Buying a property facing foreclosure can be a lucrative deal for you but there are many things that are very different from purchasing a property off of the MLS. It is important that you are prepared and have done your proper due diligence when purchasing properties in foreclosure.
J&A Home Buyers are investors in Katy, TX and we buy houses for cash in the greater Houston, TX area. We also work very closely with other investors in our community that bring us deals from time to time so we put a bunch of content together to help you on your journey to purchasing your first property in foreclosure.
- Buying a foreclosure can have a number of other problems you may not be able to negotiate on, such as repairs or problems with clear title. These won’t be disclosed to you and you are buying as-is.
- Properties that are going to be foreclosed on are publicly announced by the county clerk and will be added to the pre-foreclosure list.
- Foreclosures may still have former owners living int he property when you purchase it. Legally you are required to go through an eviction however we highly recommend you try a cash for keys deal that benefits both you and the former owner.
Things to Consider When Buying A Foreclosed Property
Many investors are drawn to properties that are facing foreclosure because there is a possibility of a “good deal.” This can be true but there are also a number of risks and procedures that can be very different from purchasing a house with a realtor off of the MLS. If you are new to the process of purchasing a home we highly recommend you seek professional advice from an attorney or a realtor as you navigate the process.
Many houses facing foreclosure have other issues with the house itself. Keep in mind that the owner of the property ran into some sort of financial distress and likely hasn’t had the funds to perform regular maintenance to the house for a while. When you buy a house in foreclosure keep in mind that you will be buying it in as is condition. You will need to budget and plan for the repairs that need to be made.
Also keep in mind that the timing to purchase these houses and the funding will often be quite different from your standard purchase. If you are planning on using a bank or third party financing it is important you speak to the lender to understand how quickly you can receive funding and determine if it will work with the timeline of your purchase.
Where To Find Properties Facing Foreclosure In Texas?
There are three stages of a foreclosure 1) Pre-foreclosure 2) Public Auction 3) REO. When a lender initiates the foreclosure process in Texas they send out a notice and will report that notice with the county clerk. This notice puts the property on a pre-foreclosure list. If you are based in Harris County, like we are, you can find these notices on the Harris County Clerk website. Getting the information out of these websites can be a bit time consuming so you may opt to pay companies like Real Estate IQ that aggregate a lot of this data in an excel table for you. If you are wanting to contact the owners that are facing pre-foreclosure you can use companies like TLOxp to skip trace their contact information. Texas requires a minimum of 41 days from that notice to a foreclosure auction so if you catch a property owner early enough on that list you may be able to use traditional lending as an option to purchase their property. You can close on the property all the way up to the auction day.
The second type of foreclosure property you can purchase are the properties that are in fact being foreclosed on and you can bid on these properties. In Harris County this occurs on the first Tuesday of every month at the Bayou City Event Center at 9:00AM. The properties will be auctioned off with a starting price that covers the primary lien holder’s balance. If you win one of these properties you will be asked to pay cash the same day for the purchase of that property. A good strategy for bidding on these properties is to have specific properties and dollar amounts in mind before you go to auction so that you don’t get caught up in a bidding frenzy. It is difficult to accurately predict necessary repairs on these properties as most of these properties you will not be allowed to set foot on the property prior to the auction.
When a property fails to sell at auction the ownership of that property returns to the lender. This is called REO (Real Estate Owned). The bank will then work towards selling this property and they may sell it to a buyer they have a relationship with or higher a real estate agent to list the property on the MLS. These properties typically have significant repairs they will need or the value of the property was too low for an investor to take the risk at auction without seeing the property.
Handling Clear Title With A Foreclosure
When you buy a house in pre-foreclosure a title company will check the chain of title and insure the title for you as the buyer. This significantly reduces your risk in making the purchase as they will insure you against any possible claims for the purchase price that you bought the property for. However if you buy the property at auction then you also accept the potential liabilities that come along with that purchase. Keep in mind that the lender is typically the one that filed for the foreclosure but there may be other issues with the title of that property. You may be held responsible for things like a mechanics lien, easements, tax liens, etc.
To help protect yourself from the risks of unknown claims to your newly purchased property you may want to look into purchasing title insurance on your property. Make sure you shop your title companies before you purchase to learn what they look for and what they will insure and when. Buying a property via foreclosure may come with more risks and as such the title companies may have more rules and premiums to cover their risks.
How to Evict Someone Living In a Foreclosed Home in Texas?
Once you have purchased a property through foreclosure, there is a possibility that there may still be occupants living in the property. It is important to understand that when you buy a property at auction, you are not buying it from the bank, but rather from the owner who is being compelled to sell. If the previous owner has not taken the necessary steps to vacate the property after the auction, you will need to initiate the eviction process. The eviction process typically takes around 45-60 days from the issuance of the notice to vacate.
An alternative approach to addressing this challenge is to offer a cash for keys incentive, encouraging the previous owner to move out quickly without causing any further damage to the property. Investors often opt for cash incentives to expedite the move-out process, as evictions can incur costs such as repairs, cleanup, legal fees, taxes, insurance, and mortgage payments. By shortening the timeline to as little as two weeks, you can significantly reduce these expenses and expedite the listing of your property for sale or rent. Based on our experience, we highly recommend considering this option.
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