Things to Consider When Buying a Foreclosure

September 22, 2015

Things to Consider When Buying a Foreclosure

Some homeowners would just consider “walking away” from a mortgage due to several reasons such as changed circumstances, etc. At least this is one of the options that some homeowners are choosing – foreclosure. On the other hand, home buyers may see this as a great deal but there are still some things that buyers should consider to make sure that they are not leading themselves into something risky.

In this article, we will be pointing out some of the things that a buyer should look into before buying a foreclosed property.

The Process is Highly Impersonal

When buying a foreclosure, you will be buying it directly from the bank and not from the person who lived there. The bank only sees it as a property or an asset that needs to be sold or get off their books. It is just a numbers game thus the bank doesn’t see it as a place to live in or where you will potentially raise a family and make memories. Since this is a highly impersonal process, don’t expect a traditional or conventional home buying experience. Also, be prepared to wait for a few days or even weeks to get a response, since you will be dealing with a bank and not an individual homeowner.

Forget Auctions

This is especially applicable for a buyer who is fairly new to the foreclosure market. This is because prospective buyers won’t be able to inspect the home to check for any damages – highly likely if the house has been vacant for a while as well as any outstanding payments or tax owed on the property. The entire process could just be a huge headache with huge payments and expensive repairs included.

Don’t Expect Disclosures

Since an REO (real estate owned) is a property that is owned by a bank after going through the foreclosure process, there won’t be any disclosures. This means that you won’t be able to have any knowledge or information about the home and the neighborhood. It is likely that you will be entering the foreclosure sale blindly. Due diligence is an essential thing to do in these cases, such as going to the city’s building department to check past permits and records and to check thoroughly the preliminary title report.

Prepare to See Homes Stripped Bare

Some homeowners may have struggled to keep the home or they might have even attempted to sell a short sale but the bank just wouldn’t cooperate. The homeowner may have hard feelings towards the bank and might feel fair and square by damaging the property before leaving. This could also mean that they removed every appliance and expensive light fixtures or faucets. This could mean hurting the home’s value and as a buyer, which means you, will therefore be responsible for the fixes.

Don’t Expect the Bank to Give You Credits or Fix Things

Foreclosure properties are also properties that are sold on “as is” basis. There won’t be a disclosure about a leaky window or any damaged water heater from last year. However, as a buyer you will be allowed to have an inspection so get the biggest and best inspection you can have. If you can get an old inspection report of the property, review that before making an offer. Your offer and the discounted list price should already account for the risk you’re taking on such property.

The Bank Will Have Its Own Processes

To make it simpler, the bank will have its own contract that protects its interests – this is usually followed by a couple of pages protecting the bank from any future lawsuits, referring to the sale as “as is” and putting nearly all the burden on you otherwise the bank will not allow the transfer of the property unless it is done this way. However, in some states, the bank will be required to pay the buyer’s premium on the title insurance if they require the buyer to use a specific title company. This could mean huge savings for the buyer.

Foreclosure may mean a real good deal, however, you should be able to consider and take note of this information to avoid getting less of what bargained for. Speak to a real estate agent so that they can also provide you with an informed decision.

Source: http://realtytimes.com/consumeradvice/buyersadvice1/item/37372-20150812-buying-property-that-is-about-to-be-foreclosed

http://www.zillow.com/blog/buying-a-foreclosure-watch-out-for-these-5-landmines-94747/