Buying a forclosed property can be a way to purchase your next home, if you are aware of the many differences between a true forclosure and a property that is for sale by owner, pre-foreclosure and may be “fixer”, and are realistic about the price asked for the property.
All foreclosed homes are purchased "as-is", and are sold without a disclosure as to their condition. The company or person who forclosed does not know what is wrong with the property and actually, they really don't care. Sometimes they will cosmetically improve the homes; however, they are still sold "as-is" and without any warranty whatsoever...plumbing, electrical, structural, roofing, pool, heating, cooling, etc. Some of these properties will be provided with a termite clearance; others will not. Most home lenders require a termite clearance prior to funding the loan. This then could be an added cost to the close of escrow.
The goal of the foreclosing lender is to gain possession of the property. The financial goal is the recovery of the principle loan balance, accrued interest, late fees, penalties, taxes paid on behalf of the property owner, court costs and attorneys' fees. In most states, the laws are written so that the lender can only attempt to recover these widely accepted standard losses.
Lenders are quite aware of the inflation in home prices and are selling their properties accordingly. They are usually priced at fair market value, less what the lenders believe it would cost to bring the property up to a comparable property that has been properly cared for.The days of a lender selling at a distressed price for a quick sale are behind us. Still, these homes can many times be a bargain as the new owners can put their time and effort into improvments and end up with a home that is worth much more than the price they paid for the forclosure.
Often when purchasing foreclosures buyers are concerned about the quality of title issued by the lender. A common belief is that there may be liens or judgments clouding the title. This is a myth. The lender will bid at auction only if it wants the property. The lender, typically the senior lien holder, wipes out all junior lien holders or judgments in the process.
The lender, in an effort to recoup its losses, will bid on the property, wipe out other lienholders, then pay the balance of outstanding property taxes to secure the property's clear title. No lender will go through the time, effort and expense of foreclosing, only to lose the property for a few thousand in back taxes.
The advantages to this buying method rather then dealing with the homeowner before forclosure are many. There are no liens or judgments to contend with, no homeowners or tenants to evict, no back taxes due, and accessing he property for evaluation or inspections is easy.
The fact that the property has officially changed hands means that all that work has been done by the lender. With all the legal work done, the complications of buying and the associated risks are removed.
Of course, every foreclosure isn’t a good deal. This is why my expertise is so important and why homebuyers need me. I can help ensure that you find the best value for your needs, whether a foreclosure or not.
FIXERS OR FIXER-UPPERS
The owners of these properties must provide a transfer disclosure. Although they may still be sold "as-is", a transfer disclosure statement must, nevertheless, be provided to the buyer.
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