There are certainly many instances when buyers of foreclosed homes have benefited greatly in today’s “Buyers Market” due to favorable pricing and great values without issues. This is true for buyers who are owner occupants as well as for investors.
However, there are many instances where naive buyers have truly gotten “burned”. Their money pit could have been avoided had they had a qualified and trusted Broker represent them when considering a purchase of a foreclosed property.
Among the many things that could go “bad” are:
- Property Conditions. The bank is exempt from completing a Sellers Property Condition Disclosure form. This places increased pressure on Buyers to conduct their own due diligence to better ensure that they are not buying a “money pit”. Always have a through home and property inspection and negotiate the right to withdraw and terminate a Purchase/Sale Agreement if there is discovery of repair items beyond that which makes you comfortable. In many instances, the previous owner (who had gotten behind on their mortgage payments) had probably not been spending the money necessary for ongoing or preventative maintenance. Furthermore, the savvy Buyer Broker will advise their client to negotiate a contingency requiring the Seller to disclose the results of previous inspections and/or known adverse conditions (ie. such as a previous Sales Agreement that was terminated due to mold in the crawlspace).
- Buying As Is/Where Is. Expect to purchase a foreclosed property under these terms. However, many Buyers and their Agents overlook negotiating a contingency which protects the Buyer from having to go through with the purchase if the property condition deteriorated following the Binding Agreement Date of the Agreement (or from the expiration of the Inspection Period) through the day of closing.
Example, there are instances where either due to vandalism, hail storm or flood, considerable damage to the vacant property has occurred right before closing! Buyers, without the recommended protective contingency, have gotten “stuck” with excessive repair costs beyond what they had originally planned on.
- Bank Required Addendum. Often times submitted by the Seller well after Verbal Agreement between the parties, this one sided document can be as many as twenty pages long. The first sentence generally states that this supersedes any and all documents and agreements between the parties. The second sentence then states that the Buyer must relinquish their first born child to the bank (I kid, but it’s not too far off). Be advised that these documents often times include a Right of Redemption (without time limits) which enables the previous owner the right to redeem and “depossess” you from the premises in the future.
Granted, this is typically a low risk (as the previous owner is unlikely financially able to recover the property). However, how many times do families receive an inheritance, win the lottery, ect. It is possible! How would you like to be “depossessed”?
- Title Insurance. Buyers are strongly urged to have a Title Insurance Policy, particularly on Foreclosed Purchased Properties. However, are you aware that such a policy will not protect the Buyer on an acreage dispute, for example, if you elected not to have a survey done before closing? Big mistake! I know of one instance where the buyer thought he was getting eleven acres but only was conveyed five acres. The buyer found this out three months after closing upon getting notice from The Property Tax Assessor Department. Many thousands of dollars were spent fighting this matter in court!
Call me to help you, your friends or family when buying foreclosed properties in Middle Tennessee.