Downsides to buying a foreclosure?

Asked by Dan Wilde, San Diego, CA Tue Jun 16, 2009

What are the drawbacks to buying a house that is going through foreclosure? I'm noticing that most of the good deals are on houses that have started the foreclosure process and I'm wondering if it's worth my time to look into these or if there's usually a catch with foreclosed properties.

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Denise Gleav…, Agent, Claremont, CA
Tue Jun 16, 2009
Hello Dan,

Jim's advice is good. As a local San Diego agent I would like to ad some info about the pre-foreclosure/short sales. Usually about half get accepted, they are listed below market to get an offer in to send to the lender and end up with multiple offers bidding the property up to fair market value. The better areas of SD get the better prices for the lein holder not the buyers. In the outlining areas where there are more short sales, then you can be a deal... it may take 10 offers to get one.

As Jim stated, the bank owned (REO's) are good to purchase. The response time for an answer is days, not weeks or months like a short sale. Some of them are starting to have the home cleaned up, painted and installing new carpet to help with the sale. The banks don't want these homes on their books. They are usually on the low end of the comparables and many of my buyers got their closing costs paid as well.

There are still downsides to buying bank owned properties. There is no disclosure from the bank because they have never lived in the home so they have no knowledge of things gone bad in the past or may be hidden. They have tons of hoops they want the buyers to go through. These are the more major drawbacks.

It is best to find a realtor that has worked with these types of sales and that will guide you through the ups and downs of the process. If you should need a realtor, please feel free to give me a call. I see you are in the North Clairemont and I'm in the South Clairemont area. I've been selling here since 1988. Would be more than happy to discuss more with you.

Have a good day.
Denise Gleavey
Coldwell Banker

Both types of sales are usually as is... no repairs will be done after you have had your physical inspection.
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Katrina Hami…, Agent, San Diego, CA
Wed Jun 17, 2009
Hi Dan,

All the answers have alot of great information! I would like to add a short sale is prior to the bank taking the property back and the owner does have to have an approval from their bank on a fair market price that the bank will accept and allow the current owner to sell the home for. This process is what takes so long. When purchasing a short sale the owners of course are responsible for providing the standard disclosures with the transfer of the property and disclose any knowledge with any defects the property has. When purchasing a foreclosure, the bank is selling the property and is exempt from providing this information since they have no knowledge and have never occupied the property, "AS IS" - you'll definately want to do your homework and spend the extra $200-$500 on a home inspection. Price is usually based on the size of the home.

I list and sell foreclosures directly for the bank all over San Diego County, although my website is mainly focused on downtown San Diego, I do work all over the county. If you'd like some additional information regarding short sales or forelcosures please feel free to contact me direct or via my website.

Katrina Hamilton
Direct: 858-405-4407
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Jim Swanson, Agent, Tacoma, WA
Tue Jun 16, 2009
The downside to buying a house pre-foreclosure, or in a short-sale position (this means the house is listed and being sold for less than what is owed on the home) is the time it can take to buy the home. Yes, the listing price can be great, but keep in mind the lein holder has to approve any offer before the home can be purchased.

I have guided buyers to look for the post-foreclosure, or bank-owned homes if they cannot afoord to wait 60-90+ days. Generally speaking, bank owned home is simpler to purchase, and from my experience, easier to buy due to the fact that they are vacant, and the bank now owns the home and has listed it directly with a real estate agent that generally specializes in those listings.

I hope this helps with your question. I am from Tacoma WA, but was stationed in San Diego (a long time ago), and love to visit when I can.

All the best!
Jim Swanson
Windermere Real Estate
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Teddy Jagess…, , Wellington, FL
Sat Aug 1, 2009
The main thing with a Bank Owned property is that the title is the cleanest, as it wipes out any and all liens that does not trump the first morgage ( eg Property taxes). You generally get what you pay for a clean oftentimes sell for a better price than a gravely distressed one, however you have to pay to bring a distressed property up to you needs - upside you get to choose your renovations and even can do some of it yourself , saving even more. Most buyers make a mistake of dismissing a gem that only needs painting and cleaning up which will then translate to a huge equity gain. They should worry about major problems - functional, of dated or somethings that will cost thousands to fix. You just have to take the price add an estimate of the cost to repair and a percentage overage and minus that from current fair market value to see if it make sense.
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Kathy DeLong, Agent, Lake Arrowhead, CA
Sat Aug 1, 2009
Bottom line I think is "You get what you pay for." I know some of the repo's have great price tags; but they (MANY) come with laods of problems, some you may not discover until after you're handed the keys. You get no disclosures, no warranties, nadda. Make sure you have a good home inspector give the place a GOOD going over before signing off contingenices.
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Teddy Jagess…, , Wellington, FL
Tue Jun 23, 2009
Buying a short sale is becoming quite easier. Preview as many as you can and choose the one that has the least deffered maintainence, unless you have the money to bring it up to your standards then go for one that is poorly maintained. Bear in mind that many times the seller's lenders are not aware to the actual condition of the property. The listing agent may argue the poor condition but seeing is beleiving. Short sales are great deals but they come with little strings eg. you may wait 3 months get rejected and have to look all over again, however a strong listing agent can get it done.
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Joan Wilson, Agent, San Diego, CA
Tue Jun 23, 2009
Probably the worst part of buying a pre-foreclosure is, making an offer on the house, 6 months down the road, getting an accepted offer, and the house has been run into the ground. It doesn't always happen, but think about it...these people have no money, and the house gets beat up and has "deferred upkeep".

Just be aware that you need to be diligent what ever you buy.

Good luck,
Joan Wilson (Realtor, SRES, Ecobroker)

California Cool 4 Sale
Prudential California Realty
Direct Phone: 760-757-3468
Fax: 760-946-7894
License # 01341483

It is my Goal to Increase the Success and Profitability of Those I Serve
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Tara Steinke, Agent, San Diego, CA
Tue Jun 23, 2009

It is worth your time to consider short sales and foreclosures equally. Especially since they are dominating the market. One thing to be understood is that short sales should also be considered "distressed sale" transactions because the seller lays the claim "I have no money" and so the transaction because an "as is" take it or leave it situation much like a foreclosure. Now, after you have entered escrow, short sales tend to be less stressful because you do have more time to inspect the property and secure full loan approval. Foreclosures typically require signature of bank addendums that include the automatic (or "passive") removal of your contingencies after 5-10 days (standard removal with a short sale or normal sale is in writing and most often within 17 days of acceptance). After that "automatic" removal of the contingencies (once the specified time period has lapsed) the bank has the right to and WILL keep your good faith deposit if you back out.

Have an aggressive agent.... that's your best opportunity for a deal in this market. Or consider purchasing at Trustee Sale. There's a local San Diego-based company that can assist buyers by providing the 100% liquid funds needed to do so. Contact me if you would like more info on that.

Best of luck!

Tara Steinke
San Diego Real Estate Specialist
Residential Sales and Appraisal
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Bill Eckler, Agent, Venice, FL
Wed Jun 17, 2009
There is a difference between "foreclosed" property and property that is in pre-foreclosure. Foreclosed property can usually close in a normal amount of time but pre-foreclosure may take 4-6 months to close and buyers are often frustrated by the fact that they went through this waiting period only to find the home is being sold to another buyer.
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