Things You Should Know Before Investing In Foreclosures

April 27, 2009 by  
Filed under Real Estate Investing

If you’ve never invested in a foreclosure home before, the advertised listings may at first seem irresistibly inexpensive. However, there are several investigative actions you need to take to make sure you don’t get into trouble and have a disaster on your hands.

When any type of home or land mortgage loan is defaulted on by an owner, the mortgage finance company will eventually take ownership of the property in question. State laws differ, but most will require the finance company give the owner plenty of time to come current on their home mortgage loan. If they don’t do this, the bank then takes possession of the property.

This complicated legal process is very tricky, and full of money pits if you try to intervene at the wrong time. Some investors will look for pre-foreclosures occupied by troubled homeowners having trouble paying their home mortgage loan payment. However, it is usually best to wait until the bank has full ownership and you can deal directly with them.

Some foreclosures allow the homeowner the ‘right of redemption,’ where the owner is given a certain amount of time to pay back the debt and reclaim their home. This is usually the case with sheriff’s sales, where homes are auctioned that owe property taxes.

As a general rule, you should adopt the practice of never pursuing a property that is not at least at the Notice of Default stage. This will give you a property to keep an eye on and wait for the impending eviction and change of hands.

Some investors try to bid on a foreclosed property without ever seeing it. This is not a good idea! Modern cameras and creative angles can produce a pleasant picture of even the most distressed property. Contact the bank or real estate professional listed with the property, and ask to schedule a formal showing. If this is not possible, visit the property in person and examine the foundation and exterior, and peek through the windows for a better idea of what’s going on inside.

This is very important because most foreclosures are sold ‘as-is.’ This means there are no points of negotiation or any repairs the seller will finance; however, major repairs may permit a much lower bid.

A professional inspection should still be completed once the agreement is reached with the owning institution of the property. This is not because the property should be flawless and need no repairs, but that you need to be aware of any problems you didn’t know of before making an offer. Your purchase agreement will be signed with the contingency of a satisfactory inspection to prevent you from buying a sinkhole.

You’ll also want to have a complete and thorough title search performed on the property. This will alert you if there are outstanding tax liens, mechanic liens or other mortgages on the property; you’ll want to know this as the new owner, because buying the property means you’re now responsible for them!

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