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Disadvantages of Buying Foreclosed Homes

DISADVANTAGE FORECLOSED HOMESWith the cost of purchasing a home rising seemingly by the minute, many thrifty buyers are enticed by the prospect of buying property at less than market value. One of the most common ways to do this is to purchase a home that has been foreclosed on by the mortgage lender. Most of the time, you will get a great deal on your house. However, there are still some things you should keep in in when buying foreclosed homes.

First and foremost, foreclosured homes are auctioned off to the highest bidder. Interested bidders are generally required to show proof of financing and must have a minimum ten percent cash deposit before they are qualified to bid. If you are not prepared to shell out a lot of cash before you leave the auction site, then plan to attend the auction just to watch.

Second, and probably more importantly, you are purchasing the foreclosure property as is. This means that any repairs that the home will need, and any code violations that the code may have are completely your responsibility. Bear in mind, that if the previous owner was unable to meet the financial obligation of their mortgage, they may also have been financially unequipped to deal with basic property maintenance. As such, you may be purchasing a home with could require a substantial investment before it is even in livable condition. Some foreclosure sales do not allow an inspection of the property, and, if you can do an inspection, you may have to do so with all of the electrical, water, and gas systems shut off as the mortgage company will not generally pay to keep the utilities on. Therefore, you will have no way of knowing what shape the home’s major utility systems are in.

Third, if the mortgage lender has not initiated the process of eviction, it will fall to you as the new owner of the property, to evict the previous owners, tenants, or whoever else may have been occupying the property. In some cases, the previous residents have already vacated the premises, but have inflicted intentional damage upon the property before doing so. It is not uncommon to purchase a foreclosure that not only needs to be cleaned out, but has been completely stripped of its interior.

Although the benefits of buying a foreclosure are numerous, there are also some drawbacks that may keep some eager buyers from taking the bait. Buying a foreclosure is a gamble that pays off for some and not for others and it is certainly not for the faint of heart. However, buying properties at foreclosure auctions can also be a great way to pick up a valuable property for a fraction of its value making the process more appealing to a wider number of home buyers.

Comments (3)
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  1. ciscogrove said:
    on August 1st at 01:34 pm

    As a former real estate broker and mortgage banker, the first thing you should do before splashing around in the foreclosure pool is YOUR HOMEWORK. Many of the buy foreclosure porperty gurus don’t tell you that it may be impossible to ever get clear title. That’s right. There is either a cloud on the title that cannot be erased or during the foreclosure process some event occurred causing a cloud.

    Always check the file on the foreclosure property at the local recorder’s office. You don’t want to be surprised by a federal, state, county or city tax lien or a judgment in a wrongful death suit or any other number of liabilities that aren’t erased by a simple foreclosure.

    Next, read every State statute or code that pertains to foreclosure. Take California for example. If you don’t follow certain procedures, you could be heavily penalized.
    buying foreclosed properties can be lucrative but at the same time, it could cost you a bundle.

  2. gkr said:
    on August 5th at 12:58 pm

    The example KJones has given just explains clearly. The rates could be cheaper because of problems associated with the home. As this type of investment seems to be like a risk vs. reward type of scenario it is not meant for a first time foreclosure buyer. We have to do our home work before jumping in.

    We need to find out the current prices of neighborhood houses and lands. We have to estimate the future of the place. If that is good but the house coming for a cheaper rate, then it is ok to jump in even if the house is not so good. The land will pay in the future.

    It is ofcourse better to contact the homeowner before bidding. The homeowner may not have a phone because of his financial crisis. He might have paid taxes on the property and other charges related to that home. It means this cost will add up for the buyer.

    There are some cases where banks own the foreclosed homes and they hire a real estate agent to sell them in the traditional way. But there is possibility of buyers’ success by pestering bank loan officers with low offers.

  3. betty said:
    on May 14th at 11:46 am

    Hi

    Most of the home on sale are end units. what are the reasons for selling these units. it is dangerous to live in an end unit. are there any disadvantages.