Foreclosure 101

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Foreclosure homes are subject to a lot of issues.  Almost always the owners are in a state of stress and may not be operating rationally.  Loss of job, divorce, health issues, death, etc. are concurrent issues the owners are facing along with the forced loss of their home.  Buying a house has a lot of moving parts so working with good, stable sellers is very helpful.  Working with sellers that have limitations and challenges gets dicier.  Sometimes embarrassment, anger or hostility are part of the package so communicating with them can be an issue. 

In addition, if it’s a short sale and not a true foreclosure, the lender becomes part of the negotiation and decision process.  A few years back when foreclosures were at their peak, lenders were also under a lot of pressure.  They would not respond to short sale offers in a timely manner. It was often months to get a decision.  In the case of publicly traded lenders, this may have been because they needed to control their quarterly bottom line results.  They were managing their write-offs so as to not show erratic earnings.  That added another dimension of uncertainty.  Fortunately lenders are far more responsive now, but it still increases the complexity.

Homes slated for a commissioner’s (courthouse) auction can be pulled at the last minute as some relative, friend, or even a lender stands in to bail out the owners, especially in the case where the deficiency with the lender is only a fraction of the property value.  Generally there is no access to the home prior to a foreclosure auction so you are bidding sight unseen.  Some unscrupulous flippers do manage to enter the property without permission and so have an edge in bidding over those who haven’t.  Plus, since the owners have been in financial straits, generally for a year or more, the homes often lack proper maintenance.  In extreme cases when the owners have already left, they have taken appliances not normally removed or even stripped the home of copper plumbing, lighting fixtures, etc.  You may be walking into a mess.  The upside of course is that you may get the property at below market value, even considering its condition.  But that is hard to gauge without an inspection.

You also have to put down a 10% deposit the day of the auction and post a bond for the remainder or pay cash within 30 days. So, that calls for something other than a conventional mortgage where the lender needs to perform an appraisal and do their typical underwriting.  Cash or a line of credit for the full purchase amount are a couple of your options.

Here is a link to Jefferson County public records for real estate:
http://search.jeffersondeeds.com

Inconveniently, they don’t let you search by address.  Usually you can get owner names from the public, non-subscription part of the Jefferson County PVA:
https://jeffersonpva.ky.gov

If you look up the property in question, you want to look for “Lis Pendens,” latin for the owners are in trouble with their lender.  You can also find records of mortgages and releases from mortgages at the same site.

To find the auction status, you go to the Jefferson County Circuit Court Commissioner’s Office upcoming sales page:
http://www.jeffcomm.org/upcoming-sales.html

and enter the address.  If the sale date is set, there will be a link to the handbill describing the terms of the auction for that property.

Pete Kirven