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Questions about buying a foreclosure home in Michigan.?

My cousin is thinking about buying a foreclosure home to live in, not flip. She has the neighborhoods picked out and will wait until one of those houses go into foreclosure. How much cash do you need to come up with? Is it like taking out a regular loan for a home? There are a lot of stages to foreclosure which one will give you the better price (pre-foreclosure, bank owned…) ? Is the price you see the total price or are there hidden cost? Could you end up buying a place with a lean on it? Thanks.

Public Comments

1. Buying a house in foreclosure is STILL buying a "house" so all the same rules apply like prequalifing with a lender to see how much you can afford, having the down payment funds ready, inspecting the property, and all the rest. The only things that are different is that you are buying from a bank or other business and they are motivated to move the property as soon as possible. They are not in the business of managing property so the faster they sell the property, the less costs they incur and the better they like it. There are additional risks depending on WHEN in the process you aquire the property. Remember that the bank does NOT "own" the property until AFTER the foreclosure sale. All they "own" is a lien on the property so in order to get title they must foreclose on THE LOAN and force the property to be sold on either the County Courthouse steps or another location that is published in whatever legal paper your county requires legal postings to be published in. IF you go to this sale you will be bidding AGAINST the bank for amount owed and the bank does NOT, and CAN NOT control or report other liens and other claims against the property at that time. This is when you need to research the title and liens against the property because you are basically buying it sight unseen and with ALL faults and ALL liens. Other liens may include trash, water, HOA, taxs, etc. IF the bank gets the high bid on the property THEN they are awarded title to it and actually "own" it. Then they will list it for sale with another company to manage it or with a local realtor. If you put in an offer to purchase at this point the the bank WILL cure or payoff any outstanding liens and sell you the property with "free and clear title" which requires them to give you "title insurance". If you get "title insurance" then there can be no liens against the property. If you do NOT get "title insurance" then there are outside risks. Also at the courthouse steps or at auction or when making an offer thru a realtor, the terms and conditions setforth in THAT sale will spell out any additional costs you incur when bidding on a property. For example; if buying at auction, they may require you to pay a 5% Buyer's Premium; which is money paid to the auction company to perform the sale. Other "terms and conditions" WILL apply so it is your responsibility to read, understand what you are agreeing to prior to bidding. In preforeclosure (before the property gets to the courthouse steps) the person who signed the loan still has title to the property and he CAN sell it to whoever he wants for whatever price the parties agree to BUT if you buy it from them then you are assuming ALL liens, ALL loans, and ALL debts owed against the property. You do NOT get title insurance and if the bank is owed more then the sales price the bank has to either sign off on taking that loss or the original owner must work out another arraingment with the bank. There ARE properties that can be bought somewhere in this process for a profit but there are also risks involved and so you NEED to know EXACTLY what you are doing and what risks you are exposing yourself to. Just because a house is going thru foreclosure does NOT mean that it is a bargain or that you can make money on it. if your cousin is around Detroit, then I do NOT think the prices of houses will recover anytime soon, IF EVER. Supply and demand CONTROL prices and in Detroit area you have an oversupply of houses, and a population and job growth numbers that are declining. So while you may be able to buy a house for 70% of what the last guy paid; you MAY NOT be able to find a buyer when it comes time to sell because of people leaving that area and there being more houses there then people who need or want a house. Think about all the small town who are "dieing" and the population is declining. What do you think the value of a house is if there is nobody to buy it or rent it? DO NOT buy houses based on staging or paint colors but based on numbers that show it is a good LONG term investment.