Foreclosed properties are on loan properties that former owners were unable to settle with the bank. These are often sold at great prices (sometimes at 30% lower than actual value) because the bank or lender wish to recover their investments quickly
Here are some facts on buying foreclosed properties, and some tips on how to avoid common pitfalls and risks.
1. FInding the right agent.
Some agents specialize in foreclosed properties, or at least have some experience in handling these types of negotiations. Ask your agent about the cases she’s handled, or at least, to refer you to someone who has. Many sellers want to course discussions through a ‘professional’ and would rather not deal with unrepresented buyers.
2. Looking for foreclosed properties
You can find the list of foreclosed properties that are up for sale in your area by searching newspapers and the Internet. Some banks may have lost of foreclosed property lists (they call it REO or real estate owned). You can also visit websites like fanniemae.com and your government’s department of housing and urban development.
3. Checking the property value
The size of the property isn’t the only thing to consider. Look at the location, and like in all other househunting, check the property and inspect it for damage, maintenance issues, etc. You should also check the values of other properties in the area, especially those that have similar size. This will give you an idea of whether or not the price can really be considered a bargain.
4. Checking for back fees and liens
Find out whether or not there is a backlog of unpaid property taxes and if you are responsible for the payments. If not, make sure that this is clearly stipulated in the contract.
5. Investing in foreclosed properties
Some skilled investors have turned foreclosures into a business. After purchasing at below market-value prices, they’ll fix it up and then sell for a profit (commonly called “flipping.”). But the key words are skilled investors. There are more risks in buying foreclosed properties. Some need expensive repairs, and you usually deal with owners who are in distressed situations. Often you need to buy in cash. Prepare for the legwork and the mound of legal paperwork. And don’t just familiarize yourself with property documents—know them by heart!
6. Protecting yourself
Always ask for property documents like certified true copy of land title. Be sure to check its history; it may have a pending court case and you’ll end up with a property tied for years in legal proceedings. The irony of foreclosures is that you need to be more thorough and diligent about checking the details, but you don’t have much time to research since many people are vying for the property.
First-timers are advised to purchase foreclosed properties through banks for secure and transparent transactions. They are required by law to practice full disclosure of the condition of each property.