Foreclosure Red Flags: What to Look out for When Buying a Foreclosed Home

Written by Posted On Tuesday, 22 December 2015 05:45

Slowly but surely, it appears the housing market is coming back. It might not be at the robust numbers of the mid 2000s, but there are definitely signs of “green shouts.” That’s good news for the economy. Of course, there will always be foreclosed properties on the market. As a prospective homebuyer, you shouldn’t discount the notion of buying a foreclosed home. You could find that the lending company who is holding the property will be eager to make a deal. However, there are some “red flags” you should be aware of before diving into a contract.

The “As-Is” Purchase

Most private sales of cars and other goods are “as-is.” That means you’re taking the responsibility to make any repair on the item. That might be okay if you’re buying a car and have a chance to get it inspected by a certified mechanic. However, as you begin your research into foreclosed properties, you might find many “as-is” sales. These are usually tied to cash-only deals. They also could mean no inspections or showings. Unless you plan on tearing down the home and rebuilding, you should run — not walk — from any “as-is” deal.

The lending company could rationalize this kind of deal as not wanting to negotiate. In other words, they’re “over” this property. The real question you need to ask is, “What are they hiding?” You don’t want to find out.

Hidden Liens

A property doesn’t go into foreclosure overnight. It can take several months and even a year before the occupants are forced out. In that time, a lot of property taxes can go unpaid. There could mean all kinds of liens put on the property — not just from the bank, but also from other creditors. Does this mean you’ll have to pay off somebody else’s debt to free up the home? Not necessarily, but those liens can complicate the purchase process. You should be able to check with local tax authorities to see what might be attached to the house. In fact, you should do that with any type of home purchase.

The “Falling-Down” Factor

A foreclosed property can fall into disrepair. When the previous tenants realize they are being kicked out, they’re going to stop worrying about fixing things. They might even take out their pent-up anger on the property. This could mean the property will be in need of some serious repair work. Depending on the circumstances, you might find that these repairs could be handled by a decent handyman or even as your own DIY project. As long as you have the right tools and the right know-how, you could take great pride in fixing up your place. Just be sure it won’t be a total gutting.

Missing Things

Finally, you want to be on the lookout for missing things. Not only does this include documentation about the home, but items like copper piping and other fixtures as well. Some are easier to replace than others, but those costs will still need to be factored into your bottom line.

 

After wading through all the potential red flags, you have to ask if the discount you might be getting with a foreclosed home is worth the hassle. In some cases, it might be, but you’ll have to act fast. If it really is a good deal, then make it your good deal! 

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