The number of foreclosures on the market is declining but invariably buyers will express interest in taking a look at any foreclosed homes that are available. Lured by the prospect of getting a great deal potential buyers need to be aware of the possible significant pitfalls of buying a bank owned property. Buying a foreclosure is not as easy as it is portrayed on HGTV. The potential financial rewards of buying a foreclosure do not come without their share of frustration and headaches.
– Deferred Maintenance
The most important thing to understand regarding a foreclosed property is that the former owner was forced to give up the home due to the inability to afford make the required mortgage payments. If they could not afford to make mortgage payments they also in all likelihood failed to maintain the house properly. Be prepared to see a property in quite a derelict sate – both inside and out.
Foreclosed homes often are filthy and can be hard on the sense of smell since they have been shut up for months with a lack of air circulation.
– No Sellers Disclosure
The seller has ever lived in the house or in most cases even visited the property hence the Sellers Disclosure will be left blank. You will have to uncover everything yourself, either during the home inspection, by asking neighbors or through experience after you become the homeowner. There is a definite lack of transparency on behalf of the seller.
– Problems Obtaining Financing
Lenders will not give you a mortgage for a home they consider uninhabitable or one that appraises below the purchase price. The home must have a functioning plumbing and electrical system and a functional kitchen in order to obtain a mortgage. Financing may also be unavailable if the home is in need of extensive repairs. Of course if you are paying cash such issues would not be a problem. The lender might not approve your loan without certain repair contingencies which creates a big problem since foreclosures are almost always sold “AS-IS”.
– Seller Will Do No Repairs
It is a rare case where a seller of a foreclosed home will do any repairs to the home. Foreclosed homes are sold “AS-IS”. Any issues that are highlighted as a result of a home inspection are for informational purposes only and as a buyer you have to make a decision whether or not to proceed with the transaction after you learn of the home’s condition.
– Unexpected Costs
Sellers will often also not pay for any repairs that are required by a municipality’s Use & Occupancy (U&O) inspection. The burden falls on the buyer to make such mandated repairs prior to settlement of the property. So you could potentially be required to put out money for repairs prior to settlement, never a good idea.
You may also be responsible for both sides of the transfer tax when purchasing a foreclosure. Be prepared to shell out the additional 1% of the property’s selling price to cover the seller side as well.
Appliances, refrigerator, washer, and dryer are almost surely absent from the property, you will need to purchase these after settlement.
– Lack Of Utilities
Electric and water service are generally not active in a foreclosed property. Properties will most likely also have their plumbing system winterized to prevent the freezing of pipes during cold weather. As a buyer you would have to pay for utility services to be turned back on and have the home de-winterized for a proper home inspection. After the inspection you will be responsible for having the plumbing system winterized again. Lack of electricity can make it difficult to examine areas such as basements and other poorly lit areas when you visit.
– Vandalism
Departing owners will often strip the property of any items of value, appliances, light fixtures, plumbing fixtures, and even hardwood flooring. They also often damage the property intentionally upon their departure.
Sitting vacant, foreclosed homes often subject to random vandalism such as broken windows, graffiti, and other damage.
– Competition
Because foreclosures can be attractive financially, they are a magnet to investors looking to flip properties or use them as rentals. Since investors can make all cash offers with no contingencies and close quickly, their offers may be more attractive to the bank than those from would-be owner-occupants who are financing the property.
– Sellers Want It Their Way
The seller will likely have their own contract that protects its interests and absolves them from any responsibility for the property. This contract will be followed by dozens of pages protecting the bank from future lawsuits, referring to the sale as “AS-IS” and putting nearly all the burden on you, the buyer. The bank won’t allow the property to transfer unless it is done this way.
If time is of the essence in obtaining a home dealing with a foreclosed property may not be right for you. Large lenders operate at their own pace when processing offers on foreclosed properties. It could be weeks or even months until you get a response back from the seller. The process is just a numbers game to them and it is highly impersonal.
Despite all these potential problems, foreclosures can be a good deal. If you are willing to deal with issue and problems during and after the transaction that most people do not want to deal with, you can buy a home at a discount. Buying a foreclosed home is not for the faint of heart and do I do not recommend them as an option for novice buyers. It is definitely the housing market’s case of caveat emptor – buyer beware!
In 2015 foreclosures accounted for 5.6%, 12 of 214, of closed transactions in Wallingford. Seven of those sales were in cash. There are currently no foreclosures on the market as of today.
Wallingford PA Real Estate – Wallingford, PA 19086
