Guide to Foreclosed Homes - Common Pitfalls and Tips

Some buyers with limited budget commonly look for foreclosed homes because of the low prices. They attend the foreclosed home auctions to get great deals that can accommodate their budgets. At these actions the lowest bid can often get you a house below market value and lesser than the price charged by property agents.

When Do The Problems Arise?

The only problem in buying foreclosed homes is that you cannot inspect the house before you buy it. Your decision to buy a house that you are not allowed to inspect might be sound enough based on the low price which might be sufficient to compensate for the work needed to be done in order to make the home livable. You can try and inspect the property in consideration yourself, but this can sometimes be very difficult.

If the property you are buying is occupied, then it’s the previous owner’s responsibility to remove the occupants. If the previous owner does not fulfill his duty, then you have to proceed with the eviction process.

In some cases, occupants may retaliate during eviction process. You can hire a lawyer to deal with eviction, which can be a long and painful process. Alternative you can pay or bribe the occupants to leave your property. If the occupants are too old or physically unfit you can also find an appropriate house for rent, pay security deposit and first month rent and offer occupants to move into the new location.

1. Foreclosed homes are usually auctioned to the highest bidder. Before you attend any of these auctions the mortgage company will check your financial background to make sure you have the financial means to bid.

You must have a minimum of ten percent cash deposit before you can participate in the foreclosure auction. However, watching the auction is permitted for anyone and you do not to go through a financial background check.

2. Foreclosed homes don’t include repair and service charges. When you are buying any foreclosed home you are not allowed to inspect it; so think why the previous owner didn’t pay the loan installments on time or what issues can the property in consideration have.

There can be two reasons, one being that the previous owner became bankrupt with no money left to pay the installments or was unable to pay the property taxes. Sometimes, you are allowed to inspect the foreclosed home but all the electrical parts would be switched off. So, you don’t know whether appliances in the house are in working order. Sometimes occupants might have damaged the property before vacating i.e. they did not clean the carpets or damaged the appliances. Before you buy a foreclosed property remember to calculate all of these miscellaneous costs.

3. Eviction process in foreclosed homes. Sometimes the property auctioned is already vacated by the earlier occupants; it can be original owner or relative of owner, friend or tenant. But if the occupants have not vacated the property, it might be your problem to proceed with the eviction process.

Mortgage companies will not pay the eviction charges or take care of the eviction process. Before signing the deal check whether the mortgage company is willing to help you with the eviction process.

1. Inspection is not allowed. The first and major problem in buying a foreclosed home is that the buyer is not allowed to inspect the property. The buyer does not have any kind of warranties with respect to the state and ownership of the property. This also includes damages to the appliances and interior.

2. Second disadvantage is that you do not know why this property is being foreclosed. Whether owner didn’t meet the financial expenses related to the property or didn’t pay the mortgage on time.

3. Third drawback is structural issues such as a leak in the roof, damaged ceilings, wiring, the furnace, and any water damage or fire hazards. Unfortunately before or during the auction you are not informed of any of these problems a foreclosed property might have.

Buying foreclosed homes comes with numerous drawbacks, but the major factor of price would tempt many buyers to fall for the deal.

The process of buying foreclosed homes is like gambling, you do not know whether you will win or lose. When bidding on a specific property you just have to go with your gut instinct and any previous experiences you have in this area.