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Buying A Foreclosure

Buying a foreclosure can be a good move financially.  But you are a lot less likely to find really great bargains. Good foreclosures usually get multiple offers.

There are typically two very different types of foreclosure sales:

  • Buying a home at auction on the courthouse steps  - sometimes they are sold through on-line auctions.
  • Buying a home that has been taken back by a lender - also known as "REO's" or real estate owned.

Buying at foreclosure auction

A foreclosure auction is no place for amateurs and involves substantial risk.  Such risk includes: no guarantee that the property doesn't have liens, multiple mortgages, code violations or other issues that could make it difficult and expensive to get a clear title. Eviction of either current tenants or the former owner who may still occupy the property will be the responsibility of the buyer. Another risk is that buyers are usually not allowed into the property prior to the auction - so it is "Buyer Beware."

When buying at a foreclosure auction, the buyer is required to pay the entire purchase price in cash. Typically this payment must be received within 24 hours.  Also, if there are problems with the property, you're stuck.  Very risky.

Buying a foreclosure from a lender

Purchasing a foreclosure from a lender is in some ways like buying from an individual seller.  One difference is that there are no seller disclosures. The seller (lender) has never been in the property so they can't disclose problems that an individual seller would. 

Most lender-owned foreclosures are in the multiple listing service, and we can make an appointment to show such listings to you. We highly recommend that you don't make an offer without the normal contingencies that the house must qualify for financing and your due diligence inspection.  It is critical that you have a professional home inspection done very soon after your offer is received.  Most foreclosures have not been well-maintained.

Some foreclosed properties don't have utilities turned on which makes it harder to evaluate them during your initial visit. Usually lenders will turn on the utilities once in escrow - but there might be a charge to the buyer.

 

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