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Curbed U: Buying Foreclosures & Short Sales

Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a home or apartment. Additional questions welcomed to the tipline.

Foreclosures

The Atlanta area has the dubious distinction of being one of the housing markets most plagued with foreclosures. It hasn’t been one of our greatest moments. Even though we’re slowy climbing out of the murk, absorption of these distressed properties has been slow and frustrating. A combination of surplus optimism about the future, overzealous building and easy (sometimes crooked) mortgages put us in the hole. Now before you go fantasizing about landing the deal of the century in a desirable intown 'hood, keep in mind that the greatest amount of foreclosures are typically found in the over-built outer suburbs and Atlanta’s less-than-stellar inner neighborhoods. With that said, here’s the what you need to know about the “f” word.
The Process

Foreclosure.com provides a sweet and simple overview of the foreclosure process in Georgia. First off, Georgia is a title theory state, meaning the property title remains in the hands of the lender until the loan’s paid off (as opposed to lien theory states, where the borrower receives the title but the mortgage serves as a lien placed by the lender). In general, Georgia foreclosures move without the obtaining of a court judgement (non-judicial process); don’t be confused by the fact that foreclosure sales usually take place on the courthouse steps.

The lender notifies the homeowner ten days before foreclosure proceedings starts giving them a grace period to pay the owed amount. If this isn’t satisfied, notice of the foreclosure sale is given to the homeowner, and public announcements in the local newspaper must run for at least four weeks prior to the sale. Foreclosure sales take place the first Tuesday every month; if the property isn’t sold at auction, it reverts back to the lender and is now an REO (real estate owned aka bank-owned) property. There is no statutory right of redemption in Georgia, meaning that the foreclosed individual cannot regain the property by making payment after the fact.

Buying a Foreclosure at Auction

As explained by Equity Depot, buying a foreclosure at auction saves you the hassle of negotiating with owners and real estate agents. However, the sale is “buyer beware” and there’s usually little or no time to inspect the property beforehand. Be sure to have a title search performed prior to the auction. Make yourself aware of any liens that won’t be satisfied by auction; IRS liens remain on the property for 120 days after sale. If you’re the highest bidder, you’re expected to pay the full amount on the spot with either cash or certified funds. After that, the lender’s attorney will issue you a Deed under Power of Sale.

Buying a Foreclosure on the Open Market

Buying a foreclosure that’s on the open market is a more familiar process than that of an auction, but there are some things to keep in mind, as explained by Bankrate.com. We’ve already gone over that pre-approval is important when buying a home, but it’s paramount when making an offer on a foreclosure. The bank only wants to deal with buyers that are cleared and ready to go. Second, make sure you’re working with an agent that knows the foreclosure buying process well. Foreclosures are sold “as-is,” meaning you can’t expect to the bank to make the repairs you deem necessary (or any at all). And given that many foreclosures sit vacant for long periods of time, be sure to factor in the work and money that can be required to making one livable. As far as making an offer, there’s no set rule of thumb - like all other real estate it depends on the applicable comps.

Short Sales

Let’s not dance around the subject: short sales have a reputation for being a nightmare. A short sale is an alternative to foreclosure that entails a lender allowing a delinquent homeowner the chance to sell their home for less than the amount they owe on the mortgage, with the difference written off as a loss. It sounds like a win-win: the homeowner avoids the foreclosure headache, and the bank doesn’t incur the expenses of maintaining a foreclosed home, not to mention usually taking less of a loss on the sale. The problem is getting the buyer, the seller, and whoever is servicing the mortgage to come together on a price. The waiting game entailed in getting an answer from the bank is measured in weeks, sometimes months; additional time may be needed if there’s also a home-equity loan involved. Interestingly enough, the Atlanta market has seen a drastic uptick in the number of short sales over the past couple of years, as banks have become backlogged with foreclosures.