Problems With Buying a Foreclosed Home

Many foreclosure sales are excellent deals, but not all of them are. The amount of research you do before the purchase can make the difference in how yours turns out. If you have no experience, consider using a real estate professional to assist you, but you don't have to have an agent to purchase a foreclosure, particularly if you will be bidding at auction.

Financing

Depending on how you buy the property, you must have cash (for most auctions) or a financing commitment to make the purchase. When you apply for financing, ask your lenders if there are any bank-owned, or real estate-owned (REO), properties they can show you.

Title

If you're buying a property at auction, it is vital that you research the title to the property before purchase. Laws vary by state, but it is common to find taxes, utility bills and other liens that nobody is required to tell you about. A real estate professional who knows the area can help with this or you can use a title-search company, which can be found online.

Damage

It's often difficult to fully inspect foreclosure properties before bidding or making an offer, and many have been vandalized or been damaged by a long period of vacancy. Spend some time researching the costs of appliances, plumbing, wiring and contractors.

Nieghborhood

Drive around or walk the neighborhood at various times of day to get a feel for the area, and check with the local police precinct about the crime rate in the neighborhood. If you have school-age children or are going to resell the property quickly, it's also a good idea to verify the school district for the property.

Making an Offer

Buying a foreclosure does not guarantee you a bargain, even if you have done your homework. Lenders want to recover as much of what is owed them as possible and because foreclosure prices are based on the previous mortgage, not all sales prices will be below market value. Ask a broker or agent for a list of recent sales in the neighborhood and set a firm maximum price accordingly. Be sure to leave yourself enough money for repairs and redecorating.

References

• How to Buy a Foreclosure, by Amy Bickers, Associate Editor From Kiplinger's Personal Finance magazine, June 2008
• Buying Foreclosure Properties Has Its Rewards, but Also Risks, by Jeff D. Opdyke From The Wall Street Journal Online February 13, 2007
• Foreclosure 101

Resources

• Foreclosure listings by subscription
• Listings and educational articles
• Good local price comparisons - Zillow.com