What Are the Dangers of Foreclosure Auctions?
Purchasing a foreclosure property through an auction seems like a fiscally sound way to purchase your dream home without spending a lot of cash. However, while auction buyers save money in the short-term, failure to investigate the risks can cost them much more in the future. Informed buyers should know the potential dangers of purchasing an auctioned home before placing down a bid.
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Property Damage
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In most auctions, bidders do not get a chance to inspect the home before purchasing. Therefore, it's possible that the home they bought is not up to code, in disarray, or has damage from previous homeowners. When purchasing a home sight-unseen through an auction, buyers are agreeing to purchase the house regardless of the condition. Without a thorough inspection, it is "buyer beware" as the cost of repairs may sometimes cost more than the home itself.
Liens and Taxes
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Following a successful bid, buyers not only take on the responsibility of the home, but are also accountable for any federal or tax liens against the property as well. After purchase, municipal liens, real estate taxes and other levies immediately become the responsibility of the new homeowner. In order to avoid the liability for previous liens and taxes, buyers need to thoroughly investigate real estate property before purchasing. Otherwise that bargain price can become a hefty sum.
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Previous Tenants
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While many buyers may think foreclosure means that the previous homeowners are no longer living in the home, this is not always the case. Many homeowners, upset about losing their house to foreclosure, refuse to vacate the premises or have no other place to go. The eviction process now becomes the responsibility of the buyer, and can lead to costly legal battles, potentially dangerous situations and emotional distress.
Hidden Risks
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While most buyers do their homework before attending an auction, there are always hidden risks or costs associated with purchasing a foreclosed home. If purchasing a condo, the buyer will now be responsible for monthly association fees or assessments. Older homes may have safety issues such as asbestos, lead paint or out-of-date septic systems that need to be replaced. All those issues and additional costs instantly become the problem of the new owner. Because foreclosure auctions require the buyer to put down the full payment in cashier's check or cash directly or close after a successful bid, it's important to think of all the risks before buying.
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