You have seen the advertisements promising you can make out like a bandit by purchasing foreclosed properties. Well, maybe you can and maybe you cannot.
Considering Purchasing a Foreclosure
Foreclosed properties are almost always a result of mortgage problems. When applying for a mortgage, you make a promise to the lender that in exchange for a boatload of money, you will do certain things. These things include making your monthly payment, paying your property taxes and maintaining insurance on the home so the lender can recover their investment if they property burns to the grown and so on. If you fail to meet your obligations during the term of the loan, the bank can then foreclose on it and sell it off to recovery the amount it lent you. In some states, the bank can even come after you for any shortfall between the amount the home is sold off for and the amount you owe on the loan.
One person’s problems are, of course, another person’s opportunity. In the case of foreclosures, buyers often immediately think they can get a deal on the property sitting on the bank’s books. Banks, after all, do not want to own the property. They are in the business of lending money, not homeownership. So, can you get a great deal on foreclosures? The answer is yes and no.
In some cases, you can get absolute steals when buying foreclosed properties. In others, it can be an absolute nightmare. The primary issues that arise having nothing to do with the physical nature of the property. Instead, the problems that arise have to do with why the foreclosure occurred.
The original owner obviously must have had some serious financial problems if they lost the home. The important thing to understand is many of these problems are affixed to the home, not the previous owner. If you buy the home, you buy the problems. For example, the home may be in foreclosure because of tax liens or delinquent property tax debts. If you want to clear the title on the property, you need to pay these off. Yes, you. The home may also be encumbered by lawsuit judgments, which can be a horrific problem to deal with.
The point I am making is buying a foreclosure is not the simple process it may seem at first glance. You do not simply make an offer to the bank and take possession. Instead, you need to research, research, research the title and overall situation. Why did the foreclosure happen? What is the situation with title? Is the delinquent homeowner still living in the home and how do you get them out? Did the previous homeowner trash the property when moving out? The questions are endless and you need to investigate them clearly. Unless you have experience with foreclosures, you may want to retain a real estate attorney to evaluate the situation. It is better to pay a couple of thousand dollars now than get stuck with a nightmare later on.
Can foreclosures be good deals? Yes, but you must investigate them closely and thoroughly to make sure they are not financial traps.