Foreclosed Homes for Sale: A Primer

Foreclosed homes present quite a temptation. They are cheaper than most other homes and, thanks to the fallout from the collapse of the housing bubble, your choices have never been broader. You can find foreclosed homes of just about any size and design, and they can be found in an equally wide variety of locations. But for all those advantages, foreclosed homes contain a number of potential problems. If you want to buy a foreclosed home, you need to make sure that you are fully prepared to deal with them.

Understanding Foreclosures

When you fall behind on your mortgage loan payments, your mortgage lender has the right to initiate foreclosure proceedings against you if you don't start paying again after a certain period of time. You have a right to challenge the foreclosure proceedings. If your challenge is unsuccessful and the court rules in favor of the mortgage lender, the homes is put up for an auction in hopes of recovering some of the money the lender lost when you could not finish repaying your mortgage. If nobody buys the property, the property reverts to the lender. The lender then has a right to sell the home to anyone it sees fit. 

Those homes are known as foreclosed homes. Because the lender is usually desperate to recover at least some losses, the foreclosed homes are often sold at reduced prices compared to similar homes that are sold under ordinary circumstances.

Foreclosed Homes and Repairs

The problem is that when you are buying a foreclosure, you have no idea what condition it will be in. Once the lender gets the property, it is left sitting there until the lender finds a buyer. The lender will usually do the bare minimum to protect the property of damage. It would board up windows and seal the doors. But if, for example, a tree falls atop of the foreclosed home and damages the roof, the lender will do nothing about it. Other times, the damage is not as obvious. For example, during a particularly cold winter, the pipes may burst, rendering the internal plumbing useless. And the longer the home is left unsold, the more severe the damage will become.

You can certainly try to repair the damage, but it will cost you considerable money and may take up considerable time. If you hire an inspector to check the property before you buy it, you will be able to see if the damage is something you can fix on your budget. However, the lender may be reluctant to allow anyone to inspect the property out of fear the it will jeopardize the sale. If that's the case, you may be better off moving on to some other property.

Foreclosures and Legal Complications

When you buy a foreclosure, chances are pretty good that the lender will ask you to sign documents that will exonerate the lender from any responsibility for the property's condition. It will do so before you sign anything else. Because of this, you have to make sure you research the property and get it inspected before signing anything. If possible, hire a lawyer to look over the paperwork—he or she will be able to find any terms that may put you at a disadvantage without you realizing it. For example, some lenders have been known to include clauses that impose financial penalties for every day you hold off closing the sale.

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