Hidden costs of buying foreclosed properties
Foreclosed properties may appear to be hot deals, but beware if you're bargain shopping. Foreclosed homes often come with a variety of repair and financial issues that can add up to major expenses.
Before starting your property search, make sure you know exactly how much home you can afford and your financial tolerance for the seasonal surprises of homeownership, and have an eye out for the following five foreclosure flaws.
- Hidden debt. A foreclosure wipes out the prior owner's private debt, but there can also be public debt against a property, like real estate tax or income tax. Before making an offer, do a thorough title search to uncover past problems that could become future obstacles.
- A price that's no bargain. Take care not to get caught up in the excitement of a hot opportunity, because you may actually pay far more than a property is worth. Though most foreclosure sales do indeed have advantageous price points, the financial institution behind the sale is ultimately looking to recoup the value of the defaulted mortgage. So, if that mortgage value doesn't match up with the present value of the property, start shopping elsewhere.
- The effects of deferred maintenance. The road to foreclosure usually includes a steep financial decline with dangerously deferred property maintenance along the way. This can mean systems that don't work properly, unsafe areas throughout a home, and a new round of debt to cover retroactive repairs. Don't just ask how long a house has been empty, find out how long standard repair and maintenance have been on hold. Then you'll be able to form a clear picture of the cosmetic and structural issues you're buying into, determine costs involved, and, if you go through with the purchase, effectively perform triage to sort immediate needs from would-like-to-haves.
- Environmental issues. Sometimes foreclosed properties involve deeper, broader dangers that add a tidy sum to the reduced-price purchase. Such environmental threats as a leaky underground tank that impacts you as well as your neighbor can saddle you with very expensive responsibility once you step into the chain of title. Abandoned homes, especially those that have had the heat cut off, may also develop toxic mold problems. Minor mold is easily fixed but a major outbreak can render the home uninhabitable.
- Sub-prime inspection. A thorough professional inspection is key to any home purchase process─particularly one involving a foreclosed property -- and assuming you can spot trouble on your own or otherwise forgo an unbiased evaluation leads to sub-prime information for your decision. Ensure a realistic approach to a property's cost and potential problems by locating qualified professional inspection assistance through the American Society of Home Inspectors (ASHI).
While there are no doubt pitfalls to be mindful of, today's market also offers many opportunities to find the perfect home. For a great start, go to AOL Real Estate.Tom Kraeutler is the Home Improvement Editor for AOL and co-author of My Home, My Money Pit: Your Guide to Every Home Improvement Adventure. He delivers expert tips for buying or selling a home each week as host of The Money Pit, a nationally syndicated home improvement radio program.