When looking for a property to purchase for investment or to flip, you can consider the Texas foreclosure market. But remember that the experience would vary greatly depending on the stage of the foreclosure process. In this article, we will go through what you need to know to buy a foreclosed property in Texas.
What is a foreclosure?
According to the Texas State Law Library, a foreclosure is the “legal process that allows for a piece of property to be sold in order to satisfy certain debts that are owed by the property owner”.
This can happen, for example, when a homeowner fails to make interest payments and becomes in default with their lender.
Foreclosures may be sold at a fraction of its actual price so investors may be able to acquire the property below market value. But, it’s not easy, you’ll need to pull a few things together to score a good deal:
The right real estate team
Careful planning and budgeting
Patience and perseverance
Cash to purchase
Foreclosures may either be judicial (already filed within a court and ordered by a judge) or non-judicial (no court involvement in the filing). In Texas, however, most foreclosures are non-judicial. Auctions for non-judicial foreclosures typically happen every first Tuesday of the month in each county.
Take note that when purchasing foreclosed properties, you will be buying it as it is. There are no returns! This means you need to do as much homework as possible on the condition of the property. In most cases you won’t be able to go inside and tour it.
When talking about foreclosed properties, public auctions would come to mind for most people, but in Texas, you do not have to wait until the auction to buy a foreclosed property. There are 3 stages of foreclosure, namely: pre-foreclosure, public auction, and Real-estate owned (REO).
For homeowners who have missed home loan payments, the lending party would send a Breach Letter informing them of a default payment and would be given 60 to 120 days to settle their dues and catch up on the payments. If 120 days have passed and there is no action from the homeowner, he would receive a Notice of Default and Intent to Accelerate from the lender which begins the foreclosure process and gives the homeowner a final 20 days to settle all payments.
The window before the auction and after the Notice of Default is the perfect time to get involved, so move quickly as time is of the essence. Working with a good agent will help you negotiate good deals as well as find homes on pre-foreclosure. You may also need a Real Estate Attorney to run a thorough title check for you.
As an investor, you can offer the homeowner within this 140-day period enough payment to cover the debt. With the right approach and the right offer, it would be a win-win for all parties: the homeowner will avoid the foreclosure, the lender gets repaid, and the property buyer scores a deal below market value.
Properties on the pre-foreclosure stage usually appear in the local MLS so your agent can alert you to this before the property could appear in the popular real estate websites.
When there is failure to reinstate the loan, the lender will be required to announce the sale publicly and put it up for auction to all bidders. When a Notice of Sale (NOS) is filed with the county clerk, you can find it posted on a bulletin board in the courthouse lobby 21 days before the sale takes place.
The sale is also required to be advertised in the local papers. Look for a Notice of Substitute Trustee’s Sale or Notice of Trustee’s Sale. You will be able to find the property’s legal description, the debt owed and the exact time of the sale.This would allow you time to conduct due diligence on the property before you contemplate joining the bidding and get information from the Trustee on the Notice of Sale.
TIP: Do your research!
To lessen the risk, conduct due diligence by contacting the Trustee prior and request to inspect the property. Also try to compare prices on similar properties sold in the area, research the property’s title and check for balances first lien or other possible liens. As buyer, you will be responsible for all the liens on the property. If you don’t find all of them, they will find you someday.
Public auctions are held every first Tuesday of the month between 10 in the morning and 4 in the afternoon at the county courthouse.
Before joining a public auction, make sure to have your funding sorted. In most cases the auctions require cash or a cashier’s check. Traditional hard money financing would not be available, but you could work with a lender for a cash-out refinance after winning a bid.
Learn more about the sale process here in the Texas State Law Library.
Real Estate Owned (REO)
If a property fails to get sold in the Public Auction, the foreclosed home becomes bank-owned or real estate owned.
At this stage, the lender might be highly motivated to sell the property. The pace may be slower due to the regulations and paperwork that you need to deal with. In many cases you’ll be working with local or national banks. Find the right contact, however, and they could be a great source of deal flow for you.
Foreclosures may be one option for you to consider as a property investor. If you need fast financing, contact Longleaf Lending at 979-200-2823 or submit a loan request here.