It’s everyone’s dream to be able to own a house. Many people will look for opportunities to achieve this dream at an affordable cost, and this could sometimes mean buying a home in foreclosure.
For many homebuyers, getting a foreclosed home is an attractive proposition. This is because most foreclosed homes are sold at a low price.
What Is a Foreclosed Home?
A home that is in foreclosure is a house that has been returned to the bank and put up for sale again.
When a homeowner fails to pay the payments on a mortgage and it defaults, then the bank has a right to foreclose on the house.
All mortgages stipulate a lien on the house or property. The lien gives the bank the right to take the property. All of this is perfectly legal.
While the circumstances that lead to a foreclosure can be a sad thing (usually, the homeowner experiences financial difficulties that prevent him or her to pay the mortgage), the bank has the right to take control of the property and sell it to offset any losses on their part.
The Process of Foreclosure
Several significant stages would lead to a home being foreclosed.
Defaulted Payments and Bank Notice
When the homeowner fails to pay the mortgage even just once then it is already recorded as a payment default. When this happens the bank will send the homeowner a notice of default within 90 days after the missed payment is recorded.
Usually, the bank will still allow the homeowner to arrange for a revised payment plan to avoid foreclosure.
Notice of Sale
When the default payment is not resolved, then the bank will begin the process of selling the property. The bank will file the notice of sale with the state and will also publish the details of this sale in a local newspaper.
For people who are looking for a foreclosed home to buy, these announcements are how they find out about properties for sale.
The Sale
The bank now proceeds with selling the property. Sometimes, a public auction is done to sell the property.
Bank Ownership
If the foreclosed property is not sold, the bank will effectively own the property. They will continue to offer it for sale. For foreclosed property buyers, this stage is the most optimal stage to signify interest to buy.
The Benefits of Acquiring a Home in Foreclosure
There are many benefits to buying a foreclosed home, but make sure to avoid some common mistakes.
Really Good Prices
A foreclosed home will most undoubtedly have a very attractive asking price. Most foreclosed properties are sold below market value.
The reason for this relatively low price is because the lender or bank can only get a return on the money that was poured into the loan by selling the home. They need to put an attractive price so that it will sell.
Simple Title Process
A foreclosed home will not necessarily have a clean title because you still need to pay off the property.
But a foreclosed home will mean that the bank will take care of all the title issues and will be the one to clear the title on your behalf.
Pitfalls to Avoid When Buying a Foreclosed Home
While buying a foreclosed home has some attractive benefits, there are also some things you need to avoid. Do watch out for these five things so you won’t have to deal with any headaches.
Issues with the Property
Almost all foreclosed homes on sale are sold on an as-is basis. This means, what you see is what you’ll get.
While there are certain houses in foreclosure that are well maintained, you need to be aware of the reality.
For example, there’s a huge likelihood that the general upkeep of the property has been neglected by the homeowner. If they can’t keep up with mortgage payments, they surely won’t be able to find the money for repairs and maintenance of the house or property.
Another factor here is the emotional state of the homeowner. The homeowner and his family will likely have ill feelings towards the bank for having foreclosed on their home.
It won’t be an isolated case to know that the homeowner will vent his frustrations and ill will on the house. Vandalism of the property itself is not out of the picture.
Unexpected Costs
Be diligent and avoid any sudden costs or expenses that will come up in the process of buying a foreclosed property.
Some costs are something you can anticipate. For example, repairs on the property or any renovations.
But some costs may be unexpected. These costs usually revolve around sudden fees you need to pay. For example, back taxes or liens.
Maintenance
Maintenance issues were mentioned above as a hidden cost but it needs to be emphasized as a serious pitfall that needs to be avoided.
You don’t want to buy a foreclosed home and then, later on, find out that the maintenance needed to make the house livable for you and your family will cost a fortune.
Invest in a good inspection of the house to ensure your peace of mind. You can hire a home inspector who will provide a complete report on the property.
This report will include the mechanical and structural components of the property.
Squatting
The property you’re eyeing may be for sale already but it doesn’t mean no one is living there anymore.
Some foreclosed properties have not been occupied for a while and this could attract squatters.
When you buy a property and then find out afterward that someone has been squatting there, you’ll have to legally evict them. This is the law and applies to everyone, even if the squatter doesn’t have a legal right to live there.
Legal evictions can cost a lot of money if it drags on so avoid this as much as possible.
Security Problems
Security is another thing you need to ensure when you have bought the property. Avoid any security problems that can threaten your safety and that of your family.
Have all of the locks changed immediately. Have a security expert do an inspection of the house and make recommendations on how to secure your property.
Bottomline
Owning a house is an achievement and a dream for many people. A foreclosed home can provide you with your dream property at an affordable price tag.
But avoid the pitfalls associated with homes in foreclosure so you can enjoy your new home without having to worry about anything.
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