Some buyers may think that buying a foreclosure is the best way to get a great deal. While that may be true in some cases, there are also potential issues and complications that can happen in the process. The advantages and disadvantages of buying a foreclosed home differ with each phase of the foreclosure process that the property is in when purchased. Over our years of experience and expertise we have navigated many buyers though the advantages and disadvantages of buying a foreclosed home. Before buying a foreclosed home, be sure to read this guide:

Owner is behind on payments / Motivated Seller

Pros:

-Owner may be motivated to sell the home quickly for possible a below market value price.

-Owner may be more inclined to make repairs and assist with cleaning the property.

-Buyer may be able to use conventional mortgage financing.

-Buyer can have regular inspections arranged within a standard time line.

-Owner will need to disclose and provide property history.

Cons:

-Owner may not be in a position to negotiate purchase price below outstanding balance on mortgage.

-Owner may still need to vacate the home.



Pre-Foreclosure / Notice of Default / Lis Penis / Short Sale

Pros:

-Owner may be motivated to sell the home quickly, leveraging the buyer's negotiating power.

-Buyer can have all usual inspections and examine the tile during the inspection period.

Cons:

-Depending if the purchase price will pay the mortgage(s) and closing costs entirely, Seller's bank may ultimately have final approval of purchase price and terms.

-The bank may not approve the purchase price or closing cost credits.

-Short Sales could potential take 65-90 days to close.

-Sellers will have to vacate the property.



Foreclosure Auction

Pros:

-Home will be sold for outstanding mortgage balance owed to the foreclosing financial institution which may result in a lower price for the home rather than paying full market value.

-Cash requirements reduce competition.

Cons:

-Auction purchase will need to be paid in cash the same day as the auction. Mortgages for auction items are NOT allowed.

-Sale is an as-is sale which means no inspections.

-Buyer may take ownership of the home and owe back taxes, liens, and mortgages. Buyer is required to do their due diligence on the health of the title prior to auction.

-Lender cannot provide property disclosures about the property's history of issues and repairs.

-Bank may buy the property at auction of they feel they cannot sell the property for the price they need.

-Condition of the property may be damaged due to upset homeowners.



Post-Foreclosure Bank-Owned Property REO

Pros:

-Bank is motivated to get the property sold and will negotiate price, down-payment, closing costs, escrow length, etc.

-Title will be clear; buyer will not take on any liens, mortgage or back taxes of the previous owner.

-Inspections and mortgage financing are allowed within normal due diligence/contingency period.

-House will be vacant.

-Property will usually be listed on MLS; bank will pay real estate agent's commission.

-REO sales close within a normal escrow period of time; usually between 30-45 days.

Cons:

-Bank will not agree to do any repairs. Sale is as-is.

-Bank will usually require additional paperwork.

-Bank cannot provide property disclosures.

For a look at the Bank Owned properties in our area, please use this search: