While this isn’t the only
reason for which homes are foreclosed, it has been a widespread one. With all
the foreclosed properties, there has also been extensive interest in buying
these properties at a bargain price.
It is true that
foreclosed properties can be priced at a significant discount, but they are
also a much riskier investment. Before making an offer on a foreclosed
property, do your due diligence.
Things you must do before
buying a foreclosure:
·
Do a title search - make sure that when you
purchase a foreclosure that you are the only person who has any ownership claim
·
Check for liens - find out if there are any liens
against the property because you will be responsible for paying them
·
Check for a second mortgage - you don’t want to
be surprised by an extra mortgage that you will need to pay
·
Know how good of a “bargain” you’re getting -
foreclosures are sold “as is” and in many cases you will not be able to do a
proper inspection. You may end up paying thousands of dollars repairing the
property before it is fit to be lived in.
It is also important to
consider that there are different types of foreclosure properties and each type
comes with its own advantages and disadvantages. The different types of
foreclosure purchases are:
1.
Pre-foreclosure
2.
Auction
3.
Real Estate Owned (REO), also called “bank owned”
Pre-Foreclosure
A pre-foreclosure is when
you buy the home directly from the homeowner, before the bank officially
forecloses. This type of purchase does not require as much capital as other
foreclosures. Also, since you are purchasing straight from the homeowner, you
will be able to gather all of the necessary information, such as inspection
reports, title information, etc. that may not be available with other
foreclosure properties. Once you take over the mortgage, you will be
responsible for all future payments as well as any overdue back payments.
Auction
A foreclosure property
will usually end up at an auction. Real estate auction practices vary by state
but common practice is for the auction to be held on courthouse steps, in front
of the foreclosed home, or at the county clerk’s office.
Real estate auctions
offer the best chance for a great deal but also hold the greatest risk. Auction
properties are sold as is, with no opportunity for potential buyers to perform
inspections. When buying a home at auction, the buyer must pay cash, usually a
cahiers’ check. It is also possible that there may still be tenants living in
the home. In such a case, you would be responsible for the often costly
eviction process.
REO
Once a foreclosure has
gone to auction and failed to sell, it becomes a Real Estate Owned, or bank
owned, property. Most homes do not sell at auction, most fail to even get any
bids.
An REO property is the
least likely of the foreclosure properties to represent a bargain, but it is
also the least risky. The property can be fully inspected, any title issues can
be found and dealt with, and the sale can be subject to a mortgage. REO
properties also tend to be in better condition than other foreclosure properties.
Another thing to keep in
mind when purchasing a foreclosure is that some states have a redemption period
that allows the original owner to buy back the property by paying the remaining
balance owed. You may be able to have this redemption period waived, so check
the state laws on this topic before purchasing.
Still interested in
buying a foreclosure property? If so, always do your research before
purchasing!