How To Buy a Foreclosure in Loudoun County/Northern Virginia

Lots of people ask me, “How do I buy a foreclosure in Loudoun County/Northern Virginia?” There are two ways - one is definitely more popular than the other these days.

Here are the two ways a consumer can buy a foreclosure in Loudoun County/Northern Virginia…

1. At the local court house steps during the foreclosure auction. (Yes, there is an actual auctioneer speaking a million miles a minute in that typical auctioneer slang)
2. On the open market (including local MLS) once the property is marketed by a listing broker of the bank’s choice.

Let’s look at the first method of buying a foreclosure in Loudoun County/Northern Virginia…

The auction method is tricky and can by filled with pitfalls. Once of the pitfalls is that you have limited access to the property before the auction so you may not get a good idea of what the house looks like or the full scope of work needed to fix it up. There are also many special requirements and nuances to an auction which are different than buying a traditional resale listed through a listing agent/broker on the MLS. Another issue is that there is a “Buyer’s Premium” of 10 - 15 percent of the sales price which you must pay on top of the winning bid price. So your $300K purchase just turned into a $345K purchase.

Even if you get past these issues, there’s one more… The “reserve” price is usually the amount due on the mortgage which is typically higher than the market value of the property. This makes the reserve amount (plus the Buyer’s Premium) an absurd amount of money for the property. The price issue is one of the main reasons why this method is used so rarely these days.

Now let’s look at the second method of buying a foreclosure in Loudoun County/Northern Virginia…

In the current market, this method is used 99% of the time because banks end up taking the property back at auction and then using a listing broker to sell the property on the open market and MLS. This  method is also less tricky - as long as you have your own Buyer’s Agent who has a lot of experience working with foreclosures/bank-owned properties and who is looking out for your interests (unlike the listing agent who is looking out for the bank). The transaction is similar to buying a traditional resale in many ways which makes for a smoother transaction than buying at auction. But it’s different in other ways such as “as is” conditions/clauses, bank addenda, etc. This is why you need a Buyer’s Agent who knows what they’re doing with foreclosures/bank-owned properties.

In addition, there is no “Buyer’s Premium”, you get to see the house before submitting an offer, you get to do a home inspection, etc.

Are you intimidated with the prospect of buying a foreclosure in Loudoun County/Northern Virginia?

Don’t be. If you go in educated and with someone in your corner, you’ll find it’s not as crazy of a process as you think. And there’s more good news…Though buying a foreclosure involves much more than buying a traditional resale, it’s a lot less hassle than buying a short-sale.

This post is the quick answer to the question. If you would like to know more or would like to find a foreclosure in Loudoun County or elsewhere in Northern Virginia, click here to contact me.

Short-Sales Get Tougher, Banks More Willing to Foreclose

Short-sales are getting tougher for sellers and buyers and banks are more willing to foreclose now than before. Compared to just 6 months ago, banks are putting greater demands on short-sale sellers and buyers and are becoming less hesitant to foreclose if sellers (and buyers) don’t agree to their terms. This practice is hurting sellers experiencing true hardship and honest buyers who just want to buy a place to call home.

Banks are putting greater demands on short-sale sellers. Here are some examples…

• Bank’s guidelines for “hardship” are becoming more stringent (and unreasonable in some cases).
• Banks are demanding more money out of the sellers’ pocket at closing - money the seller does not have.
• Banks are less willing to forgive the remaining debt especially in states such as Virginia.
• If there are multiple loans and banks involved in the short-sale, the individual banks are becoming less willing to work with each other (i.e. the first trust bank is not willing to give the second trust bank any money like they used to).
• Second and third trust banks are requiring more money (they used to be happy with $3K) and are less willing to forgive the remaining debt

By putting these demands on the sellers, buyers are being forced to pick up some of the burden for the seller or walk away from the deal and start their house hunt over from scratch. And if the buyer walks away and the seller doesn’t almost immediately get another buyer that will agree to the terms, the seller runs out of time and the bank forecloses.

In addition, banks are becoming more willing to foreclose rather than work out a short-sale deal. A well informed and reliable little birdie told me that at least one big bank (first initial “B”) is moving toward a policy of foreclosing rather than accepting short-sales. Considering my latest short-sale dealings with this and other banks, I agree.

Maybe this has to do with the banks being tired of those who are “strategically defaulting”. Maybe it has to do with the banks being bailed out and knowing no matter what they do, they’re too big to fail. Maybe it has to do with them thinking the market has stabilized so they’re holding on to inventory until prices go up and the home is worth more then than it is today. Maybe it has to do with plain old greed and arrogance. Regardless of why, it is what it is.

Banks foreclosing rather than accepting short-sales is not only hurting sellers, it’s hurting buyers. Imagine being a buyer who patiently waited 3, 4 even 6 or more months for a final response from the seller’s bank only to hear, “The bank is foreclosing. Sorry it didn’t work out.” That’s time and money wasted that you can’t get back.

If you want to  best position yourself for success, do your homework, be prepared and put yourself in good hands (a good lawyer, accountant, real estate agent, etc). And have a Plan B because there is no guarantee that the short-sale will be approved at the terms you (the seller) want.

This is true if you’re a buyer as well. Make sure you know what short-sales are all about and that you’re at the mercy of the seller and bank agreeing to terms. Your Buyer’s Agent should do as much prying as is legally possible to find out the seller’s short-sale situation and circumstances surrounding it. This will give you a better idea of the chances of the short-sale being approved and whether you should move forward with placing an offer on the property or move on to something else.

This short-sale market has been “interesting” to say the least. And it’s about to get even more interesting.