Foreclosure Complications
You can save a significant amount of money by purchasing a home that is in foreclosure. Buying a foreclosed home, though, isn't always the easiest of tasks. If you aren't aware of the many complications involved in the process, your inexpensive foreclosure home could turn out to be a costly mistake.
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Repairs
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Most foreclosed homes are sold in "as is" condition. This means that you are responsible for repairs once the deal closes. Because foreclosed homes often sit empty for months, many of them are in bad condition when they're finally sold. And the owners of foreclosed homes, usually struggling with financial problems, often put off maintenance and repair work because they couldn't afford them. This can leave you with a home that needs thousands of dollars worth of repairs after you buy it. Before purchasing a foreclosed property from a bank, pay for a home inspection. If the inspector finds too many costly problems, reconsider your decision to purchase a particular home.
Title Issues
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Foreclosed homes often come with title issues. If you purchase a home that has liens on it, for instance, your legal ownership might come into question. That's why it's important to purchase title insurance on any foreclosure property that you buy. This insurance protects you in case title problems crop up. As an example, if after you purchase your home, the residence's former owners sue their mortgage lenders for illegally foreclosing on them, these former residents can't reclaim their home by taking it away from you. Instead, the former owners, if a court rules in their favor, will receive financial compensation from their former mortgage lender. You would retain the home that you purchased.
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Financing Challenges
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Some foreclosed properties are in such decrepit condition once they hit the market that mortgage lenders won't issue financing to borrowers hoping to purchase them. If this is the case, you either have to pay cash for the foreclosure -- a financial challenge for most buyers -- or pass on the residence. If a lender won't issue you a mortgage loan for a particular property, that's a sign that the home comes with serious, and costly, problems.
Paying Too Much
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You might think that a bank is offering a foreclosed home in your market for a bargain price. But what if you waited three weeks? That price might fall again. If you act too quickly on a foreclosure, you might end up overspending. And that can be a costly complication if you must also sink thousands of dollars into a foreclosure home to cover the repairs that often come with bank-owned property.
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