In the current market, buying a foreclosed home may be the best way to get the best price. But before you run out and bid on a foreclosed home, there are distinct advantages and disadvantages to be aware of. Buying a foreclosed home can be very different from buying a house the traditional way – through a broker or directly from the owner.
Foreclosed homes are distress sale situations. That means the seller is often a lender that has a large inventory of repossessed properties to unload. That makes for a very motivated seller.
The fact that a property has been foreclosed does not mean that something is wrong with it. Often it simply means that the previous owners purchased at the top of a booming market and found they could not afford high monthly payments on a property that has dropped in value. If you’re in a position to make a quick deal, you’ll be all the more attractive to a seller who is sitting on a vacant home that represents a cash drain.
As the purchaser, it’s up to you to learn everything you can about the foreclosed home. Foreclosed properties often are offered on an “as is” basis. Moreover, they usually are vacant, which invites vandalism and neglect. If the property is in an area where there have been a lot of foreclosures, it could mean values throughout the neighborhood are depressed.
Paying for a complete appraisal is recommended. This will uncover the true condition of the house, as well as give you a list of comparable properties in the area (the seller may be asking for a price that covers the balance of the loan but is still too high for the current market).
When you purchase foreclosed property, make sure you get a good title. Most states give borrowers who lose their homes to foreclosure the right to reclaim them if they can pay the debt, interest and costs, which means they can haunt you long after you purchased a foreclosed property.
Moreover, holders often offer a special (limited) warranty deed that does not give buyers the full protection of a general warranty deed. If possible, get a title insurance policy on the property.
How to find foreclosed homes
There are brokers who specialize in foreclosed homes, but you also can find them through newspaper ads or on the Internet, advertised auctions and signs on the property itself. Lending institutions, such as savings and loans, commercial banks and credit unions sometimes sell foreclosed properties.
If you can pay cash, you’ll be in the best possible position to negotiate. Otherwise, you’ll need to arrange your financing before making a bid. Most sellers do not allow contingencies that enable buyers to seek financing after signing the sales contract and to recover their deposit if financing falls through. For buyers, particularly first-time buyers, looking for really affordable properties, the VA will finance the foreclosed homes it sells.