Foreclosures – The defaulting borrower has lost all rights to the house and the bank has taken possession.  The bank is now the Seller. 

The Foreclosure Process:

1. Notice of Default
2. Cure Period – Borrower can bring the loan back to current
3. Acceleration of Loan – remainder loan amount comes due!  (if Borrower can’t bring loan current)
4. Foreclosure Begins
5. Advertise for a Period of Time – (Noticed Up) – a title search is performed and all lien holders are notified – laws are very strict during this step – can’t stop the procedure – cost too much money to start and stop
6. Pay Off Entire Loan or present a Deed in Lieu of Foreclosure – Superior loan gets paid off, the rest of the liens remain in effect
7. Auction – at the courthouse steps – looking for bids higher than the amount of the Superior Lien – bank usually buys it’s own loan
8. Property becomes REO

When you purchase a home in Foreclosure you will be given a Sheriff’s Deed.  This deed does not warrant the house for any time period, except that which the bank held the property.  These properties are sold “as-is.”  A Buyer will be filling out a traditional Purchase Offer when trying to contract for a Foreclosed home.  The bank will then review the traditional contract and either accept, negotiate, or deny the contract.  If the bank accepts, they will send the Buyer a new contract that they have drafted.  The terms of this new contract supersede all previous contracts.  There is no negotiating the bank contract.  It is what it is, read carefully!  Most banks allow you to do a home inspection; however, you can’t get out of the contract because of the results of the home inspection.  For the most part, the only way out of a Foreclosure contract is financing.  The Purchaser will also be responsible for turning on the utilities and de-winterizing and re-winterizing the home.   

Keys to Remember:

• Virginia is not a “Right to Redemption” state.  Once the property has gone to the courthouse steps, the defaulting party has lost their rights to the property.  Times up.
• The home is being sold “as-is” and “where-is.”  This includes mold issues.
• Buyer Beware!
• You will get a Sheriff’s Deed, not a General Warranty Deed.
• Purchaser is responsible for turning utilities on and paying for utilities for a home inspection.  Purchaser also pays to de-winterize and re-winterize the home before and after the inspection. 
• You may not get keys to the house!  Be prepared to rekey the home regardless.   
• Some banks are exempt from paying state/ county/ city transfer fees and recording fees.  This will be an additional cost to the Purchaser.  Be prepared to pay 3.5-5% in closing costs. 
• Use your own attorney, not the bank’s attorney, to close the deal!  Some banks require the Purchaser to use the bank’s attorney to close the transaction.  This is a violation of RESPA.  It is the Purchaser’s right to choose their own settlement company.  Be prepared to deal with this obstacle. 
• The only “out” in the contract is financing.
• Banks want pretty short closing times, 45 days on average.
• Banks want Buyer to have a direct lender, no mortgage brokers!
• Junior liens are wiped clean!  This is an advantage for the Purchaser!
• The bank has probably priced the house below market value.  There may not be a lot of negotiating room.  Don’t get too greedy!  The bank is also hoping to get multiple offers; be prepared to compete with several other purchase offers.  You need to put your best foot forward.  Many Foreclosures are now being sold for well over list price.  The highest price with the least amount of contingencies will win!      

Foreclosures are stressful transactions.  They are not for the faint of heart!  But, if you hang in there and are patient, you can get a really good deal on a great house!