Foreclosure

What Does Pre-Foreclosure Mean?

Pre-foreclosure most often means the mortgagee (again, this is the bank) has issued a lis pendens on a property. Lis pendens is Latin for “suit pending.” This most often occurs when a mortgagor (again, this is the owner-borrower) gets behind on repaying the mortgage.

Pre-foreclosure is the first step of the foreclosure process. However, most homes in pre-foreclosure never actually get foreclosed on. The homeowner either gets the loan caught up, sells the home and pays off the mortgage, or works out some other arrangement with his or her lender.

If you are interested in buying a foreclosed home I suggest you do not spend time looking at pre-foreclosures. Again, the great majority of these never come close to get foreclosed on.

Steps To Take During The Pre-Foreclosure Process

If you are a homeowner and have been issued a lis pendens starting the foreclosure process, here is what you should do. First, read it. If legal action is getting taken against you, contact an attorney.

Work with your attorney or with your attorney and lender to resolve the issue. Again, the bank does not want your home. Their business model is based on you repaying your loan and not on taking back your home. It is most likely something can be worked out if you are able to get the loan caught up.

The most important thing I share with people is to evaluate your long term prospects. If it is likely you are just going to get caught in a cycle of regularly being behind on your mortgage, sell your house. But first, get the loan caught up. It can be difficult and even impossible to sell your home if the foreclosure process has advanced too far.

Foreclosure

What Is A Foreclosed Home?

A foreclosed home is a home taken back from the homeowner by the lender. The lender will have initiated and completed the legal process of home foreclosure. This process includes notifying the homeowner, attempting to sell the property at auction, removing the homeowner, taking possession of the property, and listing the home for sale in the open market.

How To Buy A Foreclosed Home In Indiana

Now, let’s look at how to buy a foreclosure in Indiana. As we go through this, I will give you some advice and set some expectations, too. Overall, the process of buying a foreclosed home in Indiana really is not all that different from the typical purchase process. The key difference is the amount of risk you are taking on.

1. HOW TO FIND FORECLOSED HOMES THE RIGHT WAY.

Here, I will share with you how to find foreclosed homes, and what to expect from each of these resources.

• Auction Websites – Uber high risk.  Auction websites and the homes usually featured there represent the lender’s first attempt at selling the property. In many instances, the winning bidder will be purchasing not just the house but also a dirty title, the possibility of other liens on the title, and the homeowner (now former homeowner) may still be living in the home. This means you will be giving them the bad news that they need to go.
• Sheriff Sales – High risk.  Like an auction site you may be buying a cloudy title and other liens on the property which will become your responsibility. However, at this stage, it is more common but not guaranteed that the homeowner who was foreclosed on has been vacated from the property.
• Homes Listed With A Real Estate Agent With Bank As Seller – Medium risk.  You will find these foreclosed homes on the open market via the MLS (multiple listing service) which feeds data to major real estate websites like Quadwalls.com. In this instance, the home has most likely been vacated by the previous owner and cleaned out. The title may be cleaned up but is not guaranteed. These transactions are more likely to move at a very slow pace.
• Home Listed With A Real Estate Agent With Federal Government As Seller – Lowest risk.  You will find these homes for sale on the MLS which again feeds the data to real estate websites in your area. Additionally, there are some government websites where you can find these homes for sale. However, you do need a real estate agent to represent you in the purchase. This is the lowest risk scenario because the property has always had the previous owner vacated from the property, been cleaned out of all personal possessions, and you will receive marketable, good title without any clouds on the title such as a past lien.

2. CONTACT A REAL ESTATE AGENT.

Real estate agents experienced in distressed properties know how to buy a foreclosed home in Indiana. Many of the government sponsored websites actually require you to use a licensed real estate agent in order to make an offer on a foreclosed home.

Look for an agent with experience in buying or selling foreclosed homes. Here at Quadwalls.com our Quadwalls Connected Agents have experience in buying a foreclosed home in Indiana.

3. TOUR THE FORECLOSED HOME.

Yes, in most circumstances you should be able to tour a foreclosed home. Be prepared. They can be smelly, dirty, flooded, heavily damaged, and downright dangerous. Often the utilities have been disconnected, so plan to see the home with plenty of daylight. And please, never enter a foreclosed home without your real estate agent.

There are some instances where you can not tour the home before making the purchase. This is common with foreclosed homes purchased from auctions, sheriff sales, and auction websites.

4. MAKE AN OFFER.

The next step of how to buy real estate foreclosures involves working with your agent to determine a fair offering price for the home. This will involve looking at the current condition, ARV (after repair value), and your intended use of the home.

At this step, be prepared to inform the seller how you will be paying for the home. Getting a loan is often not an option. Usually the home is in too terrible of condition for a bank to write a loan on the property. This is a major reason why foreclosures sell so cheaply. Most often, when buying a foreclosed home, you need cash.

5. CONTACT A TITLE COMPANY.

Yes, you can and should use a title company. Again, if you buy a foreclosed home from the recommended resources I have described here you should have no problem getting a clear title to the property.

6. INSPECTIONS & REPAIRS.

First, if the property does not have running or working utilities, a licensed inspector will not be able to properly complete the home inspection. No, the bank selling the home will not allow you to turn the utilities on to complete an inspection.

Secondly, no the bank selling the home will not complete any repairs. When buying a foreclosed home expect to buy the home “As-Is.” To buying a home as-is means just that.

7. CLOSE.

Closing is exactly the same as if you were buying a home that is not a foreclosure. A title company will work as the referee and impartial party between you and the seller. The end result is you now own the home.

Post-Foreclosure

The foreclosure process is complete once the home has been sold to a new owner who is not the lender. Once this occurs, the title to the property normalizes. Foreclosure is not a stain that sticks with a property once it has been bought by a new homeowner. Especially if the new homeowner restores the home to its glory.

What Is A REO?

REO stands for real estate offering, or real estate offered. This is a term used by lien holders of foreclosed properties. Basically, a REO is a foreclosed property being offered for sale by the lender who foreclosed on the previous owner.

Risks Of Buying Foreclosed Homes

Should I buy a foreclosed home? Well, that depends. What is most important is for you to understand what to expect when buying a foreclosure. There are hurdles unique to buying a foreclosed home.

Property Problems

The biggest con of buying a foreclosed home is the high risk of major problems with the property. Typically, foreclosed homes for sale on the open market have been neglected for several 12 to 36 months. Systems including the HVAC, plumbing, and electrical have likely fallen into disrepair. Additionally, the home likely has had utility services disconnected. Due to the fact there are no utilities it will be impossible to have thorough inspections of the home.

Hidden Costs

Purchasing a foreclosure is a cash intensive process. Lenders will not lend you additional money to make repairs to the property. Well, okay, there is this thing called a 203K loan. I am not even going to get into that. Those are hard to get and pretty, pretty, pretty, ridiculous to deal with.

Foreclosed homes are often in need of immediate upgrades to restore the home just to livable condition. Therefore, any buyer of a foreclosed home better have plenty of cash on hand in order to immediately begin improving the home after completing the purchase.

Slow Process

Some foreclosed home sales take a long time to complete. This is especially true when the bank itself is the seller or the home is being sold as a short sale. Banks and mortgage loan servicers are notorious for being slow to respond to all of the transaction stages despite the fact they are trying to sell an asset and get it off their books. You could avoid this by buying a foreclosed home from the federal government.

Competition

Buying foreclosed homes is a competitive sport. Many real estate investors focus on foreclosed homes. Therefore, homebuyers should expect to find some fierce competition from real estate investors who are hungry for their next acquisition.

How To Find And Select A Foreclosure Realtor®?

Homebuyers buying a foreclosed home should look for a Realtor® experienced with purchasing foreclosed homes. Moreover, look for a Realtor® who can help you buy the right home based on the reason why you are buying a foreclosed home.

If you are buying a foreclosed home to live in you simply need a real estate agent who knows how to listen to your wants and needs. But, if you are buying a foreclosed for investment purposes look for a real estate agent experienced in the area of investment you are hoping to succeed. This could be either fixing and flipping a foreclosed home or purchasing a foreclosed home to rehab and rent.

Conclusion

Before committing to buying a foreclosed home you should know how do foreclosed homes work. A foreclosure is the legal process of a lender taking possession and control of a property from the homeowner-borrower. This usually occurs due to the homeowner defaulting on the mortgage.

Real estate foreclosures are guided by the terms agreed upon when the homeowner signed the mortgage with the lender and other oversight by state and federal statutes and regulations. The foreclosure process begins once a triggering event kickstarts the foreclosure process. This process includes notifying, attempting to sell, and taking control of the property from the homeowner.

Many factors can make buying a foreclosure difficult. Some of these factors include the condition of the property may make the home unmortgageable, the home may not have utility services making a proper inspection impossible, and the seller can be difficult to work with. Buying a foreclosed home is often a long, cash intensive, and high risk home purchase.

Homebuyers and real estate investors who are committed to finding and buying a foreclosed home should work with Realtor® experienced with purchasing foreclosed homes. Moreover, if you are a real estate investor, work with a real estate agent who understands your real estate investment goals so he or she can help you find the right property.

Real Estate Foreclosure FAQ

What is a foreclosure? A foreclosure is a legal process which allows the lender on a piece of real estate to take control and possession of a property from the homeowner-borrower.

What is a foreclosed home? A foreclosed home is a property which has been taken back and is now possessed and controlled by the lender.

What does pre-foreclosure mean? Pre-foreclosure occurs most often when a lis pendens, Latin for “suit pending” is sent to a homeowner. A lis pendens most often arrives because the homeowner has missed too many mortgage payments. Most homes in pre-foreclosure will never actually be foreclosed on.

What is a REO? A REO is a real estate offering or real estate offered by a lending institution due to a foreclosure. A REO is synonymous with a foreclosed property.

About Quadwalls

Quadwalls.com is a real estate website started by a Northwest Indiana Realtor® to help people save money and make better decisions when buying or selling real estate. A team of Indiana real estate agents is ready and able to help you find, buy, or sell your Indiana real estate.

The team of Quadwalls Connected Agents helps homebuyers with their customer service. Each of the agents on the Quadwalls team offers to our clients superb, personalized, warm, caring, hospitable treatment of the clients needs, questions, and inquiries. We stay laser focused on resolving your housing needs to help you find and buy the right home.

Quadwalls Connected Agents excel at selling our clients’ homes, too. When hired to sell a home our job is to sell your home at the highest price within the timeframes and conditions set by the client with as little inconvenience to the client as possible. Oh, and we charge some of the lowest real estate commission fees in Indiana, too.

Feel free to contact us to help you save money and make better decisions when buying or selling Indiana real estate.