Like many people you may have a desire to purchase a home in foreclosure. With all the foreclosed properties, there has also been extensive interest in buying these properties at a bargain price.
It is true that foreclosed properties can be priced at a significant discount, but they are also a much riskier investment. Before making an offer on a foreclosed property, do your due diligence, caveat emptor: buyer beware.
Foreclosed properties are very likely to be burdened with overdue taxes, liens and clouded titles. A buyer should do his/her homework and ask a local title company or real estate attorney for information concerning these outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale and various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property.
Prior to purchasing a property being foreclosed upon there are several steps that should be taken.
Do a title search – Make sure that when you purchase a foreclosure that you are the only person who has any ownership claim.
Determine occupancy – If there are occupants living in the home you may need to go through an eviction process through the courts. This can be time consuming and costly if the occupants do not move out willingly.
Check for liens – Find out if there are any liens against the property because you will be responsible for paying them.
Check for a second mortgage – You don’t want to be surprised by an extra mortgage that you will need to pay
Know how good of a “bargain” you’re getting – Foreclosures are sold “as is” and in many cases you will not be able to do a proper inspection. You may end up paying thousands of dollars repairing the property before it is fit to be lived in.
It is also important to consider that there are different types of foreclosure properties and each type comes with its own advantages and disadvantages.
The different types of foreclosure purchases are:
- Real Estate Owned (REO), also called “bank owned”