There's a certain appeal to foreclosed homes. They're often cheaper than other properties, and they come with the possibility of instant equity. But buying a foreclosed home comes with its risks too. So, before you start hitting up your local bank's foreclosure listings, it's essential to understand those risks.
This blog post discusses common foreclosed property buying risks – so you can make an informed decision when you enter the real estate market.
What is a Foreclosed Home?
A foreclosed home is a property repossessed by the lender after the homeowner defaults on their mortgage payments. Foreclosures usually occur when borrowers can no longer make mortgage payments and the lender steps in to take back the property.
The foreclosure process varies at interstate levels, but generally, once the house is foreclosed on, lenders list it for sale at a public auction.
Common Risks of Buying a Foreclosed Home
The condition of the property:
Because foreclosed homes are often vacant, they may fall into disrepair. Most buyers are also unaware of the home conditions when they buy a foreclosed home.
The previous owner’s debt:
You may be responsible for unpaid debt, such as back taxes or utility bills that the previous owner didn't pay.
Title issues:
There may be hidden liens or other title issues that you're unaware of. There may even be multiple owners of the same property in some cases. Lien issues are common with foreclosures as property owners fail to pay off loans against their property.
The home may be in a short sale:
A short sale occurs when the bank allows the homeowner to sell the house for less than what is owed on the mortgage. This can be a lengthy and complicated process.
You may not be able to get financing:
It can be challenging to obtain a loan for a foreclosed home as lenders consider them high-risk investments. You may need to put down a larger down payment or get a loan from a private lender.
There could be legal issues:
The previous owner may have been involved in illegal activity, leading to legal problems for the new owner.
Eviction issues:
If the previous owner was still living in the home when it was foreclosed, they might not have been evicted yet. The new owner may have to go through the eviction process, which can be time-consuming and expensive.
You may not be able to get insurance:
Some insurance companies refuse to insure foreclosed homes due to the risks involved.
It would help if you had a reliable real-estate consultant on your side when you enter the home buying market. Bonnie L Miller PA, CNE-Exp Realty LLC, serving North Fort Myers, can introduce you to a range of premium properties in the region. We help you with your property search as well as shortlisting potential choices and alerting you of the possible risks involved. Explore the listings on our website to make an informed decision.