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Three Post-Bubble Homebuyer Strategies


Navigating pre-foreclosure, REOs, and foreclosure deals.

If we've learned anything from the bursting of the great real estate bubble, it's this: Nothing can cure an American of the desire to own a home, especially if it looks like a bargain.

As Minyanville reported on September 10, seized properties now account for almost one in four home sales nationwide.

In other words, the heartaches of other owners haven't deterred anyone from jumping into the market. They've provided opportunities for those who got shut out of the market by stratospheric prices.

So, how are people getting in on the deals?

There are at least three unconventional strategies for buying a home right now. None are for the faint of heart. But you can dip your toe in before committing yourself.

Here are some facts to get you started.

1. Buying A House In Pre-Foreclosure

When a house is "in pre-foreclosure," its owner is caught between a rock and a hard place.

The owner has fallen behind on the mortgage payments. The lender has warned that it will foreclose unless payment is made. The official grace period -- about three months -- has begun.

This is your opportunity to step in and make an offer for the house. But you'll need the hide of a rhinoceros and the patience of a saint before you're done.

Most homeowners in this situation aren't exactly shouting about it from the rooftop. But real estate agents eat gossip for breakfast, and may know of an opportunity. Aggressive speculators are papering troubled neighborhoods with their contact information, hoping to score a deal sooner or later. Occasionally, the homeowner will list the property in hopes of getting out gracefully.

Assuming you locate a house that interests you, you need to do your homework, mostly in the county recorder's office, to determine how much is owed on the house, in mortgages and other debts like taxes.

If your research pans out, your offering price will be somewhere between the amount owed by the current homeowner and the market value of the house.

You can try offering less than the amount owed the bank, in hopes that the bank is willing to cut its losses. The term "short sale" is being tossed around pretty blithely these days, but it sometimes works.

Once you set an offer price, you need to contact the owner, who may be in no mood for a chat. Assuming you get a foot in the door, you may be able to come up with a price acceptable to both of you.

If so, the next step is to contact the bank, which will have a "loss mitigation department," or at least a contact name attached to this troubled loan.

You send in your offer, sit back, and wait. Based on discussion threads around the Internet, you could wait for a year or more for a response. It makes no sense, but there it is.

2. Buying A House Directly From A Bank

For the prospective home buyer, this is a whole lot less work and risk.

But beware of the neo-bubbly fringes of this market. You've probably already seen ads offering staggering profits in the "REO" market.

REO means real estate owned by a lender. And you don't need to pay to access someone's database of one million listings to get in.

Some big lenders who are stuck with a lot of houses are operating sites devoted to their real estate listings.

The site for Countrywide, now owned by Bank of America (BAC), lists available properties, with the address, list price and contact information.

Fannie Mae (FNM) offers the pretty slick with lots of pictures inside and out, and data such as the home's last sales price, and which school district it's in.
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