The Ambiance Realty Blog

The U.S. Treasury Department is expected to issue streamlined guidelines to lenders on short sales soon. Housing-industry leaders say complicated procedures are hindering them from clearing the large inventory of distressed property necessary to return the housing market to normal. Now, only about 20% or so of short sales are successful, according to real-estate brokerage Re/Max International Inc.

Buying a foreclosure is usually speedier than a short sale because lenders already possess the property. But there are other drawbacks. State laws vary considerably with respect to legal procedures surrounding foreclosures. Many states require judicial proceedings for foreclosing on a home that can take more than 12 months, a period during which the home may be vacant or occupied by tenants or squatters. Homes may have appliances, pipes and even electrical wiring ripped out.

Buyers of bank-owned properties are usually stuck with whatever hidden problems they discover, including construction defects, and they seldom get additional price concessions. For these reasons, it’s especially important for distressed-property buyers to have a thorough inspection by a qualified home inspector or inspection engineer, as well as a thorough title search and title insurance.

Despite the hurdles, competition for low-priced foreclosures under $300,000 is keen, sources say. “The bargain hunters have come out from everywhere, and they are getting into bidding wars,” says Re/Max Chairman Dave Liniger.

Buyers must be prepared and ready to move on a dime. If they’re paying cash, they have to certify they have the funds available. Those who need financing should obtain pre-approval from a lender before even looking at properties.

Successful foreclosure buyers often bid significantly above the asking price. Chuck Brueske, 46, a hospital biomedical technician, says he paid $111,000 in August to win a bank-owned townhouse built in 1981 in Maple Grove, Minn., listed at $99,600.

Mr. Brueske says his own good credit history helped him win over two other bidders.

“It was unusual that in a down, depressed market that I had to bid more than the asking price, but as it turned out the other bids were higher than mine,” he says. “It took me a while to swallow that.”

Some home buyers give up after discovering there are bargain properties without all the obstacles. Jerrold Horning, 34, an electronics technician for the U.S. government in El Cajon, Calif., says he and his wife bought a house in the conventional market after seeing the condition many houses were in.

“Some of the foreclosures I looked at were horribly trashed. You would have to put another $100,000 in just to make it livable,” he says. Of buying a distressed property for a primary home, he says, “I don’t think it’s worth the hassles.”