Are All Foreclosures Created Equal?

As the popularity of buying foreclosures grows it becomes more and more necessary to make distinctions between the different types of foreclosures. Technically a foreclosure is a foreclosure and it that is that. But from a practicality standpoint they can be very different.

In Northwest Arkansas we are generally dealing with three different types of foreclosures. The first type is the foreclosure from a national lender. These are lenders like Chase, Bank of America, Citibank, GMAC the list goes on and on. As a rule these lenders are the most inflexible and difficult to deal with. However they also afford the greatest opportunity to find a bargain. These lenders have to count on local agents to determine values of properties. They usually have no direct insight into the market they are dealing with, they are simply trying to move their inventory. The value they determine the home is worth likely comes from a BPO (Broker Price Opinion) and the quality of these valuations can vary greatly from agent to agent. Sometimes the BPO value will come in far below market value and offer a great chance to get a deal. The downside to these properties is they rarely do repairs and often times will only pay limited closing costs for a buyer.

The next type of foreclosure is the local bank. These properties range from great deals all the way to above market value. Local lenders often times understand the market and have contacts with many agents to keep them up to date on market trends. They also are continuing to lend in the area and have first hand knowledge of the challenges and opportunities. The upside to dealing locally is flexibility. Often times a local lender will agree to do repairs, pay for closing costs, or even offer special financing to move an asset off of their books. These types of foreclosures are often best for first time buyers and individuals who plan on making a home their primary residence. These homes may not always be the cheapest, but they can offer a little more stability to those who need it.

The final type of foreclosure is the one that is least familiar to most buyers. There are companies all over the country that are buying up blocks of homes or blocks of bad mortgages and then reselling them. This can offer a great opportunity for a buyer. The sellers of these properties need to move them quickly and will often times have properties that are “stuck” in inventory and have not been selling. These are the deals where people can truly buy foreclosures for pennies on the dollar. These property management companies usually respond quickly and they are eager to work with buyers.

So there is a quick overview of what you can expect with different types of foreclosures. There are no absolutes in the foreclosure business. Each lender or asset manager has their own personality and their own beliefs. Each property can have unique characteristics and opportunities. The process may seem overwhelming at times but remember to be patient, ask questions, and work with qualified specialists.

Brian Curtis is a Real Estate broker in Northwest Arkansas.  Brian specializes in listing and selling short sales, foreclosures, and other distressed properties.

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