As Halloween approaches, our thoughts turn to visions of ghosts, goblins and haunted houses. For many, a foreclosed property may conjure an image of a spooky haunted house. While that perception of a foreclosure might have been true in the past, today, most of them look nothing like the creepy Boo Radley house in To Kill a Mockingbird. Before COVID-19, foreclosed properties were scarce, and if left on the market too long, would fall into major disrepair, often leaving investors and owners to deal with a huge money drain. The pandemic brought us record foreclosures due to job losses, the dwindling inventory facing the real estate market, and the fierce competition for homes. As a result, more foreclosed properties are on the market today, but look nothing like the neglected eyesores of yesterday. In fact, there are many excellent properties in great shape and even million-dollar homes that can be purchased for bargain prices. So, before you shake your head and write off buying a foreclosed property as too scary, it may be worthwhile to open your mind to some fantastic foreclosure opportunities.
Foreclosure Treats and Tricks
Buying a foreclosed property, which is essentially a property that the original bank repossessed due to the owner falling behind in mortgage payments, is different than buying through a realtor or an owner. If you want to acquire this type of property, you will be purchasing it one of three ways: at auction, as a short sale, or from the bank if they fail to sell it at auction. Foreclosures can be neglected properties needing major repair, so it takes some experience and research to ensure you are getting a deal and not a dud. On Halloween, we want a treat, not a trick. The same principle holds true for a foreclosure. Being tricked into throwing your money down the drain can happen if you’re not foreclosure savvy. Check out the following list of common risks and solutions when considering a foreclosure:
- Risk: The home is sold as-is.
If you buy at auction, you will be acquiring the property site unseen. Buying a mystery property can be unsettling. It’s unlike buying a traditional home, where you would typically hire an inspector to ensure there is no potential water damage, roof leaks, or structural damage. With a foreclosure bought at auction, you won’t be allowed to inspect the property first.
Solution: Make sure you have at least six months of funds in the bank available for expected and unexpected repairs. Also, experts advise you to attend a few auctions before bidding on a foreclosure to ensure you are comfortable with the process.
- Risk: You are not sure if you have a clean title.
Solution: It’s important to have a title search done to make sure you own the property free and clear. Some homes that are in foreclosure don’t always have a clean title attached to them.
It’s better to err on the side of safety than be caught by surprise when it’s too late.
- Risk: More maintenance may be needed than meets the eye.
Solution: Just like in a traditional home sale, never skip the home inspection. Even if what you see on the surface looks okay, there may be more extensive repairs lurking beneath the surface. When considering a foreclosed home, make sure to hire a professional licensed home inspector to thoroughly inspect all aspects of the property before buying. Also, make sure to have a budget for any extra repair costs.
- Risk: There may still be liens on the property.
Solution: Liens do not magically disappear when you buy a foreclosure. Long after you purchase the property, you may be dealing with a lien. Because you may end up owing a substantial amount of money to the IRS (the most common type of lien), it’s important to check with your county to make sure there are no existing liens on the property.
- Risk: Finding foreclosed properties on your own.
Solution: There are experienced Realtors® and attorneys that specialize in foreclosures. They work with the banks, receive tips on the best foreclosure properties and get the inside track on when they will be available. Navigating a foreclosure sale can be a complex process, so it’s important to work with a professional who can guide you to make the best decisions in what to buy and what not to buy. Contact these professionals to view the best foreclosures in your area. There are also some helpful websites you can use to begin your research. Check out Equator.com, Homepath.com. and HomeSteps.com.
No Tricks Just Trust
Whether you’re buying a home or refinancing, finding a lender you trust is the key to a successful and smooth transaction. For over 25 years, NP, Inc. has been helping thousands of borrowers find their dream homes. To help you along in your homebuying journey, and to chat with a mortgage specialist about what loan products might be right for you, please visit us at usmtg.com.
By Susan Sherman for NP, Inc.
