5 REASONS WHY BUYING A FORECLOSURE COULD BE A BAD IDEA
No doubt, some investors can realize tremendous savings when buying foreclosure properties. But this isn’t a market for the faint of heart. Here are five reasons buying a foreclosed property may not make sense for you.
1. You’re buying the home “as is”
Foreclosures occur when a lender repossesses a home from a borrower who has failed to make mortgage payments. The lender, generally, then offers the home for sale at a public foreclosure auction. The highest bidder at the auction buys the property “as is.” That means you get the title — along with all the liens, unpaid taxes and encumbrances that go along with it.
2. The property may be occupied
If you buy a foreclosure at auction, you may find yourself in the position of needing to evict previous owners, relatives, friends, renters or even squatters. Unless you’re an experienced evictor, you may want to hire an attorney to handle the process for you.
3. The home won’t be inspected
If you buy a property at a foreclosure auction, not only will you not get a chance to have the home inspected, it’s likely you won’t have stepped in the door before you become the legal owner.
No inspection means you won’t know about necessary repairs until it’s too late. It’s possible the property has been vandalized or looted; appliances and light fixtures may be missing. If the home has been vacant for some time, its pipes may have frozen or it may now be home to new tenants, in the form of rodents and bugs.
Many buyers find it’s a better option to purchase bank-owned or real estate owned (REO) properties. Typically, once the bank owns the property, it addresses any outstanding issues. When buying an REO property, you can — and should — have a home inspection done as a contingency to purchase.
4. There could be delays
Need to be out of your house and into your new one within a month or two? The foreclosure market is probably not for you.
Buying a foreclosure is more complicated than buying a traditional property. The foreclosure process includes waiting periods, which vary from state to state. If you’re buying from a bank, there are often layers of approvals necessary along the way. If so much as a single signature is missed or a document isn’t filed correctly, previous owners may be able to file for bankruptcy protection, which will stall — or, perhaps, stop — the sale. In some instances, post-sale legal issues can delay the closing for weeks or even months.
5. It might not actually be a bargain
By the time you figure in the costs to remove liens, make repairs and pay back taxes, your foreclosure may not be the great deal you hoped it might be. In a traditional real estate market, you may find a great property that’s well-priced and in move-in condition.
Particularly if you’re a first-time home buyer, don’t go it alone. Partner with an experienced foreclosure specialist, who can minimize your headaches, anticipate bottlenecks throughout the process and help you determine whether the foreclosure market is really for you.