1. Just because it’s a foreclosure doesn’t mean it’s a bargain. Lenders want to get as much money as possible for their REOs, and will therefore price them as high as the market will bear.
2. Most foreclosures need repairs. Former homeowners often let their homes fall into disrepair; some even do damage as some retaliation against their lender for foreclosing.
3. That first visit may be ugly. Although most banks prepare homes for resale, the glut of foreclosures in some areas has caused a backlog of maintenance issues. Trash may be left behind, there may be stained carpets and walls, animal smells, etc.
4. In a bidding situation, an inspection may not be possible until after the offer is accepted. Many foreclosures are unavailable for viewing during the bidding process. Until an offer has been accepted, the buyer is going on a drive-by and any interior photos available (there may be none). No appraisal, no inspection until after there is a winning bidder.
5. The lender will not do repairs. Lenders are already taking a loss when they take back a property. If the property had equity in it, the former owners would have sold it rather than allow it to be foreclosed on. Therefore the owners were likely upside down, meaning the lender is not getting back what it paid out in loan funds. On top of that, foreclosures are costly and the lender won’t want to add repairs to the list of financial hits it has already taken.
6. Appliances may be missing. It’s not uncommon for the owners to grab anything of value: appliances, copper wiring from the walls (!), doors, light fixtures, on their way out the door. The buyers will need to figure in the cost of new appliances when crunching numbers on a foreclosure “bargain.” Sometimes these acts are not committed by the homeowners, but vandals who break in to empty houses, looking for valuables. Lenders may also be the culprit! To prevent theft and break-ins, frequently lenders will have appliances removed.
7. Financing can be an issue. In a typical foreclosure auction, the highest bidder must pay in full within 24 to 48 hours of winning, and payment must be made by cash, check or money order. If your clients plan to finance a foreclosure, they will need to secure a loan prior to bidding. This can be exceedingly difficult, because they will have to estimate how much they will need to bid to buy the property, which will not be known until the auction concludes. The client and their lender will likely have to agree on a maximum limit, and the lender would have to agree to lend up to that amount. If the bid exceeds that limit, the buyers will either need to pay the difference in cash or lose the property. One solution is to ask the bank selling the property if it will finance it. Often favorable rates or terms will be offered to effect a quick sale.
8. Mold can be an issue. Often foreclosed on homes have been vacant for months, even a year or more. Without air circulation, the indoor air quality can deteriorate rapidly. Any moisture can breed mold, especially in humid areas, but even in arid locations such as Arizona. Sometimes the mold is hidden behind a wall, or has just begun. Once mold takes hold on drywall, there’s usually no way to save it. The new buyer will have to replace any mold-infested drywall.
9. Holdover happens. Sometimes, the previous homeowner refuses to leave the property, even after someone else buys the home. Rarely does the lender forcefully evict the previous homeowner prior to sale, and after the property is sold, it becomes the new homeowners’ responsibility. This means that the new buyers could have to evict the previous homeowners before they can move into their own house, and it can take months to do so successfully.
10. Buyers may have no flexibility about when to renovate. If their new foreclosed home is in bad condition, your clients should be prepared to start renovation immediately. If local authorities perform nuisance abatement duties—such as trash removal or boarding up broken windows—the new property owner will be billed for the costs, and a lien may be placed against the property. And forget about a quick resale; lenders typically require buyers to remain in possession of the property for at least 90 days after closing.
11. Bats, bees and boars, oh, my! Wild animals, including boars and panthers have been found in abandoned homes. High grass is a haven for snakes; rotted food attracts rats. Bats make a home in attics, bees bore into walls. Skunks have been found in ventilation systems. Carpenter ants and termites, attracted by wood piles left near a house, can cause extreme damage.
12. Many foreclosures have title issues. Even when a bank wins a foreclosure lawsuit, if the lender failed to dot all its “i’s” and cross all its “t’s,” or if the lender failed to join all necessary defendants (e.g. junior lien holders or the mortgage holder of record), or if the relied on evidence was fraudulent (such as the affidavits of “robo signers”), then the Final Judgment may be vacated. This means, essentially, that even if the bank won a foreclosure lawsuit, was the high bidder at a foreclosure sale, and sold the house to an independent third party, the original homeowner may still ask the court to vacate the Final Judgment and allow them to re-take possession, and ownership, of the home.
#foreclosure #dirtydozen #mcallisterintlgroup
