Drawbacks to Buying Foreclosures

Buyers seeking properties at a bargain price in the Pekin Real Estate Market,  often look at the advantages of saving money and neglect to consider the many possible disadvantages.

These are some of the disadvantages you should take into account before you make an offer on a foreclosure property:

q    In general, as the popularity of speculating on foreclosure property increases and more people are competing for the property, prices increase and bargains are fewer and more difficult to find.

q    The competition to buy pre-foreclosure properties is stiff and homeowners are unlikely to offer the property at less than the outstanding mortgage value plus realtor fees.

q    Auctions are extremely risky … not recommended for the novice. Here’s why:

·        Individuals have little chance to save money at an auction. Auctions are dominated by investors and bank representatives who are very experienced in bidding and have access to information not available to the individual. Many banks buy their own properties. If there is a bargain to be found, they will find it.

·        Bids are sealed … bidding is not interactive

·        Bidders are not allowed to inspect the property before bidding nor are they informed of its condition.

·        Bidders are not given access to any legal information about the property including title, lien, bankruptcy, tax, outstanding debt or other mortgages. A full-blown title search alone can cost $400 or more with no assurance of winning the bid.

·        The winning bidder must pay cash … a letter of ‘pre-qualification’ will not suffice.

·        The winning bidder is responsible for paying off previous liens, taxes, utility debt, second mortgages, etc. on the property.

·        In some states, foreclosed homeowners have a right to reclaim their property within a certain period of time (30 days to 360 days) so the winning bidder is advised to postpone occupying the property or improving it during that time.

Aside from the possible problems facing the winning bidder at an auction, these problems can occur at any phase of the process:

q    The burden of researching encumbrances to the property falls to the buyer.

q    The property may be poorly maintained. Owners facing foreclosure likely did not have the funds to perform even routine upkeep on the property.

q    Items normally included in a sale may be missing. Owners, upset by the foreclosure, may have taken the appliances (ranges, refrigerators, washer/dryers, dishwashers) or fixtures (ceiling light, window treatments, garage door openers) or landscaping (trees, bushes).

q    The property may be vandalized. Thieves or owners, angry at the foreclosure, may have trashed the property.  Inspectors have found homes stripped of everything from kitchen cabinetry to plumbing, wiring, and even structural elements. Others flood the property by plugging drains and turning on the water faucets or smash walls

q    The owner may refuse to vacate the property. In this case, the buyer needs to initiate eviction proceedings … a very costly and lengthy legal process.

q    The property may be rented. If the renter has a valid lease and refuses to vacate the property, the buyer may have to honor the lease.

q    The property, if vacant for a period of time, may present other challenges.

·        In a humid climate, a closed house often develops moisture problems. When there any water leakage, mold forms within a very short time. Mold, left unattended for long periods of time, can virtually make a house uninhabitable.

·        In a cold climate, pipes may burst, flooding the house and creating mold.

·        Valves, gaskets, or hoses in appliances and plumbing fixtures dry out if unused, creating gaps and leaks.

·        Waste products in the sewage lines harden when unused, creating blockages.

·        Insects, rodents and other creatures may find a haven in overgrown vegetation or gain entrance to the house through broken windows or doors or tiny cracks.

Summary

The foreclosure market brings the promise of money savings … at the cost of considerable risk.

Although the incidence of the situations listed here may be rare, they do occur and the buyer definitely needs to be aware of them before, not after a purchase.

And a novice in the foreclosure market should always seek the assistance of a realtor experienced in buying foreclosures.

For customized service when buying a home in the Pekin Real Estate Market, visit us at www.livinginpekin.com or contact us directly at 309-241-0313.