Foreclosure Auctions In New York: 7 Tips for Buyers
More homes than you expect end up in foreclosure.
The actual numbers vary from quarter to quarter and year to year, but there are always plenty of foreclosed properties available on the market, especially in a city like New York that houses over 8 million residents.
While, this doesn't bode well for the homeowner who can't pay their mortgage, it could also mean an opportunity for a savvy buyer to purchase an apartment or home for below market value.
But first, you need to know what you're actually doing.
To buy the right foreclosed home you need to know how to spot the red flags and know what resources you have to equip yourself with.
What Is a Foreclosure?
If a homeowner defaults on their mortgage, which means that they can’t make their pre-agreed upon payments, a foreclosure sale is the route the bank commonly takes.
The lender has what's called a "lien" on the mortgage. That’s a notice that says just how much money the borrower has to pay back to the bank.
It makes the ownership conditional, based on the homeowner's ability to make their payments on time.
The mortgage lender therefore has a right to collect on their money through legal means, which can translate into confiscating the property from the homeowner and forcing a sale, which is a foreclosure.
The sale proceeds are then used to pay off the mortgage and any other liens on the title, such as delinquent property taxes.
Because of a 2017 federal law, the borrower gets 120 days to make their payments after they've received notice of foreclosure proceedings.
Although, sometimes the number of days goes up because the borrower has several ways to delay the decision (contesting the foreclosure, seeking bankruptcy, etc).
Types of foreclosures
The foreclosure itself can go one of two ways: judicial or non-judicial.
In New York, both options are available, although non-judicial foreclosures are uncommon. That’s when the foreclosure is handled by a third party instead of by a court.
A judicial foreclosure is when the court has the final say as to whether or not the foreclosure sale will proceed. The court that makes that decision is the Supreme Court of whatever county the property is located in.
You have to look up the information for whatever state you live in because the laws could be different.
And if you’re living in New York, you may also want to check out foreclosure sales in neighboring states, especially considering that you may have better luck.
In Connecticut one out of every 1,737 homes gets foreclosed and New Jersey has the highest rate in the country with one out of every 980 homes!
The court also files a “lis pendens”. That’s a Latin name for a document that lets the general public know that a property is being foreclosed.
It’s because of the lis pendens that everyone is able to find out about the foreclosed property on local real estate sites, bank websites, the online listings of Fannie Mae or Freddie Mac (they buy mortgages from banks), government owned listings provided by the Department of Housing and Urban Development, visiting their county's offices and county courthouse, foreclosure-listing services, or by working with a real estate agent.
But knowing where to find your potential house is just the smallest bit of info because there are seven foreclosure sales tips that you need to know.
Never Buy a Home Before Seeing It
This is one of the most important foreclosure sale tips.
If you're buying your home at an in-person or online auction, you're probably going to be unable to get inside.
That means you won’t be able to do your due diligence.
Sure, you can see the outside , look through the windows, and maybe even talk to a neighbor, but that's just not the same as looking around inside or having an inspection.
If you find yourself wondering, "What's the worst that could happen?" How about tens of thousands of dollars worth of damage as a result of negligence or of intentional destruction.
It's not unheard of for homeowners to destroy their abodes, or strip their one-time homes of appliances, light fixtures, copper wiring, etc.
Also, before you buy your home, see how long it was vacant. Sitting unattended during freeze and thaw seasons may cause significant damage.
Buying a Foreclosure from a Real Estate Agent is a Good Idea
If the foreclosure auctions end without the home being sold, then the home becomes a "real-estate-owned" (REO) property.
That's just a property the bank holds onto in order to sell later. The advantage of buying an REO property is that the bank may fix the worst problems and even procure a real estate agent who excels at helping .
And, just as importantly, you'll actually be able to go inside.
Have the Home Inspected
If you're lucky, the type of property that you’re looking at has simply been uninhabited.
Sure, it may have a dead lawn, chipped paid, and require some minor repairs, but, for the most part, it's small potatoes.
Other homes, meanwhile, demand so many repairs that they're just not worth it. That's why it's a good idea to spend the $300 to $500 it would cost to have a home inspector tour the property.
The problem is, however, that banks are less likely to lower the price than a regular home owner. But, at least you’ve saved yourself a whole lotta cash, heart ache, and stress.
Also, if you get the inspection done more quickly, you’ll be communicating to the bank that you’re serious about making your purchase.
One of the best foreclosure sale tips is conducting professional title search. Banks may clear the liens but they're not required to!
Additionally, if the IRS has a tax lien on the home because of unpaid taxes, it becomes the responsibility of the new owner to make those payments!
So, having a professional title search can really save you from a big mess.
Find Out How Much Similar Homes Cost
Real estate websites can tell you the sales prices of similar homes in the area have been selling for.
You may not be able to see the conditions of the home, but you'll be able to make a much more informed decisions.
Just make sure to eliminate any homes that had a purchase price that was significantly under market value as these were likely sold between family or friends and, as a result, aren't accurate assessments.
Make sure to include a "subject to" clause in your negotiations so that if you discover your home's value to be less than what you're paying for it or if the cost necessary repairs is too high.
Don't think that a foreclosed home necessarily means that the community it's in is no good.
Affluent neighborhoods in great school districts have foreclosed homes too!
Make sure to see how close your potential home is to shopping, public transportation, and major routes.
Additionally, steer clear of neighborhoods that have too many abandoned properties since that will drive down the value of your home.
Make Smart Bids
It's not always the case that buying a foreclosed home means buying a home that's a bargain.
There are, however, two factors for you to take advantage of. The bank's only interest is selling the home and, as a result, emotion is not factoring into their negotiations.
The bank is literally losing money every day that the home isn’t sold! Make sure to ask how many other bids have been made.
If it’s over two you may have to raise your offer.
If it’s even more, then some of those offers may be in cash, which may also require you to pay more to compete since banks love receiving payments entirely in cash.
Regardless, be ruthless in your bidding. Set a ceiling to how much your willing to pay that's both within your budget and close to the property's actual cost.
If the bank rejects your offer, just walk away. And, of course, factor in closing costs if you're getting a mortgage (that can add thousands of dollars to your transaction).
If you really want to sweeten the deal for the bank, offer to pay a percentage of the fees that bank itself would have to pay after the sale of the home.
Prepare Your Paperwork and Credit Score
When it comes to buying a foreclosed home preparation is the name of the game, and that applies to more than just knowing the home.
You've got to know your finances and credit score too to get a great deal.
If your credit score is less than ideal, read up on our guide on how to improve your credit score.
Banks will expect to see your pre-approval letter with your bid.
And without that preapproval letter, you won't be ahead of the competition and you certainly won't be able to compete with someone who's paying in cash.
Get a Loan from HUD If Repairs are Going to Be Extensive
You've seemingly got everything good to go and then you run into the biggest hurdle of them all: banks are not likely to lend you money if it's for a home in poor condition.
The bank selling the home may be unwilling to do all the repaid and, as a result, you'll end up without yours home.
Luckily, one of the foreclosure sale tips is just for this occasion: get a 203(k) loan from the U.S. Department of Housing and Urban Development (HUD).
If your new home is going to be your primary residence (as opposed to an investment property), then the program will provide you with one long-term loan.
The money will still come from a traditional lender, but HUD will guarantee that the loan will be repaid, which provides enough encouragement for the bank to provide that loan.
Getting a 203(k) loan requires jumping through some hoops and not every lender will play along, but if you use HUD's search tool you should be able to find a financial institution that's willing to play ball.