Are foreclosures worth the headace? Problems with the Property

Let's start with The Bottom Line
There is a deal to be had in foreclosures, but you should know what you are getting into ahead of time and choose your property carefully. Don't overlook the fundamentals that make a property desirable just because the purchase price is a bargain.

Here are some problems these properties commonly possess and the difficulties you may encounter in purchasing a foreclosed home.

Problems With the Property
The most important thing to understand before jumping into the foreclosure market is that these properties were given up by owners who couldn't afford the payments anymore. In these cases, the house is often poorly maintained - after all, if the owner can't make the payments, he or she is likely falling behind on paying for regular upkeep as well. In addition, some people who are forced into foreclosure are embittered by their situations and take out their frustrations on their home before the bank repossesses. This often involves removing appliances and fixtures, and sometimes even outright vandalism. After the occupants leave, foreclosures sit abandoned, often inviting criminal activity.

Maintenance and Cleanliness of a Foreclosed Home

Maintenance and cleanliness can be a problem in foreclosure properties because of the circumstances under which the previous owners moved out, and because of the time the house may have sat empty. Some of the main concerns include:
•Lack of Cleanliness
Bank-owned properties are sometimes disgustingly dirty because of time spent sitting empty, intentional neglect by the previous owners or occupancy by vagrants. When the place is locked up with no air circulating for months, built-up dirt can cause the entire home to smell.

•Bad Renovations
The previous owners that were foreclosed on may have made changes to the home without getting the proper permits or hiring good labor in order to save money. A common example is finishing basements or updating kitchens. These renovations may create headaches for the new owners with city government officials due to the lack of proper permits.
If the previous owners started the renovation and then fell on hard times, there may be partially finished work in the house.  Also, if any repairs were made, they may have been done by the owners themselves or other people who may not necessarily have done the work correctly.

•Lack of Basic Maintenance
If the previous owners couldn't afford their mortgage payments, you can bet that they also could not afford to make even minor repairs.   And if they knew they were losing the house, it's most likely they were treating it poorly.

•Personal Property Left Behind
Sometimes foreclosed homeowners get locked out of the property before they can move their belongings, and in some cases they just do not take everything with them. Many real estate owned (REO) properties are emptied by a management company but some contain furniture, trash, clothes and other items that you will be responsible for disposing of when you become the property's owner.

•No Electricity
With no one living in the home, the electricity may be off unless the bank has intentionally kept it on. With no electricity, it can be hard to see what you are buying in some rooms, particularly basements and windowless bathrooms.

•Water Damage
A small leak under the kitchen sink can lead to a mold problem, and a roof leak or burst pipe can lead to major water damage. With no one around to take care of small problems as they occur, small problems can turn into big ones, and big problems can turn into disasters.

•Dead or Overgrown Yard
Depending on the climate where the home is located, the lawn and landscaping may be totally dead or extremely overgrown. Banks usually do not pay for gardeners to maintain the yard.

Unfortunately, there is even more to consider than these items... Please see the links below view Foreclosure Headaches on this blog to continue reading!

Is purchasing a foreclosure a good deal in 2015?

Still interested in buying a foreclosure? Search for foreclosed homes to purchase

So, how about a SHORT SALE?

Is there a perfect house out there?

Is a foreclosure worth it? Issues and upfront costs...

Despite all these potential problems and upfront expenses, foreclosures can still be a good deal. 

If you are willing to fix problems that most people do not want to deal with, you can buy a home at a significant discount. However, you may encounter additional issues when it comes to actually purchasing the property and getting it into move-in condition.

"Buyer Beware" is a good rule of thumb when considering buying a foreclosure (bank-owned or REO house).  Here are just SOME of the reasons why...

•Issues With Lenders
Buying a home from a lender has its issues as a result of the increased level of bureaucracy and the limited transparency afforded to those who buy foreclosures.

•Financing a Foreclosure
Lenders will not loan you money for a home they consider uninhabitable or that appraises below the purchase price. Appraisals for government insured loans are more strict about the condition standards than conventional but of course if you are an investor paying cash this will not be a problem. Also, beware of the hidden costs that can be lurking around a foreclosed property.

•Time Delays With the Owner Bank
Common sense says that banks should want to unload REOs as quickly as possible, but in reality banks sometimes drag their heels in considering offers and throughout the escrow process.

•No Seller Disclosures
Since no one from the bank has ever lived in the house, they are unlikely to have any knowledge of existing problems with the property. You will have to uncover everything yourself, either during the home inspection, by asking neighbors or through experience after you become the homeowner.

•Competition When Making an Offer on a Foreclosed Home
Because foreclosures can be great deals, they are attractive to investors looking to flip properties or use them as rentals. Since investors can make all-cash offers with fewer or no contingencies and fast closings, their offers may be more attractive to the bank than those from would-be owner-occupants who desire inspections, financing or other contingencies.

To help more owner occupants take advantage of these "deals" some bank-owned properties have a set timeframe when the home is first put on the market where only owner-occupant offers are considered.

OK - so there is A LOT more to consider but I want to keep these posts short.  Please search this blog for posts tagged "Foreclosure Headaches" for more considerations.

All this have you thinking about purchasing short sales?  That is another conversation. 

Call me to further discuss your property purchase plans!

Don't Say I Didn't Tell You So 

The "Hidden Costs" of Purchasing Bank-Owned Properties

Potential Extra Upfront Costs Associated in Buying a Foreclosed Home

There are costs associated with any home you will purchase but bank-owned/corporate-owned/REO homes tend to have extra costs that aren't always recognized upfront by the buyer. In fact, there are so many things to consider with these properties, I will only cover a few here and discuss further in additional posts so let's get right to it.

•Utilities Costs
Because foreclosures have often been winterized and the utilities are shut off, the buyer is often the one incurring the expense to have them turned back on and assume operational costs prior to closing for the purpose of inspection and appraisal.  If the property is being purchased using financing, the appraiser will require the utilities to be on. If they are not, the buyer will likely have to pay for re-inspection by the appraiser once all utilities are activated. Not only is this an expense, dealing with utilities for a home you don't own can be time-consuming and confusing.

•Inspection Costs
Most bank-owned properties are sold "as-is" and of course with no disclosures so often owner-occupant buyer's want a more thorough home inspection done and sometime these come at a higher cost.  Inspectors often encounter problems you will want to have looked at by a professional prior to purchase. All this must be done in what is usually a VERY short time frame after your offer is accepted so have your "team" of inspectors and tradesmen on speed dial if you are considering buying a foreclosure.

Other Real Estate Expenses
Title companies, lenders and real estate companies all have their own fees. Some sellers help buyers cover these expenses.  In the case of buying a lender-owned home, it's often a different approach than owner occupant sellers.  For example, the lender owner may offer to pay your title insurance if you use their title company but they may be offering a lower buyer's broker compensation than what your representation agreement states leaving you to pay the difference to your brokerage.

   Because I try to keep all my posts to a "less than 5 minute read" I'll stop there and pick up with another post about things to consider when buying a foreclosure.  In the end, knowing what to expect and having a good agent to walk you through it are necessary when considering buying a REO property.

Please search this blog for posts labeled Foreclosure Headaches for more things to consider when looking at unoccupied homes.

Empty Foreclosed Homes: What should I know?

Vandalism and Neglect of Foreclosed Homes

Damage is not uncommon in foreclosure properties and it may be caused by vandals or the former owners. Some corporate-owned properties are cleaned up from a vanity stand point but many are not... and I am not sure what's worse; seeing what you are getting into or having it covered up by fresh paint and carpet.  Here are some common issues regarding these empty homes.

•Removal of Valuable Items
To get revenge against the bank and to make an extra buck, the previous homeowners might remove items that had value, including appliances, fixtures, the kitchen sink, bedroom doors, closet doors, copper pipes and more. Anything the homeowners do not take might be taken by thieves. Either way, many bank-owned properties are missing things that generally come with seller-owned properties.

•Owner Vandalism
Broken windows can be common in REOs for several reasons. As mentioned previously, vandalism could be a cause. Also, when banks lock out owners while taking possession of the property, the former owners may break a window to get back in and retrieve their belongings. Previous owners may also purposely inflict damage at the bank's expense by putting holes in walls and/or tearing off the baseboards and crown molding.

•Random Vandalism
Sometimes when a property sits vacant, especially if it is in a moderate-to-high crime area, new owners will have to contend with graffiti, broken windows and other damage.

Be sure to check out my upcoming posts about other headaches you may encounter with purchasing a foreclosed home and contact a real estate professional experienced in purchasing foreclosures for help.
Search this blog for Foreclosure Headaches.