Foreclosure properties have the potential for big savings for both house hunters and investors looking for a quick project they can flip. While the pros that flip houses may be able to spot the red flags, those looking for a great deal on a home to live in ought to be cautious when personal finances are at stake. There are several potential hazards to a foreclosure home, and any one of them can turn the fantastic deal into a money pit. Since you are rarely privy to all the details of the property, knowing what the pros look for can help ensure you are getting the deal you believe. Remember, the bank or financial institution behind the defaulted loan is not looking to save you money, they only want to recoup the value of the loan. If you are intent on buying a foreclosed home, you need to do your homework and assemble the right people around you to offer a professional opinion on the following potential hazards.
1. Hidden Debt
If the previous homeowner(s) weren’t able to keep their mortgage current, it is reasonable to expect additional property debts. A foreclosure will only absolve private debt, but public debt such as real estate tax can present problems down the road. Doing an investigation into whether or not a property has a clear title will avoid these future issues.
2. Environmental/Health Issues
Often, homes that are in foreclosure have been vacant for some time, and this can present serious health and environmental risks. Squatters are a real possibility as well. Homes that have been left without regular maintenance can have leaky underground tanks and dangerous mold. These problems get magnified over time and can make a house uninhabitable if left for too long. Pest control is also likely to have been ignored while the property was vacant, and your home could now be home to several tenants. Small critters and insects may have made found a nice place to settle while nobody was home and getting them out can be difficult. This is especially true with a termite infestation which can be devastating, and like a serious mold problem, can leave your new home uninhabitable.
3. Costly Maintenance
Other problems, while not detrimental to your health, can certainly be for your wallet. With previous homeowners in likely financial trouble, it is unlikely repairs to the home were being made. Repairs involving an AC unit, water heater, electrical work, or water/sewage could eat into the savings from the purchase price. Other items when left untreated such as clogged gutters, landscaping, and window treatments may seem insignificant at the time of purchase but can add up quickly after the sale. Also, homeowners associations will likely penalize you for not making the repairs in a timely fashion. It is also probable that the previous owners will have gutted the house of major appliances and any upgrades they made to the home before being forced to vacate. On top of the added costs to replace such items, more vengeful previous owners may have caused unnecessary damage to the property out of anger.
While extremely serious, these potential hazards in purchasing a foreclosure should not deter those determined to find a great deal. Many foreclosure properties have only slight or no problems and represent a tremendous value. It is simply to stress the importance of doing your homework on a piece of property. Doing so to the best of your ability, knowing what to look for and when to walk away can be one of the wisest decisions you’ll ever make regarding your finances.
The writer of this article, Brian Levesque, has flipped various homes and writes about the lessons he has learned from these investments online. For the exterior renovation, he highly recommends turning to companies like Aerotech for help. You can learn more about Brian on Google+.