How to Buy Foreclosures with Caution

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By CM Herold
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Buy Foreclosures with Caution

The price to buy foreclosures may be right, but buyers should beware. There are no guarantees that buying foreclosures will save you any money. Buying foreclosure properties involves research, patience, and prudence. Follow the steps below to buy foreclosures with caution.

Difficulty: Moderately Challenging

Instructions

Step 1

To buy foreclosures with caution it is important to make sure the title to foreclosure properties are clear. Make sure to get a reputable title company or real estate attorney to insure the home has a clean title. The title insurance policy should cover unpaid taxes, liens, and judgments that may show up after the home is purchased. Unfortunately this service is not always available until after the foreclosure property is purchased. Many foreclosure properties have judgments and tax liens attached to the property that have not been recorded. There may also be additional deeds of trust that do not show up on a preliminary title report. It can cost several hundred dollars to research foreclosure properties properly before buying the home. Be prepared for additional title search costs to make sure you are not buying a foreclosure property that has more liens than the value of the home.
Step 2

Keep in mind that previous owners may destroy or remove parts of the house. Many home foreclosure occupants strip their homes of appliances and vandalize the property. People have punched holes in walls, poured paint on floors, and broken windows. Many times a copious amount of trash is left inside and outside the home. When buying foreclosures make sure to take in consideration the capital investment to repair the property especially if you're buying foreclosure properties without an inspection.
Step 3

To buy foreclosures with caution, find a real estate agent who specializes in foreclosure properties. Each state has its own foreclosure laws. Depending on the state, buying foreclosures are based on judicial and non-judicial foreclosure laws. Some states have redemption periods up to one year after the foreclosure sale meaning that the previous owner may have the right to purchase the property back for up to one year after the foreclosure.
Step 4

If you are planning on buying foreclosure properties at an auction, be prepared to pay cash. There are specialty short term hard-money loan companies that will front money, but the fees and interest rates are usually very high. To buy foreclosures with caution with special financing, get all the costs in writing first.