Buying a foreclosure can be a great way to pick up a property for less than market value… as long as you know what to look for. The process can require you to be much more diligent in your research of the house.
In this article, we will go over things to watch out for when buying a foreclosure so you can make a smart investment decision.
General Wear, Neglect & Vandalism
When a homeowner falls victim to foreclosure, they often fail to properly upkeep the home. The yard can become badly overgrown, pools improperly maintained and common repairs will go ignored. Everything from a minor leaky faucet, to a major leak in the roof, can affect the condition of the home. And once a homeowner learns that they will be losing their home, they are less likely to sink any money into fixing it.
It takes a long time to complete a foreclosure in Illinois. Sometimes the banks can stall the sale of the home, leaving the property vacant for months or years at a time. You can expect major appliances to be removed by either the previous owner or by people who know the house is empty.
Even things such as copper pipes can be removed as there is a cash value for them. Sometimes, an owner who knows they are losing their home will resort to vandalism in an attempt to retrieve items from the home after the bank has locked them out.
You can expect some broken windows and for items to be ripped from the home haphazardly. You may encounter busted pipes and mechanical systems that need to be replaced.
Dealing With Dirt & Items Left Behind
In addition to the lack of routine repairs and maintenance, you can expect things to be dirty. It is highly probable the house will not have been cleaned in months. And with the possibility of broken windows, critters, dirt and leaves can find their way in, making a mess of the floors.
Sometimes, if a homeowner leaves quickly, or lacks the space for their belongings, things can be left behind. This includes larger pieces that you will have to move out yourself.
You will be working with the bank to buy this home as opposed to the previous owner. Because of this, you cannot expect the bank to offer you any insight into previous repair work or issues with the home. The bank has never lived there. You will need to have your own home inspection done so can understand the home’s foundation, both literally and figuratively.
The bank is under no obligation to disclose anything about the home. They sell as-is, leaving you to deal with any issues that may arise. I always say, expect the worse and you will be pleasantly surprised if the condition is not as bad as you expected.
A bank will be hesitant to finance a foreclosure. A lot of times they will not see the value in giving you a loan for a property they consider uninhabitable. It’s best to offer cash for foreclosures. You can bet that you will have competition from other investors who want to fix and flip the home that have cash.
Cautious with your offer, banks are looking for cash buyers who are able to work with the banks and quickly pay the amount for the home the bank is requesting. Don’t be too demanding of the seller/bank and don’t expect them to take a lowball offer the first day or week on the market. They will not usually take a significant reduction in price until they have been on the market for a period of time.
Keep on top of the pre-foreclosure market so that you will be able to get the inside track on when a good deal is about to hit the market. Here’s a few ways to know about upcoming foreclosures.
Consider a subscription to a foreclosure site. Bankruptcies and pre-foreclosure are also usually listed. Some auction sites also list foreclosure sales.
Be on the lookout for distressed property with posted notices on the doors and windows.
Contact local lenders to get their list of foreclosures.
Contact the courthouse for dates and addresses of property being sold.
Position yourself to win the bid by thoroughly educating yourself on the property you’re looking into, check for any liens if purchasing at the courthouse and read the fine print on bank contracts as they will outline what is required of you to make an offer.