Buying a Foreclosure Home – Read this First

Should I buy foreclosure home or distressed property? This is the question that so many home buyers are asking themselves these days. Foreclosures are distressed properties, but there are many types of properties that could be described as “distressed”. Sometimes the property itself is in great shape. It is the seller that is in distress. If a seller is forced to sell his home because he can no longer afford it, this could be labeled a “distressed property.” If a home is in need of massive repairs, it may be termed as a “distressed property.” So, a home does not have to be in foreclosure to be termed as a “distressed property.”

I must say that in my last year as a real estate agent, I showed literally hundreds of foreclosures and distressed properties. Not a single one of the buyers who were looking at these homes made it to the closing table.

Buying a foreclosure home or distressed property is a long, laborious, stressful and complicated process. Once my buyers got a taste of what it would take to make it through that process, not even one of them wanted to go through with it.

As early as 2005 I could see the writing on the wall. I was a realtor on the front lines during the last few years as the real estate industry was steadily dropping. Those of us in the industry tried to deny that the housing market was tanking, but we all knew it was inevitable. There for a while, it seemed that anyone with a pulse could get a loan. Those of us who refused to stick our head in the sand, knew that many of the folks who were buying homes were not ready for the responsibility.

Now, here we are, a few years down the road, and the entire country now realizes that millions of loans were made to folks who were not able to afford them. Those folks are losing there homes in record numbers. That is why there is a flood of homes on the market that are “distressed”.

Buying a home that is not distressed is a complicated task in itself. You will have to dig up tax returns, bank statements, legal documents. You will have to sign this form and that document. You will have to verify funds. You will be making calls to banks, sometimes to social security, your HR department, your boss. If you’ve been divorced or had a bankruptcy, even more documents will be required. And that is just for the lender.

Regarding the offer you make to the seller, you will have to organize home inspections and termite inspections. You will have to hammer out the special stipulations that accompany your offer on the property. You will have to negotiate the price of the home and how much you want the seller to contribute towards closing costs, repairs, what stays with the house (appliances, window treatments, etc.).

All of the above stress goes along with just a regular old run-of-the-mill home purchase. To buy one a foreclosure home, you will have to wade through miles of red tape and mountains of paper work on top of everything I just described. The seller is not another person, it is an institution, a bank. Banks are not in business to sell homes, so they are not good at it. They do not have a stream-lined process for selling homes that they have had to re-possess.

When buying from an individual, the buyer is dealing with a person, not an institution. In a person-to-person transaction, the seller would probably be willing to do repairs and improvements for a buyer in order to sell the home. Not so with a bank. When you buy from a bank, you buy the property “as is”. You cannot ask them to do repairs, termite treatments, improvements—nothing. As a matter of fact, the buyer has the burden of inspecting the home to determine if it has major problems like structural defects, extensive termite infestation or mold. The bank is not required to disclose anything about the house. That makes buying a foreclosure a big risk for a buyer. This risk is what turned my buyers off.

However, if you don’t mind the risk, the headache, and the work, buying a foreclosure is probably a good option for you. My only advice is, “Use a realtor.” You NEED a professional to represent your interests in a transaction like this. If you go it alone, you are matching wits with bank attorneys and other realtors who represent the interests of the bank. When it comes to foreclosure home transactions, a buyer’s agent is worth her weight in gold. Her commission will be well earned.

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