Q–My husband and I are shopping for a home. We saw a newspaper ad by a Realtor for a “foreclosure.” After we inspected it, we learned the house is “in foreclosure,” but the mortgage lender hasn’t actually foreclosed. We thought it would be a bargain, but the seller is asking practically full market value. Although we don’t want to buy that house, we got to thinking maybe we could find a foreclosure bargain, or are they all in bad parts of town?
A–Finding and buying a foreclosure bargain house won’t be quick and easy. Foreclosures happen in both the worst and the finest parts of town. Some are incredible bargains. Others have mortgage balances higher than the house’s market value.
There are three foreclosure-buying opportunities. The first occurs before the lender’s foreclosure sale, but after the foreclosure notice or lawsuit is filed. The house you inspected was probably in that pre-foreclosure period, while the defaulting borrower was trying to sell and get some equity out.
The second opportunity is at the foreclosure sale, where you can bid the amount of the mortgage in default, or more. The big disadvantage is that cash (or a cashier’s check) is usually required. Also, bidders usually can’t inspect the house before purchase. The big advantage is that these are often incredible bargains and most junior liens are wiped out.
The third opportunity occurs after the foreclosure sale, if no bidders showed up and the foreclosing lender took the property back. Many institutional lenders offer attractive low- or no-down-payment mortgage financing to get rid of foreclosures.
I’ve bought foreclosures before, at, and after the foreclosure auction. Buyers who know what they’re doing can purchase incredible bargains. But I’ve seen foreclosure buyers overpay, too.
Q–We have a contract to buy a house now under construction, but we’ve decided we don’t like the location. A friend wants to take over our purchase contract. The developer says no, because he has raised prices since we bought. Our lawyer says the contract does not prohibit assignment. Can a home purchase contract be assigned?
A–Yes, unless assignment is prohibited by the contract terms or if it has a “personal service” element, such as financing based on your good credit. Your attorney appears to be correct. Your friend’s money is just as green as yours.
Q–We are buying our first home. The real estate agent just delivered our estimated closing costs and told us to bring a cashier’s check for $7,236.48 to the closing. We never dreamed we would have to pay high expenses such as a mortgage loan fee, advance property taxes, title fee, attorney/escrow fee and prepaid fire insurance premium. Shouldn’t the seller pay some of these costs? Are we being ripped off?
A–The time to negotiate home sale closing costs was when you made the purchase offer. Your realty agent should have given you a written estimate of closing costs at that time.
If you’re short of cash, you should have asked the seller to pay most or all of your closing costs. Reread your purchase contract. If the seller didn’t agree to pay these costs, you get to pay them.
I suspect the prepaid fire insurance premium and the advance property taxes are to establish your escrow account, so there will be sufficient funds in it to pay those bills when they come due. However, the property tax bill for the current tax year is prorated between the buyer and seller for the days in the tax year each owns the home.
Q–As I understand it, there are no special home sale tax benefits for us “old folks” anymore. Is that correct? I am 53. Is there any reason I should wait to sell my home until I become 55?
A–You are correct. The 1997 Tax Act eliminated the “over 55 rule” $125,000 home sale tax exemption. Since you won’t receive any greater tax benefits by selling your home when you are 55, why wait? Your tax advisor can give you complete details.
Q–Our house has been listed for sale almost three months. The Realtor says it hasn’t sold because it needs paint. However, we have the lowest asking price in the neighborhood. We feel its better to let the buyers paint the house in the colors they prefer. Who’s right?
A–Your Realtor is correct. If you want to get your home sold, paint it. Fresh paint is the most profitable improvement that can be made to a house. Use attractive colors–nothing gaudy.
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Have a question about real estate? You can write to Robert Bruss in care of Tribune Real Estate Features Service, 435 N. Michigan Ave., Suite 1400, Chicago, Ill. 60611. Answers will be provided only through the column. Please note that laws vary from state to state and area to area. Consult an attorney for specific legal advice.
