Looking for an amazing deal on a house? Then you’ve probably toyed with the idea of buying a foreclosure. These types of sales have long been praised as an excellent way for buyers and investors to snag a great deal on a property. But there are potential risks involved with this type of an arrangement. Be prepared for the ugly perils when it comes to buying a foreclosed property.
1. Damage and Vandalism to the Home
You’ve got to keep in mind that homes that have gone into foreclosure were once owned by people who couldn’t afford to make regular payments anymore. Basically, they’ve had their homes taken away from them, which no doubt would leave anyone a little jaded. It’s not uncommon for homeowners who have lost their homes to foreclosure to vandalize the place before they finally vacate.
Whether they spray paint the walls or take a sledgehammer to the floors, damage happens. Many times the vandalism doesn’t start until after the homeowners have left, leaving the place open for criminal activity. No one’s there to watch the place, and ne’er do wells are always ready to strike when the opportunity arises. So be prepared to walk into some unpleasant environments when you consider buying a foreclosure.
2. Issues With the Actual Purchase
Sure, you might have to put up with a few physical issues with a foreclosed home, but it can still turn out to be a really good deal for you. If you’re willing to put up with certain issues and are able to fix them, you can really add some value to the property despite paying a discounted price. But there are other issues that you might have to face that have nothing to do with the physical property.
Instead, you might encounter problems with the actual purchase itself. Homes that have gone into foreclosure will likely now be owned by the bank, which means this is the entity you now have to deal with. Many times banks won’t use the purchase and sale contract from the local real estate board, nor will they necessarily follow standard procedures.
Instead, expect banks to follow their own path, and use their own contracts and processes in order to protect its interests. You’ll still wind up with the house, but the process itself could become really lengthy and cumbersome.
3. Problems With the Lender
Getting a mortgage for a traditionally purchased home can come with its own set of issues, so don’t expect the situation with a foreclosed home to be any different. In fact, expect more hurdles to jump over.
Lenders aren’t in the business of handing out cash to borrowers for a home they deem to be uninhabitable, or that is appraised a lot lower than what it was sold for. And since the home was likely vacant in the weeks or even months leading up to the sale, they’ll probably have no knowledge of any current problems with the place. That means there’s no seller disclosure statement, leaving you to have to uncover all there is to know about the home yourself.
Many municipalities have specific regulations when it comes to properly maintaining a foreclosed property, such as regularly cutting the lawn. If a bank owns the house, and doesn’t keep its end of the maintenance bargain, the municipality can put a lien on the property if it has to maintain the lawn itself instead.
A bunch of other liens could be found to be placed on the home from unpaid utilities, contractors, HOAs, and so on. If you put an offer on a foreclosure, make sure that all liens are investigated by a title officer and rectified before you take title on the property.
5. Plumbing, Mechanical, and Electrical Problems
Busted-up drywall and ripped out carpeting is one thing, but issues with the major systems in a home is quite another. Some of the most catastrophic issues in foreclosed homes stem from faulty plumbing, mechanical, and electrical systems.
Broken plumbing pipes can wreak havoc on the components of a home, not to mention leave mold behind that will render a home unfit to live in. When it comes to duct work, you may be unpleasantly surprised to find an exorbitant amount of dust and debris, not to mention rodents and other unwelcome guests.
If humidity has been left around furnaces for a long period of time, the heat exchangers will likely corrode, requiring them to be replaced at a costly expense. Any shoddy electrical work is considered to be a potential fire hazard. And in cases like this, the whole house might need to be rewired. Not exactly a cheap endeavor.
The Bottom Line
There are definitely some awesome deals out there on foreclosed homes. It’s just a matter of wrapping your head around some of the potential obstacles and pitfalls, and being prepared to deal with them head on. One thing’s for sure – don’t let a super low listing price cloud your judgement and allow you to gloss over the basics that make a foreclosure purchase a good deal.