Buying a Foreclosed House
UPDATED: October 24, 2013
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Buying a foreclosed home can save you money. But you must watch out for difficulties in the purchase. A foreclosed home is usually bought at a public auction or through a real estate agent/lender.
Buying Foreclosed Property at a Public Auction
Buying a property at a foreclosure auction can result in a good deal. The home may be purchased at a great discount, and if you wish, later sold for a profit. But, be ready for problems along the way, and that your dream home may be in reality a fix-upper. Aside from the potential problems, finding bargains at a foreclosure auctions may be enough incentive to override the issues which may come up.
Required Cash or Certified Funds for Purchase
Bidders are often required to bring sufficient cash or certified funds to pay the purchase price at the time of the auction, or within a short period of time. It is seldom possible to take out a mortgage to purchase the property at a foreclosure auction. It is a good idea to attend an auction before your own bidding to find out the specific requirements.
Property in Poor Condition
Often, the foreclosed property is in bad condition. Bidders at foreclosure auctions buy these properties “as is” and are often unable to inspect the property before purchasing it. Appraisals are usually based on the appraiser’s examination of the outside of the home because the borrower is usually still living there. If the borrower isn’t in the house, it could be in an even worse condition because it has been abandoned and left unsecured. Also, borrowers who leave a house after a foreclosure sometimes, unfortunately, vandalize the home or remove fixtures and equipment. An abandoned foreclosure property could be gutted. What looks like a bargain might actually be a bad deal, once you get a look inside.
Finally, some foreclosure sales are subject to redemption by the borrower. That means the borrower can pay the buyer the purchase price, plus some costs and interest, and the buyer is forced to give the property back to the borrower. In those cases, the buyer loses the use of the purchase money and sees only a nominal gain for the trouble.
Buying a Property Purchased by Lender
Buying a property at a foreclosure auction is different from buying one that has already been purchased by a lender as part of the foreclosure process. Once the lender reacquires the property in a foreclosure it is called an REO (real estate owned). These are usually cleaned up and marketed by lenders who would prefer not to keep them and consider offering a reasonable discount.