Is Buying a Foreclosed Home a Good Idea?

Homebuyers, real estate investors and market conditions have made buying a foreclosed or bank-auction home more common in recent years. While certainly not for everyone, some people believe buying a foreclosed home is an easy way to make money. Others are DIY-ers interested in renovations and have a high tolerance for risk, or they expect they'll have fewer competitors and a simpler purchasing experience. For many buyers and investors, purchasing a foreclosure home can be risky and complicated. This article highlights a few of the common issues and challenges associated with buying a foreclosure home.

Save Money? Sometimes, But Not Always

The main attraction of a foreclosure home for buyers is a below-market purchase price. Auction rules vary by jurisdiction, but typically, homes are sold in as-is condition, so a deal on the original price may be less attractive once the cost of repairs and renovations are factored in. Some types of foreclosures accommodate home inspections, but, in many cases, you may not even have the opportunity to conduct a simple walk-through prior to bidding or purchasing the home. With little or no time to determine the true state of the property, the risks of unexpected costs and problems increase. In some cases, foreclosure homes aren't well-maintained or have sat empty for a considerable time before the sale. If you're looking for a home in move-in condition, buying a foreclosed home is a significant risk.

Buying Process Can Be Complicated

Buying a foreclosed home can sometimes be quick and easy, but the process is strictly regulated and often complex. Title searches, conditional sales, auctions and legal procedures differ from traditional home sales. Foreclosed homes come with both the property and the title in as-is condition. There may be undisclosed liens on the home — for example, second mortgage or HELOC liens or contractor, subcontractor or personal liens, such as a lien placed according to a divorce judgment. Bankruptcy filings and foreclosure judgements can also impact a foreclosed home sale. Occasionally, a foreclosed home remains occupied even when a sale has concluded and you, as the new owner, need to deal with the situation within applicable state and city laws. Bank and legal paperwork sometimes takes longer to complete. The auction process itself is sometimes intimidating, but attending a few auctions before you start bidding can be an excellent way to better prepare.

Real Estate Expertise Can Help

Consider calling in the professionals to help you navigate the auction and legal processes for buying a foreclosed home. An experienced real estate expert can guide you through the potential obstacles and clarify the investment risks and opportunities. This could make all the difference between a smooth and profitable foreclosure home-buying experience and one with difficult-to-resolve issues and unexpected challenges.

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