What to Know Before Purchasing a Foreclosed Property
Most people look for a move-in ready home that won’t require extra work. These types of properties can be costly, though, especially in today’s market. A property in foreclosure is a much cheaper alternative. They are often listed at very low prices because the bank wants to get rid of them quickly. However, you need to watch out for plenty of potential downfalls when purchasing a foreclosed property.
What Exactly is a Foreclosure?
A foreclosure involves home repossession by a bank. When you purchase a house using a mortgage, the house gets used as collateral. If the owner fails to pay their mortgage and money due, the bank needs to do something promptly to ensure they’ll get what they’re owed. So they sell the collateral, which is the home, to get their money back.
After 90 to 120 days (depending on the lender’s policy) of an owner failing to make payments, the bank has the right to send a notice of default and a letter of intent to foreclose on the property.
The homeowner then typically has 30 days to pay off their balance owed or attempt to sell the property to raise the money they need to pay off their debts. The homeowner may make some renovations during this time to entice buyers or sell as-is for a fast sale.
The Auction Process
Suppose the homeowner does not handle the situation within the right timeframe. In that case, the bank will attempt to sell the home at an auction.
In most cases, the auction price will start at the amount necessary to pay off any balance owed. Buyers often get the home at far less than the market value because of this. However, cash offers are typically required to pay for the property, which few people can provide.
During an auction, bidders do not get to see the home. You’re buying it as-is, without even getting to see how the interior or exterior of the home looks or learning what might be wrong with it. You cannot use an appraiser or inspector to check on the home’s conditions or value. Many auctions do not result in a sale because of this.
If the home does not sell at auction, the bank takes back ownership and can sell it on the open market. This, at least, allows buyers to obtain regular financing means instead of paying cash. You’ll also be able to use an inspector and see the property, which is a better option for most buyers.
Where and How Can I Purchase a Foreclosed Property?
Purchasing a foreclosed property isn’t usually as simple as going online and searching the area for options. Most foreclosures do not show up on normal databases. Instead, you need a realtor with access to the foreclosure database so you can see the available choices and learn when auctions might be held.
The MLS, or Multiple Listing Service, is a database with access to foreclosure information. You can search for options in any state. It costs money to sign up, though. You’ll only be able to view limited details without a paid account, such as:
- The sale price
- The city and state where it’s located
- The square footage
- The number of bathrooms
- A photo of the overall property area
You cannot see any photos of the house itself or additional information regarding the number of bedrooms or amenities. You cannot even see the full address of the home.
You can also look at property lists from loan servicing companies, through the federal government, or in public county records. Again, it is wise to work with a real estate agent or real estate investment service like Offercity, who can help you find this information instead of searching for it yourself.
Disadvantages of Buying a Foreclosed Home
Individuals and families looking for a home may not want to select a foreclosure for many reasons. Although it can save you a ton of money purchasing a foreclosed property, quite a few disadvantages make it difficult to choose to go this route. They include:
- Buying the house as-is means that you don’t know what condition the home is in before purchasing it.
- There could be significant damages and a high cost of repairs. If the house has been vacant for any period of time, serious issues could have occurred. In addition, once the previous homeowners found out they were losing their home, they may have stopped taking care of it. It can be challenging to know the full extent of repairs needed on a home and the cost for needed repairs.
- You may be put in a position where you have to evict the previous residents if they refuse to vacate the premises.
- The process takes longer than a traditional buying process does.
- Listings are not always readily available to anyone.
- The title to the home could have a lien.
- Other bidders who know the market may decide on the home quickly.
- You have to have the full amount in cash, ready to be paid immediately.
Offercity Takes the Guesswork Out of Investing
Despite the troubles that sometimes stem from foreclosures, there are advantages, especially when you partner with Offercity. You may luck out with your purchase and get a home that needs very minimal work done to make it move-in ready. With the incredible price, buying a foreclosure can be a great investment.
If you’re an investor looking for a new project or simply a home buyer looking for a place to call your own, Offercity can send fully vetted properties straight to your inbox. Join now on our investor page!