There are a few different names for when you buy a foreclosed home, but whether it is presented as ‘mortgagee-in-possession’ or ‘mortgage delinquency,’ it is important to know all that the process entails.
*Article updated 28 March 2023
Related Articles:
- Buying Your First Home? Don’t Make These 7 Mistakes
- 2022 Forecast: Places Where Housing Prices Aren’t Slowing Down
- Home Buying Tips for Every Age
- Sale Instead of Foreclosure
What is home foreclosure?
The term ‘home foreclosures’ has a negative connotation to it due to people associating it only with having to move out of a home. But, as the common saying goes, one man’s trash can be another man’s treasure.
To buy a foreclosed home, you have to be well versed in the process of home foreclosure. It involves a homeowner unable to meet their payment deadlines for their mortgage, resulting in their lender being forced to take over the possession of the property as well as their mortgage.
So, yes, home foreclosure can be a terribly misfortunate circumstance that many people have had to face. Luckily, though, the property doesn’t just sit in the lender’s home, but rather, they can make it known to the public that there is a possibility to buy a foreclosed home.
Real estate foreclosures differ from repossession in that a repossessed home happens when a lender seeks out a court order to sell a property while the owner still remains on the title. Foreclosures happen when the bank takes over the title of a property.
The reason many people look into buying a foreclosed home is because of the financial benefits. You are able to secure a property at a lower price than its market value because the lender is most likely trying to offload the asset as soon as possible.
Banks and lenders do not like bricks-and-mortar assets and would rather earn back the value of the original loan than earn a profit from selling the property.
How to find a foreclosed home
If you’re looking to purchase a property, you may be wondering, how do I buy a foreclosed property? Firstly, you have to go through the difficult feat of searching for a home that is being sold by a lender.
One of the better ways to do this is by going through an agent. All the time spent filtering through different property websites and countless dead-end inspections could be spent communicating with an expert on what is best in your circumstance.
Foreclosed houses for sale in Australia are more difficult to find on your own than you may think. Instead, you should team up with an agent, informing them of your wants and needs, and wait for them to provide the options
Although you will have to spend a sufficient amount on an agent, their services will save you loads of time and comes from someone much more adept in the market.
It is important that you find a property that is risk-averse i.e. ensure that the neighbourhood is not experiencing falling values.
Details of buying a foreclosed home
To buy a foreclosed home, you must know the ins and outs of the market. They are different from repossessed homes for sale in Australia in that buying from a bank or lender is certainly different from buying from a homeowner.
The biggest advantage, though, comes from lenders being more inclined to sell foreclosed properties as quickly as possible and for substantially cheaper than their market value. They do not want their capital to be locked up in a physical asset that can possibly take months to sell.
Furthermore, the original homeowner happens to be liable to their lender for any and all shortfalls once the property is sold; Lenders Mortgage Insurance is a safeguard only for the lender and not the borrower.
This can give you a certain amount of confidence that will come in handy during negations to buy a foreclosed home.
Keep in mind that not every case will mirror a typical foreclosure process. A bank may try and waive or reduce certain conditions that are in your contract such as a cooling-off period.
Make sure that you have a solicitor look over the contract so that you can have a good sense of the lender’s expectations of you.
Have a plan
Having a plan to buy a foreclosed home will never hurt you. The question of, what is the risk in buying a foreclosed home can only be answered by your level of preparation.
First off, you should know if you want to look into the possible foreclosure homes Perth is offering or if you are more interested in bank-owned properties NSW is offering.
From here, you should have a good idaea of what you want to do with the property. Whether you want to use it as a family home, rent it out to others, or do some work on it before reselling it, it is important to set the plans in place.
If you are hoping to use it as an investment, you should always calculate how much you are able to spend on renovations or repairs, deciding whether it is worth it or not. It is common for owners to overspend without proper research into whether it is a financially intelligent decision to invest in the property’s location.
Additional costs
There may be a few hidden costs such as stamp duty, travel costs, inspection costs, solicitor’s fees, etc. The homeowner who was unable to pay their mortgage would not be able to make payments for things like regular repairs, so the responsibility will lie on your shoulders.
Make sure you invest as much time and effort when looking to buy a foreclosed home because the payoff will always be worth it in the end.
Looking for your dream home?
We can also help you out in that department. Browse our search page to cheque out some amazing listings available right now. But don’t just stop there, download our app to get the full Soho experience. Just remember to shortlist or swipe left on our listings so we can send you others that better match what you’re looking for.
