From what I'm seeing and from what the people I'm talking to on the money side of the real estate transaction, many of these forclosures are due to one or two majore reasons. 1) ARM (Adjustable Rate Mortgages 2)Low or No Down Mortgages.
The ARM's seem to be leading the way. I'm not a financial guru, but where did these people getting ARM's think the interest rate was heading? I mean, we were at 45 year lows. Did they think the interest rate was going to fall to 0%? And don't even get me started on the No down payment or the something like paying 5% down...
Okay, I'll get off my soap box now. You didn't come here to read me ranting about the cause of forclosures, you came here to read about how to buy one without getting stiffed. Am I correct?
The biggest problem we see in forclosed homes in Houston are the previous owners. They seem to blame the World for their lack of paying the house note so they take it out on the homes. I've seen homes totally stripped of all light fixtures, outlets, switches, breaker boxes, furnaces, air conditioners, built in appliances, broken windows, holes in sheetrock, defecation on floors and walls, urine stains (and smells) in the carpet and the list goes on.
Unless you can find a forclosed home in great shape, you'd better plan on doing some fix up work. You'd think that most of these forclosed homes would be steals, but most are not. I've seen some of these homes in poor shape that were only 10k under the going rate for a particular neighborhood. Apparently the mortgage company was either trying to make a profit with equity or had no idea of what the home was really worth when they lent the money to the former owners.
Oh, by the way, if you're ever forclosed on and want to steal things from the same home that you can't make payments on, better think twice. From what I'm told, the mortgage company still owns everything that is in the house when you bought it. That means the light fixtures, outlets, built in appliances, etc. (see list above) And doing damage to the home is vandalism. The mortgage company can file charges against you for theft or vandalism. Hey, just be a good person and leave the home if you're ever forclosed on. You wouldn't want to come in and put up with some of the crap we see, so don't leave it that way for the next person.
Having said that, make sure the forclosed home you're looking at has everything it's suppose to. You know, things like the appliances, HVAC system, etc. Next, find out how long the home has been sitting. If you walk in and it has a musky stale odor about it, chances are it has been closed up a while.
Get an Inspection! If you don't, I can't feel sorry for you if big-bad-ugly things pop up after you move in. Previous owners have been known to leave little surprises behind for the next owners. I'm not saying your inspector will find all of them, but he/she can reduce the numbers of big-bad-ugly surprises. Before you schedule the inspection, see what steps you'll have to do so that all utilities are on at the time of inspection (gas, water ,electric). Also make sure you and your inspector can gain entrance to the property.
While there, walk around and see what the home needs. Take a notepad and write these things down. I'm not talking about stuff on your inspectors list. Just the stuff you can see at the moment. Windows, doors, sheetrock, paint, carpet, etc. You can then drop by one of the Big Box DIY stores and start getting an idea of what it'll cost you to start repairs.
Check with the Utility Companies - Gas, Water, Electric, Cable, Phone - to see whether or not a balance is owed. In some areas, no matter who owns the home, they will not restore service until the bill is paid in full. You don't want to close on your new-found forclosed home only to find out there's a $1500 electric bill that needs paid in full before they will begin your service. Or worse yet, you move-in on the week of the Super Bowl and find you the previous owners have cut all the cable lines in the attic and left you with a whopping cable bill to catch up on!
Okay, there you go. Some of my best tips for buying forclosed homes in Houston!