Foreclosed homes are for sale throughout the D.C. metro area, but how do buyers find them? That depends on which stage of foreclosure the house is in.
Given today’s market, real estate experts don’t recommend buying during the first two stages of foreclosure: pre-foreclosures and courthouse auctions. Pre-foreclosures are typically properties in default that have received foreclosure notices from banks. If the owner has enough equity in the house and the bank agrees to the sale, buyers can negotiate a reduced a price — made possible because the bank agrees to forgive the balance of the seller’s loan. Few of these transactions, called short sales, are taking place today, however, because often there are multiple lenders involved that won’t all agree to the sale, says Glenn Kelman, chief executive officer of online real estate broker Redfin.
When a lender forecloses on a property, as part of the process, it is offered for sale at a trustree or foreclosure auction. These are usually held at the local courthouse or the property itself and are sometimes called a sheriff or courthouse sale. Bidders purchase the home as-is, without seeing it or knowing if there are any liens. “Very few houses are selling at [such] auctions,” says Rick Sharga, senior vice president of RealtyTrac, a subscriber-based property-listing service. That’s because these cash-only sales are so risky that even many experienced investors shy away from them. “For the uninitiated, buying at the courthouse would be a great way to lose a fortune,” says Re/Max real estate agent Andy Norton.
That leaves buyers with the third option, which accounts for the largest number of private-sector foreclosure sales today — real estate-owned properties or REOs. When homes don’t sell at the courthouse, the new owners (that is the lenders) will try to sell them on the open market. Many banks will either list the property with a broker or, especially if the property is not selling, hire an asset management company to auction the home. Besides their abundance, REOs have a number of advantages for buyers. They usually have cleared titles, and the banks permit buyers to see the house and use financing for the purchase. Some banks will even repair the house so it’s move-in ready, says Matt Beaton, an REO listing agent with Prudential Carruthers Realtors. Kelman says his agents succeed in getting banks to pony up the cash and fix a property about 20 percent of the time.
Buyers can find REOs through any experienced real estate agent, but the National Association of Realtors doesn’t certify agents for specializing in foreclosed properties. Most agents who do specialize typically work on the listing side and are not required to protect the buyers’ interests. Some brokers, such as Annandale-based REO Real Estate, will represent buyers and sellers of REOs by designating some of their agents to list properties and assigning the rest to work with buyers.
Properties can also be found by going directly to the source: the Web sites of major banks, mortgage giants Fannie Mae and Freddie Mac, and government agencies selling foreclosed homes that were purchased with federally insured loans. All post searchable listings online and permit buyers to visit the property — though would-be homeowners will still need a real estate agent to place an offer. As a general rule, banks and mortgage companies don’t work directly with buyers, Sharga says, and government agencies, such as the Department of Housing and Urban Development, require buyers to have an agent. Although HUD lists the most government-foreclosed properties, it only sells them through timed online auctions similar to eBay’s. After a specified time for accepting bids, the buyer with the best offer gets the house, with bidders who plan to live in the property given priority over investors.
Subscriber services that charge homebuyers monthly fees of $40 to $60 also have searchable databases and say their listings are more comprehensive than the Multiple Listing Service that real estate agents use. RealtyTrac’s Sharga says his service sends employees to comb property records at 2,200 courthouses across the country to find foreclosed homes that banks haven’t gotten around to listing. Though most courthouses let anyone review the records free, “you have to know what you’re looking for,” he says.
But real estate agents say the services don’t offer buyers any more of a leg up on good properties than they would get with a competent agent. “Most banks designate a broker for a property the moment it’s foreclosed on,” Re/Max’s Norton says. “These homes are destined for the MLS before the gavel falls at the courthouse.”