newjerseynewsroom.com

BY GERALD J. ROBINSON

NEWJERSEYNEWSROOM.COM

Say you're a renter now and want to buy a home. With all the foreclosures on the market and reduced prices, can you get a great bargain now?

There's no doubt that the foreclosure problem is severe for many New Jersey homeowners. According to the Mortgage Bankers Association, a record number of New Jersey homeowners with mortgages were either in foreclosure or late in their monthly payments during the third quarter. About 15.5 percent of Garden State homeowners — roughly 1 in 6 — were having difficulty, up from 14.5 percent in the year-ago quarter.

Despite these numbers, there's the question of whether you're entering the market at the right time. It's true that prices are down and foreclosures are up both in New Jersey and nationally, but that doesn't mean we are at the bottom of the decline, particularly in any given neighborhood. The Standard & Poor's Case-Shiller 20-city home price index released Tuesday fell 0.7 percent in September from August and the National Association of Realtors recently said the median price of homes slipped 0.9 percent in October from a year ago. With this trend, even if you get a bargain now, it may not look like a bargain a year from now.

In addition to recent negative financial news, there's another reason for concern about a further decline in prices. The well publicized snafus of lenders trying to foreclose with defective documents have slowed down the foreclosure process. When the paperwork bottleneck is opened, a flood of newly foreclosed properties may hit the market, driving down prices even further.

Then again, even if you "overpay" you may get bailed out by appreciation if you plan to own the home you get for a number of years. Over the long term, it's more likely than not that the market will recover and justify the price you pay now.

Beyond making a good guess about the market, however, there are a variety of pitfalls in buying distressed property you need to be wary about. You need to do serious homework and get competent professional help before you can feel secure that you're making a good buy.

You can buy distressed property before, during or after foreclosure. Before foreclosure, if an owner is unable to make mortgage payments on a home where the amount of the mortgage exceeds the value of the home, the owner may be willing to make a deal with the bank to sell to you in a so-called "short sale." In these deals the bank generally agrees to take the entire selling price you pay for the home and cancel the balance of the mortgage.

You can buy a home during foreclosure at the foreclosure sale. To be prepared to do so you need to be familiar with the foreclosure process, whether all liens will be cleared in the foreclosure, how much cash is required on the sale date and whether you can have the home inspected prior to the sale.

If the foreclosure auction does not result in a purchase of the property by a buyer, the bank will bid the property in and take ownership itself. Such bank owned property is known as REO property or "real estate owned." Where a property is REO property, you negotiate directly with the bank to purchase the property.

Some brokers now specialize in marketing distressed properties and such brokers' expertise can be especially helpful to you. The broker will help you look for suitable property, provide you with knowledge about local market conditions and sale procedures, and often may be able to steer you away from potential pitfalls. Brokers who work on short sales where the bank holding the mortgage gets involved in the sale also may be particularly useful. Short sales can be complicated and brokers who know how to deal with the bank holding the mortgage can help you thread your way through the short sale process.

You need to inspect the property thoroughly before you buy. Owners of distressed property typically defer maintenance on their property and the property may need costly repairs. If the property has been vacant, you have to be sure it hasn't been vandalized and that valuable components haven't been stolenB from kitchen cabinets and bathroom fixtures to copper piping and wiring. Indeed, it would be wise to get a professional home inspector's report before you buy a property. In general, arranging inspections may be easier in short sale and REO situations that when you attempt to acquire property at a foreclosure sale.

What about title to the property? Will you get good title when you acquire the property or will there be liens or other clouds on the title? At a minimum you should get a title search on the property to see if there are unpaid back taxes or any liens that will cloud your title. If it's a condo, check whether all association dues and assessments have been paid. Also check to see if you can get a good title insurance policy. Hiring a real estate lawyer to check out title and other legal matters, including local foreclosure procedures, would be prudent.

You also should check out recent selling prices of comparable properties in the neighborhood to make sure you are not over-bidding for the property. And if you plan to buy at a foreclosure sale, don't let yourself get caught up in the bidding frenzy that auctions sometimes create. Decide in advance how much of a discount from market value you want to pay and stick to it.

To complete your homework, do careful research about buying distressed properties. On the web, Google "New Jersey foreclosure" and you'll get pages of listings, statistics and service advertisements. A lively book to start with is Ralph R. Roberts, Foreclosure Investing for Dummies (Wiley Publishing, 2007).

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