The Pros and Cons of Purchasing a Foreclosed Property


The Pros and Cons of Purchasing a Foreclosed Property

Buying foreclosed properties can turn out to be an excellent real estate strategy, but the way forward can be tricky and full of pitfalls. If you’re considering purchasing a foreclosed property, you’re going to want to do plenty of research to ensure you won’t end up getting more than you bargained for in all the worst ways. Here’s some information to get you started.


What’s the Deal with Foreclosed Properties?

A foreclosed property is a property that now belongs to a bank after being deeded back by the property owner. This typically happens when the property owner can no longer keep up with their mortgage payments. This may happen for a variety of reasons, including being fired or laid-off from a job, medical reasons prohibiting them from working, or conflicts with co-owners leading to divorce or separation. Though the bank never owned the property to begin with, the process of foreclosure involves the bank foreclosing on the mortgage and seizing the home.


The housing market crash surrounding the 2008 recession led many people to simply walk away from their mortgages. In 2008, 1 in every 54 households received a notice of foreclosure. These foreclosed homes were mainly purchased at extremely cheap prices in bulk by investors and many were turned into rental properties. This resulted in fewer homes for sale, driving up the prices of homes around the country. While the housing market has recovered, the housing finance market has not. In more than 70 percent of the country, the average worker can’t afford to buy a home. According to recent Census Bureau housing data, more U.S. households are headed by renters than at any point since 1965. The lingering effects of the housing market crash and recession of 2008 are still driving people toward finding ways to buy homes for cheap, making the lower prices of foreclosed homes an attractive option for many.


The Pros of Buying a Foreclosed Property

The most obvious advantage of purchasing a foreclosed home is the price. In today’s housing market, bank-foreclosed homes typically sell for around 5% cheaper than comparable homes in the same neighborhood. In previous times, foreclosed usually sold for much cheaper than that. However, banks were typically focused on selling these homes as quickly as possible and neglecting to do any renovation or changes to the property. Since the market for foreclosed properties has slowed down, banks will typically be more focused on making the properties more attractive to sellers than before.


Many foreclosed homes on auction also require cash payments. This significantly reduces the amount of competition. If you have the funds, participating in the foreclosed properties auction market will prove to be a much less competitive arena than the typical housing market.

Purchasing foreclosed property is also a great way to get a high ROI, or return on investment. The lower property price you pay for the foreclosed property will result in higher returns on your investment. Caring for the property and completing additional renovations will also result in increased appreciation of your property. Purchasing a foreclosed property can turn into a highly profitable endeavor.


The Cons of Buying Foreclosed Property

Even if a foreclosed property has a great price, it can also come with plenty of baggage. The amazing price you may be paying for your property might not actually reflect the price you’ll be paying when all is said and done. Foreclosed properties are often in poor condition and may require extensive and expensive renovations. It’s important to thoroughly research the property as well. Are there any outstanding liens on the property you’d be responsible for paying for? It’s possible to get hit with a lot of hidden fees when you’re purchasing a foreclosed property. You’ll want to educate yourself on your state’s foreclosure process as much as possible, and you’ll definitely want to consult with a real estate attorney prior to making any decisions.


And when it comes to foreclosed properties, you’ll typically be dealing directly with the bank. If you’re dealing with a bank and not a human seller, things can become very strict. They’ll likely have very different priorities in comparison to most sellers under normal circumstances. You’ll find that some banks will typically be far less lenient and flexible when it comes to the home-buying process, and it will typically come down to numbers and not much else. Banks expect to make top dollar off their foreclosed property inventory. And banks have far less reason to make repairs to the property unless it’s something relatively inexpensive that could possibly keep them from selling the home.


In addition to this, if you’re looking to buy a foreclosed home, you’re much more likely to be looking in less desirable parts of town. Foreclosed homes in desirable areas tend to sell quickly, while properties in less desirable areas tend to sit for a while. This also opens up questions about the home’s resale factor down the line.


If you’re interested in the idea of purchasing a property from a foreclosure auction, you’ll also want to keep some things in mind. If you purchase a property from an auction you’ll likely never have the chance to enter it, and you’ll be buying the property “as is.” You won’t be able to inspect the property and the title you receive may be tied to liens, unpaid taxes, and other legal pitfalls.


The process of buying a foreclosed property also has the possibility of taking a lot longer than a normal home buying process. It’s important to remain flexible and patient throughout the journey, because most foreclosure processes require extended waiting periods.


For all of these reasons, it’s generally recommended that first-time homebuyers not jump directly into purchasing a foreclosed property. The process can be long and complicated and is usually better handled by someone with home-buying experience. While you may feel enticed by the cheaper prices, navigating the process of purchasing a foreclosed property can prove overwhelming to a first-time homebuyer.

Let Us Help

There can be a number of legal issues involved with the purchase of foreclosed properties. It’s vital that a real estate lawyer is contacted to protect against unwanted consequences in which you had no part in, including protecting you from seizure of your property.


Still, it’s possible purchasing a foreclosed property could be the best option for you. As long as you partner with the right people, you can come out good on the other side. Navigating the complicated process can be tough, and that’s why you need an experienced team of real estate lawyers. At Borders and Borders, our team of experts will be happy to partner with you to make your property buying experience legally airtight. Contact us today.

90 views

Recent Posts

See All

© 2020 Borders & Borders, PLC

Screen Shot 2018-11-05 at 2.42.44 PM.png