Buying a Foreclosed Home
Buying a foreclosed home is often a way for both the mortgage provider and owner occupant or investor to settle the property deal amenably. There are a lot of mortgage programs which favor first time home buyers when they purchase a foreclosed home, especially if the home needs to be rehabbed (FHA 203(k) mortgage loan.)
A foreclosed home is a property owned by the mortgagee as a result of defaulting of the owners on the loan and is therefore referred to as a real estate owned (REO) property.
There are also definitely lots of financial rewards that an investor may get when he/she is buying a foreclosed home. This in fact explains why there is competition to purchase foreclosed homes and hard to buy some times even though there are a lot of foreclosures created every day.
Nonetheless, there are a few pitfalls that an investor or a home buyer/owner occupant need to be aware of when dealing with foreclosed properties
Buying a Foreclosed Home – What comes with the deal?
It is important that you recognize that buying a foreclosed home means also becoming its sole owner. Just the same way you get to enjoy every benefit that comes along with it, so you do become responsible for any of its flaws.
These properties are the result of the current owners’ inability to repay their loans and eventually giving up the home to be repossessed by the lending bank.
There are also cases where some of these owners are embittered by the circumstances and decide to take out their frustrations on the property. They may therefore fall behind on payment of regular home bills. At the very extreme, some of them may even resort to vandalism including the removal of appliances and other fixtures.
In addition, after the home has been left by the occupants, it often sits there abandoned, some times for quite a long time. The property might normally invite criminal activity if the bank does not take care of it. So check with the bank to ensure they have a policy of protecting their foreclosures before buying a foreclosed home from them.
Just from looking at the property, you will know whether it has been well maintained or just poorly taken care of. Poor maintenance of such a property will be evidenced by overgrown lawn, garbage or debris scattered about.
So as you consider buying a foreclosed home, the factors you may have to bring into the picture include the circumstances under which the former homeowner moved out and the duration the house sat unoccupied.
More specifically, these are the indicators you should look for:
Since there is no one occupying the home at the time you are settling for the purchase, regular utility services like electricity may have been discontinued. Having electricity in the property will however be a good sign that the home was likely maintained by the lender while sitting vacant. However electricity will often be switched off and you may have to turn it on to find out if there are any problems with the same. The bank is most likely selling the property “as is” and it is the buyer’s responsibility to perform any due diligence or inspections.
2. Damage to water system
Look for any leaks. Common points to check include the kitchen sink, bathtub and taps. In case of any leaks however small, you should be alarmed to the possibility of more problems with the water and drainage system.
If the water has been turned off (and in many cases, especially where there is cold weather, the water supply has been winterized,) it is the buyer responsibility to get the water turned on, but most of the times it is not allowed until after the purchase.
Therefore it is a good idea to budget in the repairs an amount for unforeseen water system problems.
3. Overgrown or dead yard
The nature of the yard should be able to indicate to you an approximate time the home has been sitting unoccupied. You will also be able to tell precisely if the property has been maintained or not.
4. Individual possessions left behind
You will likely find personal property within the house if the previous owner was locked out of the home or abandoned property before they could move some or all of their belongings. It becomes your responsibility what you do with these items when you become the new owner.
All said, buying a foreclosed home is still a great option if you are looking to get a good residence or investment property at a bargain price. This explains why there is a lot of competition with investors who intend to purchase the homes as investment, buy and hold or fix and flip.
Note also that the bank is not responsible for the condition of the property and it will not make any representations or guarantees. Furthermore the due diligence inspection period will be very limited.
Just take your time to know the property and be certain to get a deal that you feel comfortable investing in. It is not worth buying a foreclosed home and get into a bigger problem than you can handle.