A Word of Caution About Buying a Foreclosed Property
While there are some great deals out there when it comes to purchasing foreclosed real estate, there is also an inherent risk involved.
1. Foreclosed properties are sold in "as is" condition, and no warranties or representations can be made about them. They are sold by an institution that has no knowledge about the past history or prior problems that may be associated with a piece of property. Therefore, you need to check them out thoroughly before submitting a contract.
2. The utilities are usually off at most foreclosed properties, and it is usually not practical to turn them on to check things out. It is usually impossible to turn the water on, especially during the winter months, and many foreclosed properties have damaged plumbing and heating systems.
3. There are often other problems, including, but not limited to, pest problems, lead paint problems, and code violations, that may or not be disclosed by the institution. Keep in mind that the previous owner lost the property because he or she could not pay the bills, which means that they could not pay for the necessary upkeep as well.
4. While some institutions will allow an offer subject to a satisfactory home inspection, others will not allow this type of contingency, which means that if you conduct an inspection, if you are not satisfied with the results, you could lose your initial deposit if the offer was not contingent upon a satisfactory home inspection. Still, some institutions, such as HUD, will only refund your deposit on an FHA-insured sale, and only if they agree with the inspector's conclusions.
5. Most institutions will require you to sign an addendum which absolves them from any claims that may arise in the purchase of the property, including, but not limited to, zoning problems, code violations, and deliberate misrepresentations made on behalf of the institution that owns the property. If you refuse to sign the addendum or if your attorney tries to renegotiate the terms of the addendum, the institution will cancel the sale.
6. Buying at auction is not always the safest choice and can cost you thousands of dollars if there are legal problems, per a recent Boston Globe article.
In summary, if you do not have the necessary finances or if you lack the skills to complete certain repairs, you should not be buying a foreclosed property. They are not for everyone.
Copyright (C) Randal L. Struckus, 2007. All rights reserved.