Foreclosed homes are generally residential properties that have been repossessed by a lending institution due to nonpayment by a previous owner. Banks attempt to regain a portion of the outstanding mortgage balance by putting the property up for sale at a foreclosure auction. This process presents real estate investors with ample opportunity to buy low, but not without certain drawbacks.
Buying a foreclosure is risky. Therefore, it's important to thoroughly research the process and the property before placing a bid. If you're interested in buying, we'll fill you in on what to expect and help you decide if this is a venture you're ready for.
This is a very impersonal process
In most circumstances, you won't be buying the house directly from the previous homeowner, which means that the bank will be the point of contact throughout the process. Because you'll be solely interacting with the bank's agent, you can forget the cutesy notes or introductions that usually coincide with home buying. In fact, most interactions will occur through e-mail and other software. The bank will only see the property as an asset to scratch off their books, while you'll be inclined to look at the property as a potential home to make memories and raise a family in.
The house will most likely be stripped
Foreclosure isn't an easy process for previous homeowners. If they struggled to keep the property and/or the bank refused to give them a break, they may act out in revenge. It's not unlikely for sellers to strip the house bare or damage the property before leaving. Unfortunately, this could lower the home's value, and you, as the buyer, will be burdened with covering the costs to fix up the house.
A seller may not be on hand, so don't expect disclosures
Foreclosed homes are REOs, which stands for “real estate owned.” There are no disclosures in REO sales. This means that you won't be informed of the previous homeowner's experience with the house. If there's no seller to ask about the property, you'll essentially be buying the home blindly - and this is never a good idea. When buying a foreclosed home, it is imperative you research information about past permits, records, the neighborhood, and especially the title report.
The bank enforces its own rules and processes
Each bank will create its own contract to guide the process. This contract will dictate the rules, it will contain language that would protect banks from lawsuits, and it will put most of the responsibility on you if things go awry. Of course, the main point of this contract is to protect the bank's interests.
Contact a New York Real Estate Attorney
At the Law Offices of Melvin Monachan, we've helped numerous people tied up in complex real estate disputes overcome issues with our expertise and knowledge. Let us help you find a solution to your real estate issues. Contact us online or give us a call at (516) 714-5763.