What are the implications of buying a foreclosed house?

Question

I'm a young adult, and just recently found how cheap it is to get a foreclosed home...
It almost seems to good to be true....
What's the catch?
What's the process?

Answer 1

The catch is the condition. Your first step should be to find a buyer’s agent to represent you.

A buyer’s agent in your area can explain how it works in your market. My agent insures that the seller’s side fulfills all of their responsibilities and that I had the option to get out of the contract if anything on the inspections was more than I wanted to fix. He also helped me come up with a price that is fair, reflects market conditions and takes into account that this house will need several things done to it over the next few years.

I’m closing on a bank owned foreclosure three weeks from today. It was sold as-is; the bank planned to pay for no inspections or repairs from said inspections. We paid for our home inspection out of pocket, but the few hundred it cost us was well worth it to know how many problems we were inheriting. Often owners who can’t pay their mortgage didn’t have the funds to fix problems, and once they knew they were going to lose their homes, stopped putting money into it.

In addition, we were subject to a municipal building code inspection that has to be done before we can live there. I knew nothing about this, and would probably have bought the house and moved in illegally if I didn’t have an agent to show me the way. My agent worked it out that the bank is paying for the municipal inspection. This way I know what problems have to be fixed so I can get an occupancy permit and avoid issues when I want to sell the house.

Answer 2

Buying a foreclosure (once the foreclosure is complete) is no different than any other home purchase for the most part.

Most of any savings will be eaten up in repairs as foreclosures tend to suffer from deferred maintenance or were trashed by the former owners.

Sometimes the owning bank will make you a nice offer on a loan to buy the place, I've done that a couple of times and saved a half point and most closing costs other than pre-paids.

Buying a home when it's auctioned at the actual foreclosure is nearly impossible for the average person. You need to pay 10% in cash when the hammer falls and usually must close the sale within 2 weeks or less. Unless you have a hard money lender willing to finance the deal long enough for you to get a regular mortgage or have enough ready cash to pay cash, forget about buying them on the courthouse steps!

Answer 3

Definitely get a title search done to see what liens are on the property. There may be certain things that you have to pay for if you buy the property (delinquent taxes, sewer assessment, etc.). A title search will find anything that's on the property that the foreclosure doesn't cover.