Two Things to Know When Buying Foreclosures

Watch on your mobile device >>

Buying a foreclosed home can be bittersweet.  If you are not careful you stand to face a great deal of financial risk, not to mention the frustration of wanting and pursuing a home that could be lost to you in the end if precautionary measures are not taken. These steps can and will protect you from unforeseen circumstances that have often come back to bite less-than-careful buyers of foreclosed home. 

A Good Deal Can Come At a Steep Price If You’re Not Careful

For all the satisfaction of getting that great deal on a foreclosed home, the single most frustrating thing about buying foreclosures is the inability to communicate directly with the seller.  The purchase of a home is usually the largest financial transaction in many people’s lives and the fear of the unknown should definitely not be a factor.

In normal sales important details must be revealed by sellers through a formal disclosure statement.  The homeowners must divulge any and all information about the home that can impact the buyers’ decision, especially aspects that can affect the property’s value or desirability. In fact, in many states it is illegal to conceal major defects whether structural or cosmetic, prior to sale. 

With foreclosed properties the disclosure statement is extremely limited so the prospect of learning significant financial or personal safety risks in advance is imminent.  Property transactions should not involve a lot of guesswork unless you are able to invest in the property and manage issues that may come up later.

WHAT TO DO TO PROTECT YOURSELF
The amount of money saved on a foreclosed home is worth the extra expense you will have to incur to make sure your dream home is a reality.  Hire an experienced inspector or licensed general contractor that can investigate all aspects of the home in advance.  By weeding out any potential problems ahead of time, you will be able to make an informed decision about the purchase rather than signing the dotted line in the dark.  Major problems such as plumbing and electrical issues, foundation concerns or roof leaks will be investigated and other potential pitfalls that could cost you a sizable amount in the long run will be mentioned. 

Since most lenders require a home inspection to take place prior to financing you may be able to utilize the same inspection results by choosing an inspector recommended by your bank.  Though most home inspections average about $300-$350 the cost can go up depending on the size and complexity of the home.  One of the biggest mistakes many buyers commit is to opt for less expensive inspectors with murky credentials or none at all. 


Make Sure You Are In the Clear Before Saying “Yes!”

Like with any major financial transaction, there are many steps to take when finalizing the process.  One important step is drawing up a title policy as per the bank’s requirements.  Especially in light of recent tightening of lender practices banks are being extra cautious when processing mortgages.  Sometimes they will require that the title policy be done using a company located outside the local area.  It is essential that you follow through all possible scenarios when confirming the title is free and clear of all liens and/or encumbrances otherwise you risk delaying the transaction while waiting to clear up any mishaps.  You could also potentially lose the sale if the title is not verifiably free and clear.

After your title company has come up with the title policy for your foreclosed home, it’s a good idea to check with a local lien company and request a preliminary report on the property.  This allows a more interactive investigation of the title’s condition as opposed to an out-of-town company doing the legwork. Any outstanding liens that may not have shown up on the out of town title company’s report may appear on the prelim report from the local (second opinion) title company.
~
Foreclosures are a great way to get a great house without breaking the bank – and if you play your cards right, there is no reason why there can’t be smooth sailing throughout the process.  With just these two important precautionary measures, you can save years of grief and thousands of dollars of pocket pain – all worth it at the end of the day when you live in your dream home at a fraction of the cost of a conventional sale.