4 Pitfalls of Buying a Foreclosed House
Many home buyers mistakenly think that buying a foreclosed home is a good idea because it will be less expensive. However, buying a foreclosed house can often come with some unintended expenses and headaches. For example, buyers may not always be getting a home in the best condition. Also, they may have to play landlord and evict the previous occupants. Those challenges and others are good reasons to carefully consider when thinking about buying a house in foreclosure.
Home is As-Is
Foreclosed homes are almost always sold as-is. Most banks want to quickly get the bad mortgages off their books. If the home is still occupied, you will usually be unable to tour the inside, because there will be no open house for interested buyers.
Also, interested buyers are usually not allowed to disturb the occupants, so you can’t ask to look inside. Instead, you can only make your decision based on the outside of the house. Therefore, it’s risky to buy a house as-is, because you don’t get to see what the inside looks like.
If you buy a foreclosed house that is still occupied, you will often be the one to evict the occupants. However, evicting occupants from a home isn’t always that easy. You must go through a formal eviction process. Sometimes this process can take time and cost money because the occupants have certain rights. Therefore, if you have to evict occupants, make sure you learn about the eviction laws in your state.
Problems with the Property
A foreclosed home frequently have damages that need to be fixed before it’s livable. Sometimes those damages are caused on purpose by the previous occupants because they are not happy about being forced out. Some people will even steal housing materials that are valuable (copper pipes, etc). When we purchased a foreclosed home everything had been stolen from the house, all of the wiring throughout the house was stripped for the copper, the heating and air conditioning had been removed, the kitchen sink was stolen, even the front door was missing.
Keep in mind that even if the house appears okay just prior to the foreclosure, you might have to spend more money to fix potential damages by the time the current occupants leave.
Unfortunately, there is no way to estimate the cost of repairs, since you can’t view the home before buying it. However, if you are someone who is good at construction work, you might be able to fix a lot of damage yourself.
Another point to note, foreclosed properties are often poorly maintained, if a homeowner is unable to afford their mortgage, they’re often unable to properly maintain the home as well. The yard may be overgrown, littered with trash, the house may have been empty for several months, with the doors and windows closed, causing the house to smell, or windows may have been broken allowing rain, snow, sleet, etc to get inside, creating mold issues.
Additional Unexpected Expenses
When people go through financial hardships and stop paying their mortgage, they often stop paying other things as well. One consideration to think about is any back property taxes. If the property taxes haven’t been paid in a while, the tax collector may impose a lien on the house. You will be responsible for paying any property taxes as well as interest and penalties to get the lien removed. Depending on the taxing district, the property taxes could be expensive.
Issues with Lenders
Obtaining financing for a foreclosed home is quite difficult as banks consider them to be uninhabitable. Most have had heating and air conditioning systems removed due to liability issues.
There is very little if any previous ownership disclosure. The banks or mortgage company did not live on the property, therefore they are unable to provide the buyer with any knowledge of existing issues with the property. These items are often uncovered by the new owner by asking the neighbors, during home inspections (at the buyer’s expense) or through the hands-on experience once the house has been purchased.
The Bottom Line
Buying a foreclosed home doesn’t always save you money. Usually, banks sell foreclosed homes quickly and as-is. Unfortunately, when a home is still occupied, you will not likely get to see the inside. Therefore, you are taking a risk on the home’s condition. If the home does have damages that you are unable to fix, you will have to hire someone else to repair them. Finally, you need to make sure that the home doesn’t have any tax liens against it because you will be the one to pay the back taxes. You must consider all of those potential costs when looking at foreclosed homes.