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The Advantages & Disadvantages of Buying a Foreclosure

Many home buyers associate buying a foreclosure with getting an absolute steal of a deal. This can be true, but there are also some important potential pitfalls for any prospective purchaser. The pros and cons of buying a home involved in foreclosure vary with the phase of foreclosure the property is in when purchased. Use this handy guide to figure out if buying a foreclosure home is best for you!

 

Foreclosure Auction Sale

Advantages:

  • Property will be sold for outstanding mortgage balance owed to foreclosing mortgage holder this can be a low price for the property.
  • Cash payment requirements reduce competition. 
  • Home is purchased on the local county courthouse steps.

Disadvantages:

  • Auction purchase price must be paid in cash on the same day as the auction, so no mortgage is usually allowed.
  • No inspections allowed; as-is sale.
  • Buyer may take property and owe other liens, back taxes and mortgages. Buyer must research state of title prior to auction.
  • Bank cannot provide disclosures as to property history/condition issues.
  • If bank believes auction will not recover a good price, bank may buy the property at auction.
  • Property condition might be suspect due to damage done by upset homeowners.
  • No commissions or attorney's fees will be paid; buyer must pay for their own representation.

Post-Foreclosure Bank-Owned Property (REO)

Advantages:

  • Bank is motivated to get 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 prior owners.
  • 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.

Disadvantages:

  • 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.
  • You play by the bank's rules or you don't get to buy the home.

This seems simple enough, but it is a complicated process that takes the expertise of experienced professionals. This is why we hold the Certified Distressed Property Designation and are ready to identify all possible options and, when possible, assist in the quick execution of a foreclosure transaction.

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Contact us anytime to learn more about buying foreclosure homes.