Foreclosures For Sale
Whether you’re looking to purchase a bank owned home in Cleveland proper or a foreclosure in a desirable neighborhood like Westlake, Ohio, you’re bound to find great opportunities as well as great risk and pitfalls. Before jumping into making a bid, you first need to understand the different stages of foreclosure in order to see which step in the process makes the most sense for your purchase. There are three stages of foreclosure 1) Pre-foreclosure; 2) Sheriff’s Auction; 3) REO (real estate owned).
Pre-foreclosure
Ohio is judicial foreclosure state, which means once a home owner falls behind on their mortgage payment, their lender must sue in order to get a foreclosure judgement. A foreclosure complaint is filed in county court where the owner has 28 days to file an answer otherwise a default judgment is entered. The pre-foreclosure process can take anywhere from 5-7 months. Many homeowners will stop making mortgage payment during this time as they are well on their way to losing their house. They may be living rent free until the house goes to auction, but then they’ll be evicted.
To buy a home in this stage of the process can be very slow and complicated. Many times your dealing with a short sale where the owner owes more to their bank that what the house is actually worth. The lender may be willing to accept the “short” payment, but you should plan on waiting several weeks, if not months to get a response to your offer. You’re dealing with both the current owner and their lender in this situation. If they have multiple mortgages, that will complicate matter even further. You typically have the advantage of viewing the home before making a bid, but home prices are also typically highest at this stage in the process.
Sheriff’s Auction
Auctions offer the highest reward but also carry the highest risks. This is the point in the process where you’ll most likely get the cheapest price for a house. Opening bids at auction start at 2/3 of appraised value and the highest bidder wins. Typically you’ll be bidding against the mortgage holder and maybe a handful of experienced investors. It’s difficult to gain access to inspect a house prior to the auction, so you’re going in somewhat blind as the house could very well be in need of extensive repairs that you didn’t anticipate. Auctions also come will strict bidding rules. In Cuyahoga County for example, the winning bidder needs to immediately deliver a deposit in the form of certified funds for 10% of the winning bid up to a maximum of $10,000. If you don’t have the funds available, they’ll immediately re-offer the property for sale. If you don’t payoff. If the balance isn’t paid in full after 15 days, the balance due will bear interest at the rate of 10% per annum from the date of sale to the date the balance is paid to the Sheriff’s Office. If the balance is not paid within thirty days, the purchase shall be in contempt of court and a citation shall be issued.
REO’s or Bank Owned Homes
If no one bids on the house at auction, the bank who holds the mortgage repossessed the home and takes in into their inventory as real estate owned. Banks will list their homes with local REO brokers, so any Realtor with access to the MLS can access these foreclosure listings. You can inspect the property in person prior to making an offer, although the utilities are usually turned off. They’ll typically allow the utilities to be turned on for professional inspection after an offer has been accepted. You can also be assured that the property with come with clear title. This is the safest, cleanest stage in the foreclosure process to buy a bank owned house.
Some other things that you should know
- If you’re putting an offer in on a bank owned home, they won’t even look at your bid unless it’s accompanied with a pre-approval letter or a bank statement showing that you have the funds available. If a great deal comes along, you don’t want to miss it because you don’t have financing lined up. This should be your very first step. The banks won’t wait for you, especially when they have other offers coming in.
- Be prepared for a bidding war if the house is in a nice area and it’s priced well. There is a lot of competition for foreclosures and homes generating multiple offers is not uncommon. Make sure you don’t get caught up in the process and overbid. Know the max your willing to pay by examining comparable sales in the area.
- Before making an offer, get a firm grasp on repairs and how much you’ll need to budget. Bring contractor with you to get estimates. Unexpected repairs will always come up, but complete as much due diligence as possible.
- If your purchase is short-term, try to avoid neighborhoods saturated with foreclosures. Theres a good chance the prices will decline further and it’s difficult to compete with banks on price.
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