This is an update on an article that I first posted in 2008. To follow the current Flagstaff and Coconino County trustee sale lists, check out my Active Rain blog where I post both the scheduled sales and the actual sale list weekly.

The first question I ask when the phone call starts, “I want to buy a foreclosure!” is “Do you have the cash?”

In Arizona, when the trustee drops the gavel at our state’s equivalent of a foreclosure sale, the buyer needs to have the cash—not just a home loan approval letter and a down payment. That’s one reason why most Flagstaff foreclosures become “REOs” or bank-owned properties listed on the multiple-listing-service. The trustee sale on the court-house steps is the legal formality needed to put clear title into the hands of the lender. The sale eliminates claims by any second lender.

Home loans in Arizona are most often secured by trustee deed instead of the traditional mortgage documents found in most other States. This speeds up the process when a homeowner defaults. In exchange, for residential properties under 2.5 acres, the banks holding the original purchase-money loan can't sue the homeowner for any deficiency on the loan after the trustee sale.

There are other bank-owned properties as well as those which have gone through the trustee sale process. When the prior owner offers to give the lender a “deed in lieu” of foreclosure, and the lender accepts the offer, the home may be in better condition than it would be if the prior owner just abandoned the place and walked away. In fact, the lender may give the former owner some “walk-away” money, or at least forgive more of the equity-shortfall if the home is left in good, saleable condition. Those homes do not pass through the trustee sale process, but are offered for sale through Realtors^® just as most foreclosed properties are.

In Flagstaff, both types of bank-owned properties are sold through the Northern Arizona MLS system. So far, there have not been enough foreclosures or other bank-owned properties in Flagstaff to generate the auctions that we sometimes hear of in Phoenix or other locations. (Those auctions usually happen when a large group of homes in one area becomes available – for example, because of builder default.) Properties that are offered via electronic auction are advertised on our MLS system.

Bank-owned properties (also known as REO or “real-estate owned” properties) are already owned by the banks so the closing process won’t be complicated by the seller-side loan contingencies found in short sales. Still there may be some atypical contract and inspection issues on the buyers’ side because the bank has no knowledge of the home’s physical history. The decisions about how to deal with those issues are all within the control of the buyer, who should be well-informed on the risks by working with a Realtor^® engaged by the buyer to work for the buyer and represent the buyer’s interest. (The payment for the Realtor^® services comes from the bank-seller’s sales transaction expenses, just as in an ordinary sales transaction.)

So, where are these bank-owned properties available for sale in Flagstaff? These REO homes are listed with Realtors^® on the local MLS, just as most individually-owned homes for sale are listed. That’s because banks know that the quickest and easiest way to sell a home for the highest price the market will bear, is to hire a professional engaged in the real estate sales business, namely Realtors.^® You'll find such homes scattered among neighborhoods all over town, and in most price ranges.

So, if you, as a buyer, want to consider REO or bank-owned properties among the many homes available for your consideration in this market, your real estate agent should know right where to find them. You, as a smart buyer, should start by engaging a Realtor® to represent you and help you search for and narrow the field on homes that match your needs.

If you want still want to limit your search to homes that are about to be sold on the courthouse steps, and not hire a Realtor^® to represent you (I can't think why you would want that!), check out the legal publications for the notices of upcoming sales, or ask one of the local title companies to provide you with a list, or, go straight to the source – the County Recorder’s offices. Be aware that the homes on the county’s list may be pulled from the sale at the last minute, either because the owner has reached an agreement with the foreclosing lender or because the seller has declared bankruptcy and the federal court has enjoined the sale pending a full hearing in the bankruptcy court. Also, remember to bring cash, and not a loan commitment, to the sale. By looking only at upcoming foreclosures, you're passing on other potential bargains on the market, but that's up to you.

When you want to buy any Flagstaff, home, including foreclosures, bank-owned properties, and short-sales, start with Ann Heitland at RE/MAX Peak Properties—put me to work for you! If you don't start with me, and you get frustrated on your own, we'll welcome you anyway!