Foreclosure: Tips and Advice for Buying (or Walking Away from) a Foreclosed House

Fear and loathing in foreclosure: After falling in love with a house in foreclosure, a local couple decided to play “real estate roulette.” They lost. Or did they?



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A few months on, we haven’t bought anything else. At the time of writing, we were in contract for another house — a regular sale this time — but that got complicated by an owner’s bad debt, too. Such is life in post-housing market-crash real estate. Either way, we’ll have our home yet. And every now and then, we’ll drive by that foreclosed dream house, and wonder what might have been. And what toll it would have exacted on us.

The Foreclosure File

The numbers

  • At press time, there were almost 1.4 million American housing units in foreclosure nationwide, while close to 900,000 homes were for sale.
  • The State of New York counts about 70,000 homes in foreclosure.

  • Putnam and Orange counties are among the five counties with the highest foreclosure rates in the state.
  • Nationally, 148,054 foreclosure filings were registered in May — one in 885 American homes — down 28 percent from last year.
  • The price of a foreclosure is typically $50,000 less than the overall average house sale price.

Source: www.realtytrac.com

The procedure

  • The typical foreclosure in New York takes 120 days.
  • The State of New York allows both judicial and non-judicial foreclosures. This means that even if a mortgage doesn’t include a clause allowing the lender to sell off the property, if the borrower is in default on their payments, a judge can grant that right regardless.
  • Unlike most states, New York doesn’t have a right of redemption: The former owner can’t reclaim the property by coming up with the money after it has been foreclosed.
  • In judicial foreclosures, New York judges can impose a deficiency judgment — the judge can make the borrower liable for any remaining debt on their mortgage not covered by the foreclosure sale.

The advice

  • Make sure the house is worth the extra hassle. Decide how badly you want it and ensure you are getting it at a below-market rate.
  • Don’t rush. If you’re under the gun to find a new place to live, a foreclosure is probably not for you. The process can drag on much longer than you anticipated.
  • Invest in a good lawyer. Dealing with a bank is tricky. Get someone who is swift and tough like a ninja — only with a law degree instead of nunchucks.
  • Inspect, inspect, inspect. Nobody is under any obligation, legal or moral, to fully disclose everything that’s wrong with the house. Try to uncover as many issues as you can. Bring in specialists, and get contractors to price out the repairs. Add them all up and see if the house is still such a steal.
  • Leave yourself a large contingency. Whoever owned the house before you probably knew they were going to lose it, stopped putting money into it, or even purposely damaged it out of spite. In all likelihood, that’s money you’ll have to smash up some poor, innocent piggybank to get.
  • Have an exit strategy. Things go wrong, and houses are seldom what they seem. Leave yourself with an out, so that when the math no longer makes sense, you can walk away.

 

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