Twila E. Palmer's Blog
Many buyers today think buying a foreclosure means big savings and this can be true but buyers also need to be aware of potential pitfalls. A foreclosure takes place when a homeowner or property owner cannot pay the mortgage fees on the property and is forced to give up the property to the bank. First, potential buyers should know there are different stages of foreclosure.
In the post-foreclosure stage, the lender has already taken control of the property. The home is then in the possession of the lender's REO (Real Estate Owned) department, or in the hands of a new owner or investor who purchased the property at auction.
Lenders are typically extremely willing sellers, because an REO on the books is an obvious sign of having made a poor lending decision. Both the overhead and losses involved with an REO -- reflected in both the added reserves a lender must maintain as well as any potential property management fees incurred -- means the bank is likely a willing negotiator.
- Foreclosure Stage
- Many auctions are canceled at the last moment as the property has been sold or payments reworked.
- Court-appointed trustees only accept cash or cashiers' checks.
- There's little time to arrange inspections, so bidders may have no clear idea of what they're buying.
- Properties are sold "as is," without warranties. Sellers needn't disclose problems. Buyers may find themselves with unexpected and expensive repairs.
- Bank will not agree to do any repairs; as-is sale.
- Bank will usually require additional paperwork.
- Bank cannot provide disclosures as to property history/condition issues.