Question Details

Sara P, Home Buyer in Massachusetts

What should I know before considering buying a home under foreclosure?

Asked by Sara P, Massachusetts Thu Sep 27, 2007

We've seen two homes whose owners are in financial problems, but our realtor seems afraid for us to even make an offer. They both look as if they ran out of money while they were renovating, as some things are unfinished. The realtor doesn't seem to trust the people selling the house and advised us to forget it...However both of these homes are clearly priced under market value. What are the issues when you buy a home scheduled to go to foreclosure? The obvious advantage would be getting a place at a good price, but what are the drawbacks or issues of concern that we should be looking out for?

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Hi Sara. Welcome to Trulia voices. You don't mention what kind of financing you have in mind for these properties. Are you paying all cash or will you be getting a conventional loan. If you count on getting a loan, buying something that is not finished may become a problem. Since I don't know what still needs to be done, I can't even try to comment. If conventional financing is not an option, you'd have to get a different kind of a loan (e.g., rehab loan) and you'll pay a higher interest rate. Then, once the property is finished, you'll have to refinance or sell if you don't plan on living in the house.
When you make an offer on a house that needs work, it really only makes sense if you can do the work yourself. You don't mention who would do the work if you were to buy these properties.
Since your agent knows your situation much better than I do, he may very well have a good reason for being concerned. I am sure he does not want you to end up in the same situation that these owners finding themselves.
In general, foreclosure purchases should be apprached with caution because oftentimes the properties are in rough condition. In the case of those two houses, it sounds like perhaps they are not yet bank owned so that you would at least get disclosures from the current owners. It is also possible that these are short sales which means that the owners owe more money than what the properties are worth in the current market. If that's the case, any offers would have to be approved by the lender(s) and these days that can take 3 months or more. It sounds like your agent has your best interest at heart and you should listen to him.
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0 votes Thank Flag Link Thu Sep 27, 2007
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
HI Sara,
If you proceed, do it with caution. Your REALTOR probably has good instincts and I would listen to his / her advice. If you proceed, I would be sure to make the contract contingent on having a home insprction, and maybe even an engineering assessment. If it is in forclosure, or going into forclosure, it will no doubt be sold "as is". But you should at least be able to have those inspections for a recision right. Did the previous owners ever have permits issued for those unfinished renovations ? Just a thought.
0 votes Thank Flag Link Thu Sep 27, 2007
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