Builders, in an effort to combat the dual problem of an increasing population and a declining availability of prime land, are increasingly turning to common interest developments (CIDs) as a means to maximize land use and offer homebuyers convenient, affordable housing. The two most common forms of common interest developments in many states are Condominiums and Planned Unit Developments, often referred to as PUDs. The essential characteristics shared by these two forms of ownership are: Common ownership of private residential property Mandatory membership of all owners in an association which controls use of the common property Governing documents which establish the procedures for governing the association, the rules which the owners must follow in the use of their individual lots or units as well as the common properties A means by which owners are assessed to finance the operation of the association and maintenance of the common properties Before continuing further, it may be helpful to clarify a common misconception about Condominiums and PUDs. The terms Condominium and PUD refer to types of interests in land, not to physical styles of dwellings. Therefore, when homebuyers say that they are buying a townhouse, it is not the same as saying that they are buying a condominium. When homebuyers say that they are buying a unit in a PUD, they are not necessarily buying a single-family detached home. A townhouse might legally be a condominium, a unit or lot in a Planned Unit Development, or a single-family detached residence. The terms Condominium or PUD will say a great deal about the ownership rights the buyer will receive in the unit and the interest they will acquire in the common properties or common areas of the development. Common interest developments offer many advantages to homebuyers, such as low maintenance and access to attractive amenities. However, there are restrictions and duties which come with ownership of a Condominium or PUD that buyers should be aware of prior to purchase. To acquaint you with various aspects of ownership in common interest developments, the Land Title Association has answered some of the questions most commonly asked about Condominiums and PUDs. What are the basic differences between ownership of a Condominium and ownership of a PUD? The owner(s) of a unit within a typical Condominium project owns 100% of the unit, as defined by a recorded Condominium Plan. As well, they will own a fractional or percentage interest in all common areas of the Condominium project. The owner(s) of a lot within a PUD owns the lot which has been conveyed to them-as shown in the recorded Tract Map or Parcel Map-and the structure and improvements thereon. In addition, they receive rights and easements to use in common areas owned by another-frequently a Homeowner’s association-of which the individual lot owners are members. The above are basic descriptions and should not be considered legal definitions. Besides ownership of my unit, what other amenities (common areas) will I be acquiring use of and how will I own them? Common interest areas may span the spectrum from the ordinary-buildings, roadways, walkways and utility rooms-to the extravagant-equestrian trails and golf courses-with more usual amenities including community swimming pools and clubhouse facilities. Your ownership rights in common areas will be spelled out in your project’s Declaration of Covenants, Conditions and Restrictions (CC and R’s). The subject of CC and R’s will be expanded upon later in this brochure. As we stated in the answer to the previous question, Condominium owners own a fractional or percentage interest in common with all other owners in the Condominium project, in all common areas. PUD owners receive rights and easements to use of common areas through their membership in a Homeowner’s association, which typically owns and controls the common areas. Some PUD projects, however, provide that the individual homeowners will own a fractional interest in the common areas. Again, in this case, a Homeowner’s association will have the right to regulate the use of the common areas and to assess for purposes of maintaining the common areas. Check your CC and R’s and association Bylaws (basically, rules governing the management of the development) to insure that you understand your rights to use of your unit and common areas. What services will my Homeowner’s assessments help to finance? Your Homeowner’s assessments support not only the easily recognizable-building and swimming pool upkeep, landscape maintenance-but also the unseen-association management and legal fees and association insurance. As well, reserves must be factored into your assessments, including reserves for replacement of such items as roadways and walkways. In the case of condominiums, where ownership is usually limited to airspace within the walls, floors and ceiling of the unit, reserves will frequently fund replacement of such items as roofs and plumbing. Each member of the Homeowner’s association, upon purchasing their unit, must receive a pro forma operating budget from the association. Basically, this will be a financial statement of the income and obligations of the association, which must include an estimate of the life of the obligations covered under the assessments and how their replacement is being funded. What happens if I fail to pay my Homeowner’s assessments? Delinquency fees will be added onto the unpaid assessments. Should your delinquency continue, the association has the right to place a lien upon your property. The lien may lead to a foreclosure if the delinquency is not paid. Of what importance are CC and R’s and Bylaws? CC and R’s and Bylaws are the rules and regulations of the community, meant to guide the use of individual properties and common areas. Buyers should be aware that CC and R’s and Bylaws may be written so as to restrict not only property use, but also to restrict owners’ lifestyles, for instance, spelling out hours during which entertainment, such as parties, may be hosted. CC and R’s and Bylaws are highly important and should be thoroughly examined and understood prior to purchase. They bind all owners and their successors to the rules and regulations of the community. Failure to follow those rules and regulations can be considered a breach of contract. Legal action may be taken against the homeowner for any such breach. At what point in the real estate transaction will I be allowed to review a copy of my CC and R’s and Bylaws? Legally, it is the responsibility of the owner to provide the prospective purchaser with the governing documents of the development (CC and R’s and Bylaws), the most recent financial statement of the Homeowner’s association and notice of any dues delinquent on the unit. The law states that these items should be delivered as soon as practicable; however, the prospective buyer should request to see them as early as possible. If you do not fully understand what is stated in these documents, consult a real property attorney. Should I object to items included in the CC and R’s and/or Bylaws, will I have the opportunity to terminate those items prior to taking ownership? No. The process required to terminate these restrictions is often complex and costly. Termination of restrictions will require, at least, a majority vote by members of the Homeowner’s association, and may require litigation. What if I have further questions regarding Condominium and PUD ownership? Ask any questions you may have before you buy! Don’t wait to take ownership to find out about restrictions and regulations affecting your Homeownership rights.

When purchasing a piece of property, it is important to be aware of any environmental liabilities associated with it. For example, you should find out if there are any registered underground tanks within several miles of the property, known contaminated properties in the neighborhood, or property owners who have been fined by the government for failing to meet environmental safety standards. Before, it took a costly site investigation to acquire this type of information, but now there are online environmental databases available at a fraction of the cost. Anyone can access reports on otherwise hard to detect environmental issues. With these databases, it is possible to obtain a list of hazards near a property, or spills and violations attributed to businesses nearby. Some reputable databases include VISTA Information Systems, located in San Diego, California, which allows you to register and search the data bank for free, and E Data Resources, which is located in Southport, Connecticut. These services are all relatively inexpensive, but can provide you with priceless information that is useful before you make a purchase.

Lead poisoning is a serious problem that can lead to adverse health problems. In children, high levels of lead can cause damage to the brain and nervous system, behavioral and learning problems, slow growth, and hearing problems. In adults, lead poisoning can cause reproductive problems, high blood pressure, digestive problems, nerve disorder, memory and concentration problems, and muscle and joint pain. Lead poisoning is especially a problem in cities with older buildings. Typically, lead is present in the paint from older buildings, in the water supply, and in the environment from cars and buses. Preventing lead poisoning in large cities, where there is such widespread possibility for exposure is both difficult and expensive. Federal programs have attempted to address this problem. Lead poisoning is also an issue that buyers and sellers need to consider. Houses that were built before 1978 probably have paint that contains lead. Federal law requires that sellers disclose known information on lead-based paint hazards before selling a house. Sales contracts must include a federal form about lead-based paint in the building. Buyers will have up to 10 days to check for lead hazards and are likely to stipulate corrections.

Estate planners often recommend Living Trusts as a viable option when contemplating the manner in which to hold title to real property. When a property is held in a Living Trust, title companies have particular requirements to facilitate the transaction. While not comprehensive, answers to many commonly asked questions are below. If you have questions that are not answered below, your title company representative may be able to assist you, however, one may wish to seek legal counsel. Who are the parties to a Trust? A Family Trust is a typical trust in which the Husband and Wife are the Trustees and their children are the Beneficiaries. Those who establish the trust and transfer their property into it are known as Trustors or Settlors. The settlors usually appoint themselves as Trustees and they are the primary beneficiaries during their lifetime. After their passing, their children and grandchildren usually become the primary beneficiaries if the trust is to survive, or the beneficiaries receive distributions directly from the trust if it is to close out. What is a Living Trust? Sometimes called an Inter-vivos Trust, the Living Trust is created during the lifetime of the Settlors (as opposed to being created by their Wills after death) and usually terminates after they die and the body of the Trust is distributed to their beneficiaries. Can a Trust hold title to Real Property? No, the Trustee holds the property on behalf of the Trust. Is a Trust the best way to hold my property? Only your attorney or accountant can answer that question. Some common reasons for holding property in a Trust are to minimize or postpone death taxes, to avoid a time consuming probate, and/or to shield property from attack by certain unsecured creditors. What taxes can I avoid by putting my property in trust? Married persons can usually exempt a significant part of their assets from taxation and may postpone taxes after the first of them to die passes. You should check with your attorney or accountant before taking any action. Can I homestead property that is held in a Trust? Yes, if the property otherwise qualifies. Can a Trustee borrow money against the property? A Trustee can take any action permitted by the terms of the Trust, and the typical Trust Agreement does give the Trustee the authority to borrow and encumber real property. However, not all lenders will lend on a property held in trust, so check with your lender first. Can someone else hold title for me “in trust?” Some people who do not wish their names to show as titleholders make private arrangements with a third party Trustee; however, such an arrangement may be illegal, and is always inadvisable because the Trustee of record is the only one who is empowered to convey, or borrow against, the property, and a Title Insurer cannot protect you from a Trustee who is not acting in accordance with your wishes despite the existence of a private agreement you have with the Trustee.

The Mechanics’ Lien law provides special protection to contractors, subcontractors, laborers and suppliers who furnish labor or materials to repair, remodel or build your home. If any of these people are not paid for the services or materials they have provided, your home may be subject to a mechanics’ lien and eventual sale in a legal proceeding to enforce the lien. This result can occur even when the homeowner has made full payment for the work of improvement. The mechanics’ lien is a right that a state gives to workers and suppliers to record a lien and ensure payment. This lien may be recorded where the property owner has paid the contractor in full and the contractor then fails to pay the subcontractors, suppliers, or laborers. Thus, in the worst case, a homeowner may actually end up paying twice for the same work. The theory is that the value of the property upon which the labor or materials have been bestowed has been increased by virtue of these efforts and the homeowner who has reaped this benefit is required in return to act as the ultimate guarantor of full payment to the persons responsible for this increase in value. In practice, a homeowner faced with a valid mechanics’ lien may be compelled to pay the lien claimant and then pursue conventional legal remedies against the contractor or subcontractor who initially failed to pay the lien claimant but who himself was paid by the homeowner. Another justification for this result relates to the relative financial strengths of the parties to a work of improvement. The law views the property owner as being in a better situation to absorb the financial setback occasioned by having to pay the amount of a valid mechanics’ lien, as opposed to a laborer or material man who is viewed as being less able to absorb the financial burdens occasioned by not being paid for services or materials provided in connection with a work of improvement. The best protection against these claims is for the homeowner to employ reputable firms with sufficient experience and capital and/or require completion and payment bonding of the construction work. The issuance of checks payable jointly to the contractor, material men and suppliers is another protective measure, as is the careful disbursement of funds in phases based upon the percentage of completion of the project at a given point in the construction process. The protection offered by mechanics’ lien releases can also be helpful. Even if a mechanics’ lien is recorded against your property you may be able to resolve the problem without further payment to the lien claimant. This possibility exists where the proper procedure for establishing the lien was not followed. While it is true that persons who have provided labor, services, or materials to a job site may record mechanics’ liens, each is required to strictly adhere to a well-established procedure in order to create a valid mechanics’ lien. Needless to say, this is one area of the law that is very complex, thus it may be worthwhile to consult an attorney if you become aware that a mechanics’ lien has been recorded against your property. In the event you discover that a lien has been recorded but no effort has been made to enforce the lien, a title company may decide to ignore the lien. However, be prepared to be presented with a positive plan to eliminate the title problems created by this type of lien. This may be accomplished by means of a recorded mechanics’ lien release from the person who created the lien, or other measures acceptable to the title company. As in all areas of the real estate field, the best advice is to investigate the quality, integrity, and business reputation of the firm with whom you are dealing. Once you are satisfied you are dealing with a reputable company and before you begin your construction project, discuss your concerns about possible mechanics’ lien problems and work out, in advance, a method of ensuring that they will not occur.

In purchasing your new home, your future monthly payments will be made up of principal, interest, real property taxes, and insurance. But what is the tax for the Community Facilities District, otherwise known as a Mello-Roos District? The Land Title Association (LTA) has answered some of the most commonly asked questions about the Mello-Roos Community Facilities Act. What is a Mello-Roos District? A Mello-Roos District is an area where a special tax is imposed on those real property owners within a Community Facilities District. This district has chosen to seek public financing through the sale of bonds for the purpose of financing certain public improvements and services. These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax you pay is used to make the payments of principal and interest on the bonds. Are the assessments included within the Proposition 13 tax limits? No. The passage of Proposition 13 in 1978 severely restricted local government in its ability to finance public capital facilities and services by increasing real property taxes. The “Mello-Roos Community Facilities Act of 1982” provided local government with an additional financing tool. The Proposition 13 tax limits are on the value of the real property, while Mello-Roos taxes are equally and uniformly applied to all properties. What are my Mello-Roos taxes paying for? Your taxes may be paying for both services and facilities. The services may be financed only to the extent of new growth, and services include: Police protection, fire protection, ambulance and paramedic services, recreation program services, library services, the operation and maintenance of parks, parkways and open space, museums, cultural facilities, flood and storm protection, and services for the removal of any threatening hazardous substance. Facilities which may be financed under the Act include: Property with an estimated useful life of five years or longer, parks, recreation facilities, parkway facilities, open-space facilities, elementary and secondary school sites and structures, libraries, child care facilities, natural gas pipeline facilities, telephone lines, facilities to transmit and distribute electrical energy, cable television lines, and others. When do I pay these taxes? By purchasing an interest in a subdivision within a Community Facilities District you can expect to be assessed for a Mello-Roos tax which will typically be collected with your general property tax bill. These special tax payments are subject to the same penalties that apply to regular property taxes. How long does the tax stay in effect? The tax will stay in effect until the principal and interest on the bonds are paid off along with any reasonable administrative costs incurred in collecting the special tax or so long as it is needed to pay the expenses of services, but in no case shall exceed 40 years. What happens if a general tax payment is not made on time? Because the Mello-Roos tax is typically collected with your general property tax bill, the Facilities District that obtained the lien may withdraw the assessment from the tax roll and commence judicial foreclosure. What is the basis for the tax? Most special taxes levied on properties within these districts have been structured on the basis of density of development, square footage of construction, or flat acreage charges. The act, however, allows for considerable flexibility in the method of apportionment of taxes, and the local agencies may have established an entirely different method of levying the special tax against property in the district in question. How much will the Mello-Roos payment be? The amount of tax may vary from year-to-year, but may not exceed the maximum amount specified when the district was created. In the case of the purchase of a new house within a subdivision, the maximum amount of the tax will be specified in the public report. The Resolution of Formation must specify the rate, method of apportionment, and manner of collection of the special tax in sufficient detail to allow each landowner or resident within the proposed district to estimate the maximum amount that he or she will have to pay. How is the special tax reflected on the real property records? The special tax is a lien on your property, essentially like a regular tax lien. The lien is recorded as a “Notice of Special Tax Lien” which is a continuing lien to secure each levy of the special tax. How are Mello-Roos taxes affected when the property is sold? The Mello-Roos tax is assessed against the land, but is not based upon the value of the property, therefore, the possible increased value of the property does not affect the amount of the tax when property is sold. The amount of the tax may not exceed the original maximum amount stated in the Resolution of Formation. Any delinquent payments must be satisfied before the sale of the real property since the unpaid amounts are a lien against the property.

Underground heating oil tanks can pose many potential problems to both home buyers and sellers. They have been the source of many environmental problems such as contamination of surrounding soil and ground water. Leaks are generally caused by the rust inside underground tanks or by an electrical condition sparked by electric utility lines. Buyers should always have the tank inspected to make sure that it is structurally sound. Buyers who do not want an underground fuel tank can arrange for an above ground tank to be installed in the basement and the underground tank to be shut off. Cleanup of any leaks will also have to be taken care of. For buyers, the underground heating oil tank should be written in the sales contract. For sellers, your lawyer should make sure that the description and condition of the underground heating oil tank is accurate and up-to-date.

It is an unfortunate commentary, but when economic activity declines and housing activity decreases, more real property enters the foreclosure process. High interest rates and creative financing arrangements are also contributing factors. When prices are rapidly accelerating during a real estate “bonanza”, many people go to any lengths available to get into the market through investments in vacation homes, rental housing and trading up to more expensive properties. In some cases, this results in the taking on of high interest rate payments and second, third and even fourth deeds of trust. Many buyers anticipate that interest rates will drop and home prices will continue to escalate. It is possible that neither will occur and borrowers may be faced with large balloon payments becoming due. When payments cannot be met, the foreclosure process looms on the horizon. In the foreclosure process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a foreclosure. Lenders are not in the business of selling real estate and will often try to accommodate property owners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the owner’s financial situation improves. Let’s say, however, that a property owner has missed payments and has not made any alternate arrangements with the lender. In this case, the lender may decide to begin the foreclosure process. Under such circumstances, the lender, whether a bank, savings and loan or private party, will request that the trustee, often a title company, file a notice of default with the county recorder’s office. A copy of the notice is mailed to the property owner. If the default is due to a balloon payment not being made when due, the lender can require full payment on the entire outstanding loan as the only way to cure the default. If the default is not cured, the lender may direct the trustee to sell the property at a public sale. In cases of a public sale, a notice of sale must be published in a local newspaper and posted in a public place, usually the courthouse, for three consecutive weeks. Once the notice of sale has been recorded, the property owner has until 5 days prior to the published sale date to bring the loan current. If the owner cures the default by making up the payments, the deed of trust will be reinstated and regular monthly payments will continue as before. After this time, it may still be possible for the property owner to work out a postponement on the sale with the lender. However, if no postponement is reached, the property goes on the block. At the sale, buyers must pay the amount of their bid in cash, cashier’s check or other instrument acceptable to the trustee. A lender may “credit bid” up to the amount of the obligation being foreclosed upon. With the recent attention given to foreclosure, there also has been corresponding interest in buying foreclosed properties. However, caveat emptor: buyer beware. Foreclosed properties are very likely to be burdened with overdue taxes, liens and clouded titles. A buyer should do his homework and ask a local title company for information concerning these outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale and various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property. Your local title company will be happy to provide additional information.

By asking the right questions, and knowing exactly what your needs are, you can find the right loan for you. There are certain approaches that you can take while mortgage shopping that can cost or save you money. It is still true that the better qualifications you have, the lower your interest rate will be. However, there are mortgages available for almost everyone; it's the interest rates or the down payments that vary. Before speaking with a lender, know what monthly dollar amount you feel comfortable committing to. Then when you discuss mortgage pre-approval with your lender, it is easier for you to determine the monthly amount and what value of home the monthly amount translates into. Do not put yourself in the position where you will be paying more each month than you intended simply because the dream home requires it. Do your research on the types of mortgages available to you and find the one that best suits your needs. There are a number of considerations to be made in terms of finding the best mortgage for each individual: What type of market are you in? Are the interest rates falling or rising? Do you want a fixed mortgage rate, where you will always know what your payment is going to be? What are your long-term goals? Do you intend to resell the property? Do you only need the mortgage for a short time?

Buying a home will probably rank as one of the biggest personal investments one can make. Being organized and in control will contribute significantly to getting the best home deal possible with the least amount of stress. It’s important to anticipate the steps required to successfully achieve your housing goal and to build a plan of action that gets you there. Before you can build a plan of action, take the time to lay the groundwork for your decision-making process. First, ask yourself how much you can afford to pay for a home. If you’re not sure on the price range, find a lender and get pre-approved. Pre-approval will let you know how much you can afford, allowing you to look for homes in your price range. Getting pre-approved also helps you to alleviate some of the anxieties that come with home buying. You know exactly what you qualify for and at what rate, you know how large your monthly mortgage payments will be, and you know how much you will have for a down payment. Once you are pre-approved, you avoid the frustration of finding homes that you think are perfect, but are not in your price range. Second, ask yourself where you want to live and what the best location for you and/or your family is. Things to consider: convenience for all family members proximity to work, school crime rate of neighborhood local transportation types of homes in neighborhood, for example condos, town homes, co-ops, newly constructed homes etc.

The best seller is one who is highly motivated. A highly motivated seller is more likely to sell at a price that is less than his or her house is actually worth. And it matters that you find out why. Learning the reason why can help you get the price you want and help the seller get what they want: a timely sale. When given the opportunity to meet with sellers, ask them why they are selling. The reason could be anything, such as a job change to a new location or financial problems. If you can solve their problem, whether it is cash related or time related, do so. For example, if the sellers are highly motivated because they need to move quickly, give them a fast sale - and a lower price. If you can make an offer, even a low one, that gives them cash in a short time, they are more likely to accept. There are also some sellers that you should avoid. Not every seller is as genuinely motivated as they make themselves to be. Some possible hints: they stall on having the home appraised or inspected they are unable to clear up liens against their property they do not own 100% of their property they push back the move-out date they do not have a replacement property or back up plan etc. It is impossible to find the perfect seller. But it is possible to find out which sellers are legit and which ones aren’t.

It used to be that buyers could go house shopping and when they have found their dream home, then they go to get pre-approved. However, in today’s market, that has proven to be one of the least effective methods in landing the dream home. Most lenders can pre-qualify you for a mortgage over the phone. Based on general questions about your income, debt, assets, and credit history, lenders can estimate how much mortgage you qualify for. However, being pre-qualified and pre-approved are different things. Pre-approval means that you have applied for a mortgage; you have filled out the mortgage application, received your credit report, and verified your employment, assets, etc. When you are pre-approved, you know exactly what the maximum loan amount will be. A pre-qualified letter is not verified and in essence, does not count for much if you are competing with other buyers who are pre-approved. When you are pre-approved, you and the seller know exactly how much house you can afford. It gives you credibility as an interested buyer and lets the seller know immediately that you will qualify for a loan to buy their property. In addition to being pre-approved, it’s important to be pre-approved with a legitimate lender. Legitimate lenders include: banks, mortgage bankers, credit unions, savings and loan associations, mortgage brokers, and online lenders. Some lenders to avoid: those who lose a form or misplace a file, those who gather information from you in an unorganized manner, those who are not informed about interest rates, points or costs, and those who cannot provide you with the right information.

Hot Market This is an extremely competitive market and is advantageous to the seller. Sometimes, homes will sell as soon as they are listed or even before homes are listed. Typically, during a hot market, multiple offers will be made on each home and more often than not, homes will sell for more than the asking price. It is even more crucial to be prepared and to be ready as a buyer when the market is hot. It can be easy to get caught up in the bid for a home, but if you are prepared (pre-approved, solid in price range, realistic about your needs), it is easier to remain focused on your housing needs and price range. Normal Market In a normal market, there is a fairly large number of homes available and an average number of buyers. This market does not necessarily favor the buyer or the seller. A seller may not have as many offers on their home, but he or she may not be desperate to sell either. Again, it is the buyer’s responsibility to be prepared. During a normal market, the chances to negotiate are higher than in a hot market. As a buyer, you can expect to make offers at lower than the asking price and negotiate a price at least somewhat less than what the sellers are asking. Cold Market In a cold market, houses may be listed for more than a year and the prices of houses listed may drop considerably. This market is advantageous to the buyer. As a buyer, you have the time to make an offer that works to your best interest. It is not uncommon to low-ball and to find that sellers are accommodating to meet your needs. Keep in mind that even though this market is a great time for buyers, you do not want to lose your dream home by being unrealistic. Your goal is to get your dream home at the best possible price.

As a buyer, you are entitled to know exactly what you are getting. Don’t take anything for granted, not even what you see or what the seller or listing agent tell you. A professional home inspection is something you MUST do, whether you are buying an existing home or a new one. An inspection is an opportunity to have an expert look closely at the property you are considering purchasing and getting both an oral and written opinion as to its condition. Beforehand, make sure the report will be done by a professional organization, such as a local trade organization or a national trade organization such as ASHI (American Society of Home Inspection). Not only should you never skip an inspection, but also you should be present with the inspector during the inspection. This gives you a chance to ask questions about the property and get answers that are not biased. In addition, the oral comments are typically more revealing and detailed than what you will find on the written report. Once the inspection is complete, review the inspection report carefully. You have to demand an inspection when you present your offer. It must be written in as a contingency. If you do not approve the inspection report, then do not buy the home. Most real estate contracts automatically provide an inspection contingency.

With the housing bubble burst and the subprime mortgage crisis, millions of homeowners found themselves unable to make their mortgage payments. Many found themselves owing more on the house than the home was worth. Many just walked away from their homes. As a result of these complicated issues, millions of homes were foreclosed. While this isn’t the only reason for which homes are foreclosed, it has been a widespread one. With all the foreclosed properties, there has also been extensive interest in buying these properties at a bargain price. It is true that foreclosed properties can be priced at a significant discount, but they are also a much riskier investment. Before making an offer on a foreclosed property, do your due diligence. Things you must do before buying a foreclosure: Do a title search - make sure that when you purchase a foreclosure that you are the only person who has any ownership claim Check for liens - find out if there are any liens against the property because you will be responsible for paying them Check for a second mortgage - you don’t want to be surprised by an extra mortgage that you will need to pay Know how good of a “bargain” you’re getting - foreclosures are sold “as is” and in many cases you will not be able to do a proper inspection. You may end up paying thousands of dollars repairing the property before it is fit to be lived in. It is also important to consider that there are different types of foreclosure properties and each type comes with its own advantages and disadvantages. The different types of foreclosure purchases are: Pre-foreclosure Auction Real Estate Owned (REO), also called “bank owned” Pre-Foreclosure A pre-foreclosure is when you buy the home directly from the homeowner, before the bank officially forecloses. This type of purchase does not require as much capital as other foreclosures. Also, since you are purchasing straight from the homeowner, you will be able to gather all of the necessary information, such as inspection reports, title information, etc. that may not be available with other foreclosure properties. Once you take over the mortgage, you will be responsible for all future payments as well as any overdue back payments. Auction A foreclosure property will usually end up at an auction. Real estate auction practices vary by state but common practice is for the auction to be held on courthouse steps, in front of the foreclosed home, or at the county clerk’s office. Real estate auctions offer the best chance for a great deal but also hold the greatest risk. Auction properties are sold as is, with no opportunity for potential buyers to perform inspections. When buying a home at auction, the buyer must pay cash, usually a cashier’s check. It is also possible that there may still be tenants living in the home. In such a case, you would be responsible for the often costly eviction process. REO Once a foreclosure has gone to auction and failed to sell, it becomes a Real Estate Owned, or bank owned, property. Most homes do not sell at auction, most fail to even get any bids. An REO property is the least likely of the foreclosure properties to represent a bargain, but it is also the least risky. The property can be fully inspected, any title issues can be found and dealt with, and the sale can be subject to a mortgage. REO properties also tend to be in better condition than other foreclosure properties. Another thing to keep in mind when purchasing a foreclosure is that some states have a redemption period that allows the original owner to buy back the property by paying the remaining balance owed. You may be able to have this redemption period waived, so check the state laws on this topic before purchasing. Still interested in buying a foreclosure property? If so, always do your research before purchasing!

It’s important that you choose an experienced agent who is there for you. Your agent should be actively finding you potential homes, keeping you informed of the entire process, negotiating furiously on your behalf, and answering all of your questions with competence and speed. First, find an agent who represents you and not the seller. This is beneficial during the negotiation process. If you are working with a buyer’s agent, he or she is required not to tell the seller of your top choice. In addition, he or she is also focused on getting you the lowest asking price. Also, when you use a buyer’s agent, you will see more properties. Not only are they plugged into their Multiple Listing Service, but they are also actively finding homes that are listed as FSBO, or homes that sellers are thinking about listing.

Don’t go on a spending spree using credit if you are thinking about buying a home, or in the process of buying a new home. Your mortgage pre-approval is subject to a final evaluation of your financial situation. Every $100 you pay per month on a credit payment could cost you about $10,000 in home eligibility. For example, a car payment of $300/month could mean that you qualify for $30,000 less in a mortgage. Even if you have accumulated enough savings, you should consider not making any large purchases until after closing. The last thing you want is to know that you could have purchased a new home had you curbed the urge to spend.