Foreclosed homes can be a great deal, but they do have a multitude of potential problems.
As we discussed last time, buying a foreclosed house can be a great opportunity, but there are also potential issues with foreclosures, so caution is necessary.
First of all, the condition of foreclosed homes can vary tremendously. We’ve seen foreclosures which were spotlessly clean and move-in ready, others which were in horribly poor condition, and everything in between.
It is very important to understand that even a missing light fixture or switch plate, or a leaking faucet, is enough to cause a house to fail appraisal for most loans! FHA, Rural Development (RD) and VA loans all require appraisers to evaluate the condition of a house and make sure it meets minimum standards. They consider even small items like these to violate those standards, making financing very difficult or even impossible. There are renovation loans available, but they are few and hard to get. Conventional loans are much more tolerant of property condition, but not everybody qualifies for a conventional loan.
One of the problems with foreclosures is that when they do need repair, most lenders will not make any, nor will they allow anyone else to do so! Every once in a great while a lender will agree to do some repairs in order to get the house sold, but this is very rare. The owners of some foreclosures, such as HUD, are absolutely inflexible about not allowing any repairs. They would rather sit on the house and drop the price by thousands of dollars until it sells for cash, rather than spend a couple of hundred for a simple repair. It makes no sense, but that’s how it works, and is why so many foreclosures take a long time to sell.
Besides repairs, there can be other problematic issues with foreclosures. When a house goes through foreclosure, previous liens are canceled, and go away, with one exception: An IRS tax lien. The law gives IRS the ability to take possession of a house up to 120 days AFTER it is sold at sheriff sale, regardless of who owns it! We have encountered this situation before, and cautioned our clients about the IRS lien. They wisely did not buy the house.
Also, it has been our experience that lenders don’t do thorough title work when taking ownership of a property after the sheriff sale. We have seen foreclosures where title problems came up, one of which was severe enough to put a stop to a sale!
These are just a couple of examples of the issues which foreclosures can bring with them. We have dealt with these and many others, and also have gone out of our way to learn about more complexities of buying foreclosed properties. In addition, Danielle’s many years as a loan officer give us a deep understanding of the lender side. All this together means we bring far more to your corner than any other agent.
People have come to us after wasting weeks with other agents looking at foreclosures which were NOT even eligible for the type of loan they had! Such ill-informed house searching not only wastes your valuable time, but can also cost you money. You could spend hundreds of dollars on inspections, appraisal, etc. only to learn too late that you cannot finance the home! We examine things in great detail and well in advance, to prevent these sorts of nasty and expensive surprises.
A foreclosed house can indeed be a great deal. However, it is important to have us looking out for you, so the many pitfalls of foreclosures can be avoided.