Unless you can write a check for the full amount of the price of the property you do not want to try to buy a foreclosure. Mind you, I have successfully helped my buyers purchase a foreclosed property in my career but it seems that the owners of these properties have gotten especially cold blooded and brutal to the point where I am saying Run for your life.
For starters, usually these properties have â€œissuesâ€. Issues with title, issues with the functionality of the plumbing or electricity or the roof or maybe a mold problem. Years ago we could use Â an â€œas-isâ€ contract and as long as the cost to cure was not 5% or more of the total purchase price we would close the deal and the buyer could fix the problems. Nowadays the lending institution helping the buyer is more focused on the collateral so these things will need to be fixed before closing. But the seller, the bank who owns the foreclosure, will refuse to spend another dime so your Fannie Mae 20% down loan just became a FHA 203K Rehab loan that insures all of these things get fixed after closing.
And letâ€™s talk about title. Foreclosures quite often have a â€œcloudâ€ on title because it is a foreclosure. Something wasnâ€™t done right in the paperwork that led to the foreclosure and there are outstanding liens of one type or another. I once had a home that had a $100 a day water fine that went on for four years. Thatâ€™s a fine of $136,000 on a house that sold for $78,000. We had to wait for a hearing with the town of Lake Worth before we could close. It took us two months to settle that debt.
From what I learned today, the FAR/BAR contract that realtors use has changed a little in that the municipal lien search that is a part of clear title is no longer included in clear title unless the buyer takes it on his own to order it. Many title companies still do the search because they have a conscious and they are professional but on my deal the bank didn't feel obliged to spend the $210 to make sure the buyer doesn't have a $136,000 water lien. It is your duty as the buyer to order the municipal lien search, analyze it and see that this gets done during the inspection period of your contract which is normally within the first 5-10 days of the process.
And by the way, the title company, who is stationed out of India will gladly inform you of this after the inspection period of the contract is over so you are on the hook to buy this mess one way or another. And for every day you are late over the contract date, they will charge you a $100 because that is how their contract is written.