tumbling upon a foreclosure may feel like a lucky break when looking for a home, but it’s important to make sure your lucky break doesn’t leave you broke. Foreclosed homes can be a great way for homebuyers to get a good home at a fair price, however, they can also present a mountain of problems for eager or inexperienced buyers. Avoid turning that bargain deal into future bankruptcy by following some straightforward steps when evaluating just how fantastic that foreclosure really is.
Let’s start at the beginning and look at what the world of foreclosure means to both the homeowner and homebuyer. A foreclosure occurs when a property owner is unable to continue making payments on their property, and as a result, the property is returned to the lien holder (the bank or financial institution holding the mortgage). This is similar but not the same as a short sale, in which a given property has more liens against it than its current value, and as such, the bank agrees to sell the home for less than the amount owed. Either option typically offers buyers a decent price on a property, but as we mentioned, there can be other costs that come along with lower prices.
Purchasing a foreclosed property often takes longer than purchasing a home via a traditional sale, and sometimes, this delay can be quite lengthy. If you are hoping to make a quick move, a foreclosed home might be one to avoid. Oftentimes, banks have multiple foreclosed properties to handle and their interest in prompt response times is far less than an individual homeowner who likely has the majority of their funds tied up in the property. In most scenarios, those looking for a rapid close should leave foreclosures to buyers who have more time on their hands.
Occasionally, a foreclosed property can fall victim to damage from a disgruntled homeowner. Folks who have a property nearing foreclosure have been known to be less than careful with that property in the days preceding eviction. Much of this damage is cosmetic in nature and can be as minimal as the removal of basic fixtures. Curtain rods, shower heads, ceiling fans and appliances are typically stripped from the home as the owner attempts to retrieve as much value from the property as possible before losing it altogether. Additional damage to walls, flooring and cabinetry can be common, as well.
A routine walk-through will seldom catch the issues lurking beneath the walls of a foreclosure. These houses often go unoccupied for long periods of time, and significant damage can occur during the absence of daily residents. Frozen (and subsequently broken) pipes are one of the leading complications when it comes to foreclosures. Though the pipes can be a relatively easy fix, the resulting water damage is usually a much larger clean-up process. Rotten wood and mold often follow a burst pipe, especially when pipes sit for weeks or months without attention.
As with any property, a home inspection is an important step along the way to successful homeownership, but with a foreclosure, this step is not only important, it is non-negotiable. Home inspections often catch hidden issues that your average homebuyers might miss. Therefore, when purchasing a foreclosure, it is imperative that buyers not only get the most out of their inspection, but also understand the difference between what is bad and what is okay when it comes to the results. This will help buyers avoid any unfortunate surprises after closing.
Foreclosure or not, when buying any property be sure to confirm that all work performed on the house has been adequately permitted prior to purchase. Following the closure of a sale, all permitting requirements typically fall upon the new owners as townships and city permitting offices assume buyers have done their due diligence prior to finalizing transactions. Attempts to recoup funds from previous owners typically involves high attorney fees and lengthy paperwork trails, so it is easier to cross your t’s prior to signing your name.
A foreclosed property might just be the most attractive option on your long list of potential homes, especially when it comes to price. That being said, do not let a screaming good deal overpower your good judgement should other concerning factors arise throughout the courting process. Sometimes hurdles are meant to be overcome. Other times, they are put in place to make you reconsider. Listen to your instincts (in addition to the sage advice of your realtor and lender). Then, add all those voices together, and you may just avoid the missteps that put that beautiful dream home into foreclosure in the first place.
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