Frequently Asked Questions Regarding Foreclosures

Buying a home or an investment property can be an exciting and complex adventure. For the average buyer, foreclosures are even more confusing for you to understand. Therefore, we've put together some commonly asked questions regarding foreclosures and / or the process that will be very helpful to you.

1. What is a foreclosure?
   A foreclosure is the legal process whereby a lender takes possession of a property after the borrower has defaulted (stop paying) on a loan.
   
   
2. Is there a difference between purchasing foreclosures and non-foreclosure homes?
   Yes, the main difference is the additional paperwork, the terms of the contract, timeframes to get things done, and the flexibility of the seller just to name a few. For example, the additional paperwork includes an addendum that must be signed by you. The Inspection Periods are typically shorter, the bank does not perform any work or inspections, and they strongly prefer you to close at their title company.
   
   
3. What is an addendum?
   An addendum is essentially the bank's contract, but it is not called a contract because it will cause confusion with the initial contract you sign to submit your offer. This addendum overrides all other contracts. It also helps with standardization. The bank doesn't have to remember each states contract because their addendum supersedes all others.
   
   
4. How long will it take for the bank to respond?
   The bank will take as long as they want to. Yes, there is a deadline date on the contract in which they should respond, but I haven't seen any of them honor that date. One reason is that an asset manger is usually managing over a hundred properties at one time.
   
   
5. How long is my inspection period?
   Your inspection period is negotiable. Typically, the bank's standard is 7 to 10 days, which means you have 7 to 10 days to perform all inspections (building, termite, municipal, gas, lead-base paint, sewer lateral, etc.) and to determine if you want the property.
   
   
6. Do I have to buy the property if I find something wrong with it?
   No. If there is something in the inspection report you don't like, you can walk away with your earnest money returned to you as long as you do that within the inspection period.
   
   
7. What documents are required in order to submit an offer?
   There are 3 documents you need when submitting a completed offer: 1) a sales contract, 2) a copy of your earnest money check, and 3) your proof of funds letter if financing your purchase, or a bank statement or any liquid account containing the balance equal to the contract offering price if you are purchasing with cash.
   
   
8. How do I view any interested foreclosed properties?
   If you have an agent, contact your agent for viewing procedures.
   
   If you don't have an agent, we would be delighted to assist.
   
   i) you need your pre-approval letter or proof of funds statement showing that you are ready to buy.
   
   ii) we provide the complete address of the property. Therefore, drive the neighborhood. View the exterior and the neighborhood.
   
   iii) if you are still interested, fax or email your pre-approval letter or proof of funds statement to (314) 563-2201 or Info@MaxCapLLC.com, and then call us at (314) 563-2200 and one of our representatives will assist. We can arrange a viewing typically within 24 hours if availability exists.
   
   
9. How much earnest money is required?
   Typical earnest money is $500 for non-foreclosure properties. However, it's $1,000 or 3% of the offering price whichever is greater. It is negotiable.
   
   
10. I was told never purchase foreclosures because they have liens on them. Is that true?
    Yes, they do have liens. However, 90% of the properties out there have some sort of lien on them. It's not whether they have liens. It's will they be clear prior to closing. Mostly all contracts and addendums have a clause stating the seller is responsible for transferring marketable title, which is a title without liens and encumbrances. If the seller can't provide a marketable title, you do not have to purchase the property and your earnest money will be returned to you.
    
    
11. Can I get a loan to buy a foreclosure?
    It depends on whether you can qualify for the loan. Otherwise, the bank does not care whether you get a loan or pay cash because when you close they will get certified funds anyway. I would like to mention that just because you are paying CASH, you don't actually bring cash to closing. It will be a certified check. Buying a property with CASH signifies you don't have to go through an approval process to obtain a loan. By the way, the title company doesn't accept cash…the nerve of them!
    
    
12. I have an FHA loan. Will I be able to purchase with an FHA loan?
    It depends. The question is whether the property will pass an FHA Inspection prior to closing. Some foreclosures require only cosmetic repairs, but others need major renovation. As a general rule, ask yourself does everything work? Can you cook a meal, use the toilet, and shower? If so, you are in good shape. Consider an FHA 203K loan for properties needing moderate to heavy renovation.
    
    
13. What is a Short Sale?
    A short sale is where someone, typically someone other than the homeowner, negotiates with the bank the sale of a property for less than the loan amount; hence, the name--short sale. Short sales usually occur when the homeowner is not able to pay the mortgage and the home is worth less than the loan amount. You might ask, why would a bank sell properties for less than what's owed? In some cases, a short sale is more profitable than foreclosing. The attorney fees, court costs, carrying costs, marketing, advertising, maintenance, realtor commissions, etc. could cost more than the reduction in price.