Tips on Buying Foreclosed Properties

With such a plethora of foreclosed homes on the market and the number continues to grow each and every week I thought it would be beneficial to know what to look out for when purchasing one of these homes both from a lending perspective and a consumer perspective. Obviously from a lending perspective we can give some insight on things to consider however, we have also been on the back end of some consumer/buyer issues that have arisen from these homes.

1) Get a home inspection: I cannot say enough about how important it is to pay the extra $200-$400 and get some piece of mind. Foreclosed properties usually have been vacant for quite some time and hence are subject to neglect unlike a normal owner occupied or new construction residence. It is not uncommon for the real estate agents listing these properties to winterize the home which means they shut off the water and electricity and rarely visit the property again. Also most of these homes have suffered some kind of deferred maintenance with issues such as, lawn care, foundation, cracking and chipped paint, etc. Most people searching for foreclosed homes want some sort of a deal, however make sure you do not use your "deal" money and re-invest it in an issue that could have been caught with a home inspection.

2) Get title insurance: The last thing you want after you have purchased the property are issues arising from title such as, tax liens, unknown easements, mechanics liens, etc. Get a reputable title company involved early so you can review the title commitment and make sure there are no surprises awaiting you after closing.

3) Look into the ownership history: How many times over the last two to three years has this property changed ownership. Most lenders ask for at least a twelve month chain of title concerning today's foreclosure transactions to guard themselves against a continued "flipping" routine. They want to make sure that the buyer/client is not getting a property that has continually changed ownership and hence "profit taking" and is left carrying the bag. There are specific Fannie Mae and Freddie Mac guidelines for "flipped" properties and you need to make sure that you are with a reputable and knowledgeable lender that can help guide you through this issue.

4) Is the property in livable condition?: Most lenders will not lend on something that isn't livable. A few minor or even perhaps medium issues will be OK, however if the home is missing cabinets, toilets, lighting fixtures, etc. that could be a problem. Again there are always exceptions to every rule but I at least want to make you aware of some things to consider when your shopping.

5) Use a Real Estate Agent: The right agent can save you time, money and lend some valuable insight on the above tips. Agents are the resource behind the local real estate market. They possess the knowledge and education to guide you through the items you should consider and can point you in the right direction for a contract, the terms, home inspection contacts, title company contacts, etc. The right agent is a must!

These are just a few items to consider when your out looking for foreclosed or distressed properties. Not every item can be a deal killer however you want to be well versed on the issues that could arise and how to handle them. The more knowledge and perspective you have on these properties the more efficient the transaction will go and the happier you will be!

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