Foreclosures can be a great way to buy a property at a favorable price. I have successful closed on may foreclosed homes with many happy clients. However their are some risks associated with the process so please be forewarned and work with a professional Realtor who knows the market and the process.
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
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