Purchasing a foreclosed property is frequently promoted as a way for both owner-occupants and investors to obtain an excellent deal on a property. However, the potential financial rewards are rarely obtained without considerable effort.
Foreclosed properties share several common issues. Additionally, there are some common difficulties associated with purchasing one. While foreclosures can be excellent investments as fixer-uppers, whether for personal use or resale, they frequently come with complications.
Foreclosed Properties Problems
The most critical point to remember before shopping in the foreclosure market is that these properties are being surrendered by homeowners who can no longer afford their mortgage payments. In these instances, the property may have been neglected—after all, if the owner is unable to make the payments, they are almost certainly falling behind on regular upkeep as well.
Additionally, some people who are forced into foreclosure become enraged by their circumstances and take out their frustrations on their homes before the bank reclaims them. This frequently entails the removal of appliances and fixtures and, on occasion, outright vandalism. After the occupants vacate, foreclosures often become magnets for criminal activity.
Upkeep and Condition
Maintenance and condition issues can arise in foreclosed properties because of the circumstances surrounding the previous owner’s departure and the length of time the property may have been vacant. Among the primary concerns are the following:
Bank-owned properties can become filthy because of time spent vacant, deliberate neglect by the previous owner, or occupancy by vagrants. When a home is sealed up for months without air circulation, built-up dirt can cause the entire structure to smell.
Renovations Done Wrong
The previous owner may have altered the structure without obtaining the necessary permits. A common example is converting the garage into additional living space to accommodate more people. These modifications may be uninviting to new owners or cause them headaches with local government officials.
If the previous owner began improving the home but ran into financial difficulties, there may be unfinished interior design work. The bathrooms may be renovated while the kitchen remains untouched for several years, or the living room may have new flooring while the bedrooms retain their outdated carpeting.
Additionally, if repairs were made, they may have been carried out by the owners of unlicensed professionals—in other words, individuals who may not have performed the work properly.
Electricity is Unavailable
Without occupants, the electricity may be turned off, unless the bank has purposefully kept it on. Without light, certain rooms, particularly basements and windowless bathrooms, can be difficult to see what you’re purchasing.
Damages Caused by Water
A small leak beneath the kitchen sink can result in mold growth, while a roof leak or burst pipe can result in significant water damage. Without someone to address issues as they arise, small problems can quickly escalate into major problems, and major problems can devolve into disasters.
Inadequate Basic Maintenance
If the previous owner struggled to make mortgage payments, you can bet they struggled to repair leaks, termite damage, broken garbage disposal, or anything else.
Grounds that are Decomposing or Overgrown
Depending on the climate, the lawn and landscaping may be completely dead or severely overgrown. Generally, banks do not pay for someone to maintain a foreclosed property.
Personal Property Ignored
Occasionally, foreclosed homeowners are locked out of their homes before they can remove their belongings, and in some cases, they do not remove everything. Numerous foreclosed real estate (REO) properties contain furniture, trash, clothing, and other items that you will be responsible for disposing of as the property owner.
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Vandalism and Ignorance
Damage is not uncommon in foreclosure properties, and when homes are vacant for an extended period, they can easily fall into disrepair due to neglect. In severe cases, it may be the result of vandals or even the previous owner.
Random Acts of Vandalism
When a property sits vacant for an extended period, particularly in a moderate- to the high-crime area, new owners may face graffiti, broken windows, and other damage.
Vandalism by the proprietor
Broken windows are a common occurrence in real estate owned properties for a variety of reasons. As previously stated, vandalism could be a factor. Additionally, when banks lock out owners during the foreclosure process, the former owner may break a window or door to retrieve property.
In rare or extreme cases, previous owners may also intentionally cause damage to the bank by punching holes in walls or ripping off baseboards and crown molding.
Removal of Precious Items
The previous owners may remove valuable items from a foreclosed home, such as appliances, fixtures, doors, and copper pipes. Thieves may take anything that the homeowner does not take. In either case, many bank-owned properties lack features that are typically associated with seller-owned properties.
Despite these potential drawbacks, foreclosures can still be an excellent value. If you are willing to deal with issues that the majority of people avoid, you can purchase a home at a significant discount. However, you may run into additional difficulties if you purchase the property and renovate it to move-in condition.
Difficulties With Lenders
Purchasing a home from a lender presents challenges due to the increased level of bureaucracy and lack of transparency available to those who purchase foreclosures.
Lenders will not finance a home that they deem uninhabitable or that appraises for less than the purchase price. Naturally, if you are a cash investor, this will not be an issue.
Delays in Communication with the Owner Bank
While common sense dictates that banks should want to sell real estate owned properties as quickly as possible, banks frequently drag their feet when considering offers and during the escrow process.
There are No Seller Disclosures
Because no bank employee has ever lived in the property, they are unlikely to be aware of any existing issues with the property. You will need to discover everything on your own during the home inspection, through neighbor inquiries, or the experience once you become a homeowner.
Because foreclosed properties can be excellent deals, they appeal to investors looking to flip properties or rent them out. Because investors can make all-cash offers with fewer or no contingencies and quick closings, their offers may be more appealing to the bank than those made by would-be owner-occupants.
Be Wise on Investing Foreclosed Properties
There is money to be made in foreclosures, but you should be aware of the risks and carefully select your property. Don’t overlook the fundamentals that contribute to a property’s desirable characteristics simply because the purchase price is low. Additionally, you should conduct extensive research on financing options for foreclosed properties.
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