As of this August, home foreclosures are at an all-time high across the country. Although low sticker prices might tempt many first-time home buyers to invest in a house that’s been foreclosed upon, putting your money into bank-owned property isn’t always a good decision. Here a few things to keep in mind if you’re on the market for foreclosures:
- Can you pay the liens? One of the main reasons foreclosures are sold below market price is that they typically come with liens attached to the title. Liens are fees attached to the home – often unpaid property taxes and heating or power bills – that were incurred by the previous titleholder. If you barely have enough to afford the mortgage on a foreclosed house, you don’t want to be slammed with back taxes as soon as you close the sale. Make sure you read all legal and financial documentation beforehand so that you know what you’re getting yourself into.
- Are you willing to repair it? Because many bank-owned properties go uninhabited for months, they’re often in a state of disrepair by the time they find a buyer. As a result, you should inspect every foreclosed home thoroughly and factor in the price of repairs and remodeling to your total estimate. If you’re determined to keep costs low and you have the time and resources to make the house habitable, a foreclosure can be a very appealing option.
- Can you handle legal issues? Every foreclosed home has a legally embattled past, and given all the robo-signing scandals that have been coming to light recently, there’s a chance that you could be walking into a legal quagmire. If a home was foreclosed upon without proper legal documentation – hence the “robo-signing” – it’s possible for the previous owner to sue for possession of the house. Although a real estate owner’s insurance policy will protect you as a “good-faith buyer,” some insurance agencies won’t issue policies to houses sold by lenders involved in the scandals.
The old saying that “everything comes at a price” is especially true with foreclosures. What you save financially when buying a foreclosed home will come back in the form of repairs, fees and maybe even a lawsuit. However, despite these drawbacks, foreclosures can still be a great real estate investment if you’ve got the time and determination to get them sorted out.