What are the pitfalls of buying a foreclosure?

Asked by Sbgatorsarah, Dallas, TX Thu Dec 26, 2013

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23
Michael Brow…, Agent, Allen, TX
Thu Dec 26, 2013
Pitfalls:

Since foreclosures are often offered at significant discounts, you may face steep competition and bidding from other buyers.

Foreclosures aren't always offered at a large discount. Homeowners in the pre-foreclosure stage may price a home higher than it is worth in the hopes of paying off a mortgage, taxes, etc. Banks are looking to recoup at least what's owned on the house, so they may only offer a slight discount.

If you are buying a foreclosed home at an auction, you may have to pay cash (the same day!) and may not be able to inspect the home before purchase.

Some lenders don't offer loans for distressed properties.

Foreclosures may need serious and costly repair. The previous owner might not have been able to afford fixes for the property and may have allowed it to fall into disrepair.

Some foreclosures, not all, may have been vandalized and looted; it's not uncommon to find major appliances missing, holes kicked in the walls and other vandalism.

Foreclosures tend to sit vacant for periods of time, which causes major maintenance issues. If a home is not maintained, its pipes could freeze, vermin and bugs could settle in and mold could grow.

You need to do your research -- a foreclosure can have liens attached to it. You may find yourself having to pay costly old debts associated with the property.

Foreclosures often are sold as is and banks often aren't interested in making or footing the bill for repairs.

At times, foreclosure buyers have to start eviction proceedings and pay legal fees to get the previous tenants/owners out of the home.

Purchasing a home from a lender can be a lengthy and time-consuming process that's full of red tape.
1 vote
Good reply! These can definitely be problematic for consumers!
Flag Fri Apr 11, 2014
Dallas Texas, Agent, Dallas, TN
Thu Dec 26, 2013
Stop listening to national news. You need to focus on local trends which are exact to the area.

Currently area coverage of MLS used by Realtors covers 100's of cities in Northern half of Texas 1038. Plano merely has 10 properties $156K up to $499K .

Pitfalls are:
1. Lenders can take forever to respond to sales offer
2. Many of properties are distressed family could no longer have money to maintain the home AND takes more money renovations than property is worth OR your time vested.
3. Some properties are 100% move in quality
4. Dallas is a healthy sales market our sales in DFW will exceed 2008 therefore lenders are not truly willing to offer deep discounts on properties vs. other areas in the country.
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1 vote
Cathy Browne, Agent, Plano, TX
Fri Apr 11, 2014
Buying a foreclosure is tricky because you don't know if there may be some hidden defects that would be costly. It may look like a deal, but may not really be one once it is all said and done.
0 votes
cortneykelle…, Home Buyer, 27932
Sun Dec 29, 2013
Most foreclosure houses are sold as is. They might be priced lower but you may also end up spending more in repairs.



-----
CFS Mortgage
http://www.whywaitbuytoday.com
0 votes
Kenneth "Ken…, Agent, Dallas, TX
Sat Dec 28, 2013
Many, pick 1 Realtor and work with them only on finding what you are needing/wanting.
http://www.tcrdallas.com
0 votes
Susie Kay, Agent, Dallas, TX
Thu Dec 26, 2013
Lots! And they are well described below by Bruce and Terry. Just with any other investment, typically when you invest in something that is more risky there's a chance of more return. For example, you invest in the bank in your savings account is less risky than the stock market but less return.

Foreclosure can be profitable, but you have to know how much and how long it's going to cost you to fix it up. If you are buying a home for the first time to live in and you are currently renting an apartment, the time to fix the home can be costly as you are still paying for your apartment as well.

Let me know how I can further assist you in finding your home, foreclosure or non foreclosure. You can call or text me at 469-371-2899 or your can check my website at http://www.dfwdreamhomes.net for the most current listing on the market.

Susie Kay, Realtor®
GRI, CHMS, SFR
Residential/Commercial/Investment
English-Indonesian-Hokkien
------------------------------------------------------------------
United Real Estate
III Lincoln Centre, 5430 LBJ Freeway #280
Dallas, TX 78240
469-371-2899
susie_k@att.net

http://www.dfwdreamhomes.net

Servicing your real estate need is my priority!
0 votes
Bruce Lynn, Agent, Coppell, TX
Thu Dec 26, 2013
There can be many.....some are....no seller's disclosure, often in disrepair, sometimes no inspection period, prior neglect can add to bigger issues....for example if previous owner never changed the air filters.....if the house has been empty washer can dry out on faucets and toilets. Often seller does not want to do repairs. Often the sellers only work M-F banker hours. You need something done on a weekend, they don't work weekends. They're not always motivated to close on time....so if for some reason the signer at the bank is not in the office, on vacation or whatever, they may sign the closing documents at their convenience, not yours. So you intended to close on Friday and move that weekend, and they're not ready until the next Friday. More expenses for the buyer, like buyer pays the survey, buyer pays home warranty, buyer pays repairs.
0 votes
Bruce Lynn, Agent, Coppell, TX
Thu Dec 26, 2013
There can be many.....some are....no seller's disclosure, often in disrepair, sometimes no inspection period, prior neglect can add to bigger issues....for example if previous owner never changed the air filters.....if the house has been empty washer can dry out on faucets and toilets. Often seller does not want to do repairs. Often the sellers only work M-F banker hours. You need something done on a weekend, they don't work weekends. They're not always motivated to close on time....so if for some reason the signer at the bank is not in the office, on vacation or whatever, they may sign the closing documents at their convenience, not yours. So you intended to close on Friday and move that weekend, and they're not ready until the next Friday. More expenses for the buyer, like buyer pays the survey, buyer pays home warranty, buyer pays repairs.
0 votes
Terry Farnsw…, Agent, Lisle, IL
Thu Dec 26, 2013
The pitfalls, and "cons" are stated well below:

1. No disclosures. The lender has never occupied the house, so they are under no obligation, nor do they often know, if there are any issues with the property.

This is really a moot point anyway, since you should be getting your own independent home inspection done prior to purchase, thus doing your own due dilligence to uncover any issues yourself.

2. Competition. These homes are often priced to sell initially. If not, the listing agent typically will correct the pricing within a relatively short period of time. It it's a desirable property, in a good location - you will undoubtedly be competing with someone else, or multiple people for it.

3. Condition. Often, as you can imagine, a homeowner isn't going to be too "keen" on getting evicted from his/her home. Sometimes these properties are purposely destroyed, or in pretty bad shape with anything and everything missing. Additionally, someone who is going to ultimately lose their home, probably isn't investing too much time or money into maintaining it. Since the foreclosure process can take a year or more, that's a long time for problems to arise and get worse if they are not corrected by the owner.

4. Dealing with lenders/banks/asset managers. You will be negotiating with a lender or a bank entity most likely with REO properties. They do not care about "what you want" and for the most part it's their way or the highway. You will likely sign an addendum with all sorts of penalties if you do not close, and they are held harmless for anything and everything. In return, you will often get a great deal if you can swallow your pride under closing. However, if you try to play hard ball or get cute - they will simply not respond to you and sell it to someone else without batting an eye.

Also - if you think "They better take my offer, because no one is going to buy this house at that price in that condition" - you'd be wrong.

Hope that helps!
0 votes
Thank you all for responding. My husband and I decided not to pursue the one we were considering.
Flag Thu Dec 26, 2013
Scott Johnson, Agent, Richardson, TX
Thu Dec 26, 2013
One mans loss is another mans gain...

Foreclosures are worth looking at if you are in the market for a home.

Prior to going into foreclosure homeowners will sometimes offer their house as a SHORT SALE. This is an arrangement with the lender to sell the house for less than what is owed in order to save the costs associated with foreclosure.

Buying in either of these situations is usually a longer process and comes with many more unknowns and risks.

We would be happy to sit down with you to understand what you are looking for and tailor a home search to your family's unique needs. We are active in all of the Northeast DFW Metroplex and believe that "Life is Relationships and everything else is just details!" We are excited about the opportunity to meet you and walk with you through the process of finding a home and the best part of using a Realtor to buy or lease a home is you get our expertise and experience for FREE! Check us out at http://www.FireBossRealty.com or at http://www.NortheastDFWHomes.com

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FireBoss Realty
469-269-0911
Web Reference:  http://FireBossRealty.com
0 votes
Gerald Feens…, Agent, Grand Rapids, MI
Thu Dec 26, 2013
Foreclosures can be more difficult than regular home sales if they have the property utilities shut off etc. But, you can get a great deal on distressed sales as well. Consult with your local trusted agent for all the details.
0 votes
Phil Rotondo, Agent, Melbourne, FL
Thu Dec 26, 2013
In short, hire a real estate agent who's familiar with foreclosures and can eliminate pitfalls.
0 votes
Terry McCarl…, Agent, Cape Coral, FL
Thu Dec 26, 2013
If purchasing a foreclosed home make sure you get the home inspected by a top notch home inspector. Foreclosed homes can be great buys but sometimes hidden damage exists left by the previous homeowner. As an example I once showed a foreclosed property that appeared to be in excellent condition which usually isn't the case with foreclosed homes. Upon close examination it was discovered someone had poured concrete down all the drains in the tubs and sinks.
0 votes
Christopher…, Agent, Tarrytown, NY
Thu Dec 26, 2013
One of the main ones is they are usually sold as is. You can do a home inspection but may find other damage, etc after closing and moving in. Many homes are damaged because the owner was upset that they couldn't keep the home. You may also be responsible for judgements and certain liens on the home.

Chris
0 votes
Annette Law…, Agent, Palm Harbor, FL
Thu Dec 26, 2013
There are many in regards to buying a not-rehabbed foreclosure..
The 'magic' relies on the buyer to be agile, quick, strong, knowledgeable and working with a good team.
-
The pitfalls range from being played as a shill, working with a lender who never intended to close, being a pawn in a court appointed trustee scheme, to buying a property with material or intangible defects.
Other than that, No problem.

Best of success,
Annette Lawrence, Broker/Associate
Remax Realtec Group
Palm Harbor, FL
727.420.4041
http://FirstLookHomes.com
0 votes
Sherry Renfr…, Agent, Frisco, TX
Thu Dec 26, 2013
Hi Sarah-

That is a very broad question! There are many pros and cons it just depends on what you are looking for in a home. There are some foreclosures that are in really bad shape and then there are some that are in pretty good condition.

The main problem right now is there are very few foreclosures so you are competing with a large number of offers. The lender will take his time and see how high the offers go. Usually when offers stop coming in they will pick the highest one. This can take a long time but it depends on the lender. Not all lenders do that.

This means that you will be paying well over list price for the home but keep in mind that might still be well below market value, depending on the condition of the home.

If you would like more information, please feel free to contact me. I have a handful of investors that buy only foreclosures and its getting harder for them to find one.

Best rergards,

Sherry Renfroe
Ebby Halliday Realtors
214-215-4145
sherryrenfroe@ebby.com
http://www.sherryrenfroe.com
Mobile Site: m.sherryrenfroe.com
0 votes
, ,
Thu Dec 26, 2013
#1 pitfall is the illusion of getting a 'deal'
In most cases too many people are looking at foreclosures, driving prices up to full market value


Tom Burris
Mortgage Banker
http://www.dallasloanguy.com/
(214) 763-4629 cell/text/nights/weekends(Really!!)
tburris@servicefirstmtg.com
Lending all across the entire Great State of Texas!!
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Search Dallas area MLS for FREE. No registration => http://www.ntreisinnovia.net/cgi-ntr/BR_login?0501134
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9yr Veteran navigating Mortgages for wonderful clients.
0 votes
, ,
Thu Dec 26, 2013
#1 pitfall: The illusion that you got a 'deal'
Too many people look at foreclosures looking for that deal, driving prices up to full market value in most cases.
0 votes
, ,
Thu Dec 26, 2013
The biggest risk with foreclosures is the repairs or condition of the property itself. They are more likely to not have been kept up or repairs made as need, be vandalized if they have sat vacant for some time, or have some things of value such as appliances and fixtures removed etc. This risk will be minimalized so long as you exercise good due diligence and you may be able to save significantly for little bit of extra homework you have to do.

Financing is readily available for foreclosures just as much as a seller's listing. With a foreclosure it happens more often where some repairs may need to be completed before the financing of the home can be completed. Your lender should be able to help you anticipate this based on your inspecition. Items that may need to be fixed first generally are things that affect the livability or safety of the home. If there is something it will generally be mentioned on the appraisal and it may be conditioned to be completed before financing can go through or an escrow to be created for you to be able to make the repairs shortly after closing.

Sometimes the financing and purchase may take a little longer with a foreclosure due to that some banks will take their time in making sure they review several different offers before accepting one.

You certainly will want to be prequalified and I would highly recommend being pre-approved as well. A preapproval will show that an underwritiner has already reviewed all your assett, credit, and income documentation and approved for your a loan of a certain amount subject to reviewing the property once you find one. Knowing that you have been preapproved versus prequalified will make your offer much stronger and more competitive because the bank will know that prequalifications are based on income and assett information collected verbally and hasn't been confirmed yet and that prequalification could change if the information provided ends up being less once it has been verified.

The advantage of a preapproval as well is many times you don't have to pay an application fee or appraisal fee upfront to have an underwriter review it. So you mainly are investing your time upfront in the work you have to do to prepare your documenation.

If you would like me to send you additional information on the pre-approval program or have more questions please let me know and I hope this helps. You may also visit my website if you wish to start the prequalification and even better the pre-approval process. Enjoy the rest of your holidays.

Anthony Regner NMLS 513607
Mortgage Loan Originator
Cobalt Mortgage NMLS 35653
anthony.regner@cobaltmortgage.com
512-659-1627
0 votes
, ,
Thu Dec 26, 2013
#1 pitfall..... the illusion that you actually got a deal.

Too many people looking at them drives prices up to full market value.
0 votes
Tim Moore, Agent, Kitty Hawk, NC
Thu Dec 26, 2013
Let's call it what it is. The foreclosure is over and gone. It is likely now owned by the bank and it is called a bank owned home (aka REO).

First understand the bank is selling as-is for the most part unless they need to do something because no one could get a loan as-is. Like having no heating system at all, or no roof. The home was foreclosed which can take years and more often a year or two from start to finish, so you know there has been little to no maintenance on the property for a while. Maybe not much cleaning too. So there will be issues with a bank owned home and the bank is selling it for what it is now, not what you want it to be if you do all the upgrades you want. So the bank is not going to discount it because you want stainless appliances and all new paint.

The good news is the bank will get 1 to several valuations on the house to know what it should sell for today. The bank usually asks for a little less and will accept a little less than list price - usually and little not a lot.

Another bad thing is that bank owned are hot investments and investors are out there ready to jump fast and decide later in the inspection period if they really want to buy it or not. Many come back on the market as the investor decides it needs to much, so watch them or get your agent to.

The #1 thing is you need to find a good agent to help you. It is free to you so why wouldn't you? All bank owned homes will be listed so you need a Realtor to work with.
0 votes
Michael Wilh…, Agent, McKinney, TX
Thu Dec 26, 2013
What you see is what you get. Also, what you don't see is what you get. Need knowledgable construction specialist to help you determine if property is suitable for your needs.

Thirty years in Architecture and engineering uniquely qualify me to be your REALTOR

Michael Wilhite
Fathom Realty
469-585-6061
0 votes
John Hamidi, Agent, Frisco, TX
Thu Dec 26, 2013
Sbgatorsarah

the issue with foreclosed home is that you do not get seller disclouser

you are taking a risk of not knowing any thing about history of the house

but you can hire a good inspector to inspect


but some time you get a big discount of the price

how important is to know about the house history ?
( what happened in time of the prior owner , for some it is very important to have a clear history like no murder at the house ,......)


let me know if I can help you to find an good house for you and family

Sincerely

JOHN HAMIDI
KELLER WILLIAMS REALTY
3600 PRESTON RD PLANO TX 75093
WEB: http://WWW.JOHNREALTYGROUP.COM

BUS: 469-252-4661
0 votes
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