Is it safe to buy a foreclosed home?
Right now that is what’s on most of America’s minds… Is it safe to buy a foreclosure home? Several of the large lenders have frozen foreclosure proceedings because of possible mis-steps in the filing of the foreclosure case file. Some people argue that the entire foreclosure might be invalid, even on some homes that have already been resold to a new homeowner!
Last week I was interviewed by the New York Times for an article on this very topic! Writer Ron Lieber asked me what were some of the things that someone thinking of buying a home needs to be aware of when buying a bank owned home. Here’s some things to watch out for:
£ Right now in Central Florida there are about 400 homes that were recently pulled and coded as “temporarily off the market” in our MLS system. I can’t say they were all a part of the freeze, but it’s probably a good guess! If the home you’re interested in was NOT pulled off the market, it’s most likely not one that is affected.
£ There is often a lot of damage to the homes, both from neglect and being vacant for so long and from vandalism and even sabotage. Some people take their anger out on the house and you might be buying the result of their anger. Make sure you hire a good home inspector to check the property out thoroughly before closing.
£ If you are getting a mortgage to buy a home, a bank owned home may have challenges in the condition of the house. If it needs repairs it may not be financeable by a traditional loan and you may need an FHA 203K rehab loan that allows for the repair money to be included.
£ The seller, in this case the bank, has the right to dictate the terms under which they will sell you their house. The banks are taking this to the extreme and will put numerous restrictions on you such as:
o You can’t resell or refinance YOUR house within a certain time frame
o They won’t pay certain closing costs that a seller normally pays. This means you will pay more to buy the house
o If you don’t close on time they will charge you $50-100/day for an extension
o If you don’t close they can keep your deposit (which by the way THEIR attorney will be holding)
o They won’t even give you a written contract… you will need to start your inspections and other costs based on a verbal acceptance… the written will follow in a week or two.
o With your written acceptance, they will send you the “bank addendum” which changes all of the terms of the original offer. These can be a few pages to over 20 pages long. You must review this very carefully before signing. Once you’ve signed it you’ve accepted it.
£ Often the properties are priced very low to drive competition and after you put in an offer you’ll be told that there are “multiple offers” and they are asking you to come back with your “highest and best” offer. Often these properties will sell at or above the asking price, sometimes even 20-30% OVER asking price!
£ Make sure you buy title insurance to cover any possible mistakes in the title.
I don’t want these things to scare you from buying a foreclosed home. Many of my clients AND myself have bought foreclosed homes and have had no problems with them. It is intended to just make you aware of some of the things to watch out for before buying a bank owned home.
As you can see it is very important to have a Realtor® working for you that knows the ins and outs of buying a foreclosure home. Ask them how many buyers they’ve worked with and how many years they’ve been buying foreclosures.
If you’re in the Central Florida area, I’d love to answer any questions you have about buying a bank owned home, either as a home to live in or as an investment property. Call me at 407-260-8800 ext. 107 right now!