Investors and homebuyers sometimes go for foreclosed properties as it allows them to buy properties at a fair price. As much as you can find foreclosed properties with decent prices than newly listed properties, they come with pitfalls. Below are the pitfalls to watch out for when buying foreclosed properties:
The Status of the Property
A common pitfall of foreclosed properties is the property’s condition, both the inside and the outside. You already know that properties are foreclosed because the owners could not make their mortgage repayments. If the owner could not afford to make their repayments, there is a high likelihood they could not maintain to keep the property. Here’s what to look for:
- Cleanliness – some of these properties are neglected for a long time, and the bank might not clean up these properties. The previous owner could also have neglected the property before moving out.
- Lack of basic maintenance, like leakages, broken inbuilt appliances, overgrown yards, and gardens. All the repair costs are transferred to you when you purchase the property, so it’s good to have an inspector check out the building, so you have a negotiating angle.
- If the property has been neglected for long, there are chances it has no power. For starters, this will make it hard for you to inspect some areas of the properties, like the attic. Second, the power bill could be behind if the lender did not pay it after repossessing the property. This adds an extra cost to have the power reconnected and cater to the inspection of all the electric wiring to ensure it’s at par.
- The property might also have some “illegal” renovations- illegal in the sense that the previous owner did not get the proper permits to carry out these renovations. Apart from costing you extra money to fix these renovations, you might also have a hard time dealing with city officials to get those permits if you do not like them.
- If the lender repossessed the property before the previous owner took their personal items like clothes, furniture, among others. As the new owner, you could be in charge of disposing of these items at your own cost.
Another pitfall of foreclosed houses, especially those that are neglected for long and have no one to manage the property, is vandalism. It could be from the previous owner or random. The process embitters some owners, like those evicted without a chance to salvage their items. This could lead to the breakage of items as revenge or trying to access the property to recover their items. When the property is deserted for long, it can attract individuals to commit crimes like illegal graffiti.
If the property has any problems with the title or lien violations, you will have to pay these as the new owner. One way to go about this is to only purchase a foreclosed property from a reputable lender who is the lien holder.
You can also handle this by hiring an attorney who handles real estate issues to run the property title. This will also help you identify any other issues with the title before you go ahead with the purchase. After this, the attorney can write you a letter of commitment, so the title is ensured after your purchase.
Purchase Process Issues
The purchase process for a foreclosed property might not be as smooth as one expects. One could be the financing issue, where your lender might not want to loan you money for a property that does not meet its appraisal standards.
The process could also be bureaucratic with less information regarding the status of the property by the lender. Also, the lender could stall the process in an attempt to get the best deal.
In conclusion, purchasing foreclosed property could be a great way to earn money as an investor or score a great deal as a homebuyer. As much as these deals can be great for scoring properties at fair prices, the process and the property can come with pitfalls. Without careful consideration of the whole process, including property inspection, running the title, among others, you might end up with a raw deal.