It’s a hard reality of the current difficult economic times that sometimes a mortgage owner no longer has the means to continue to make their regular payments to the institution that granted the loan. The typical end result of such a personal calamity is having the institution (such as a bank or credit union) take possession of the property. The legal process for such an action is called a foreclosure. The defaulter has to vacate their property and the institution attempts to recoup their losses by selling the property, sometimes at much reduced rates.
There are both pros and cons when purchasing a property that has gone into foreclosure. We’ll look at a few of them in this report. The single biggest advantage of purchasing a property that has been placed in foreclosure is the opportunity it presents to buy a home at an attractive price. By the time the bank has had to take this difficult step they are hoping to receive some return on their initial investment, namely having provided the original mortgage.
As the bank is not interested in holding onto the home for any length of time they will typically sell the property at a discount, sometimes a significant discount, just to have the bad debt removed from their books. Shrewd purchasers have an opportunity to purchase a home that they may not otherwise have the means to buy. Properties of all types can go into foreclosure, from holiday cabins to seaside luxury homes. For the residential bargain hunter a foreclosed property could be the deal of a lifetime.
But there is also a downside to purchasing a property that has gone into foreclosure. The most significant one is that a home sold under these conditions is sold on an as is basis. If there is a problem, or if repairs or restoration is needed that will entirely be the task of the new owner. If a mortgage defaulter knows they will be losing their home, they will not typically spend any money on the upkeep of a property they will eventually lose.
If a foreclosed property is purchased it’s best to acquire it as soon as the prior owners depart. In that scenario the home will be in the best condition possible. Sometimes a foreclosed home will sit unattended for weeks, months and under extreme cases years, making them prime targets for the development of any number of costly problems. The odds are very good that an empty home in foreclosure will not be receiving much in the way of care or preventative maintenance while sitting empty.
Areas of neglect to watch out for when purchasing a foreclosed property include (but are not limited to) infestations of insects or vermin, broken pipes or long term water damage, mold build up, wood rot and the possibility of vandalism if a home is left unattended too long.
So is purchasing a foreclosure property a good idea? That of course depends on the property, the situation and a host of other factors. If a deal seems too good to be true it normally is. Expect that if repairs are needed they might be costlier than anticipated, or that some unexpected issues might arise.
That being said, there are also some exceptional deals out there. The important thing is if interested in exploring this form of property acquisition contact your Real Executives Mid Island REALTOR® for advice before making any purchase. They will understand the issues, rewards and pitfalls and can provide advice on the best way to proceed (or not proceed) if interested in purchasing a foreclosed property.