Problems With Foreclosed Houses

Before buying a bank owned home, it's important to consider common problems associated with foreclosed houses, including structural damage and building code violations.

REO Properties

Homes that have been foreclosed and are owned by financial institutions are called REO, or real estate owned. Although most banks prepare homes for re-sale, the glut of foreclosures in some areas has caused a backlog of maintenance issues.

Flip or Fail?

It can be tempting to "pick up" damaged bank-owned homes with the idea of renovating and "flipping" them. This is a strategy best left to professionals, as bank owned properties sold in as-is condition may reveal serious structural deficiencies that absorb potential profit.

Foreclosure Blight

While many foreclosed homes are well-maintained, others are magnets for vandalism, criminal activity and nuisances, including dumping and pest problems. Local ordinances and building inspectors may cite owners for violations of building code and "nuisance" violations.

Nuisance Abatement

If you buy a foreclosed home in bad condition, be prepared to start renovation immediately. If local authorities perform nuisance abatement duties--such as trash removal or boarding up broken windows--you (as the property owner) will be billed for the costs, and a lien may be placed against the property.

Bitter Owners

People who have lost their homes to foreclosures may do extensive damages, taking everything (including the kitchen sink) when they leave. Although banks typically renovate REO properties to salable condition, anyone buying a home "as-is" should be financially prepared to make needed repairs. .

Finding Financing

Ask the bank selling the property if it will provide financing for it. Large mortgage companies, such as Fannie Mae and Freddie Mac, offer favorable financing terms as an incentive to buyers.