Acquiring foreclosure properties can be a slow process
Q: How do I go about buying a house or condominium that is in foreclosure?
A: Over the last two years we have seen a significant increase in the number of foreclosed homes in Colorado. Buying one of these properties – either as a primary residence or for investment purposes – may be tempting. However, unless you have some experience with foreclosed real estate, the complexity of the process may be surprising and overwhelming.
If a property is “in foreclosure” the legal owner(s) likely became unable to make required payments on the mortgage and the lender took the property back.
While many such homes are in excellent condition, some of these properties have been neglected or even consciously damaged. Some unscrupulous owners may even remove plumbing, wiring, countertops, lighting and other fixtures as they vacate the property, falsely believing they are entitled to those items and leaving the home in shambles.
There are actually three points at which you might consider purchasing a foreclosure. If an owner is clearly headed towards losing a home, he may consider a “pre-foreclosure” sale in which the owner and lender cooperate in selling you the home at a considerable discount.
A second option is to attend publicly held auctions of foreclosed properties. This is a high reward (good prices) and high risk (possible costs to you, less chance to inspect the home thoroughly ahead of time) option.
The third option is to purchase foreclosed properties after they have been taken back by the lender.
While the prices may not be as good as at an auction, or the process as straightforward as in pre-foreclosure, lenders, who are not regularly in the business of buying and selling property, are often highly motivated to get rid of foreclosures.
Finding such properties can be as easy as driving neighborhoods, scanning newspaper real estate sections and doing some on-line research. Contacting a REALTOR® is an important step in the process – both to help with the search and to have the benefit of that person’s professional expertise and experience. Not all foreclosures are advertised and some lenders (owners) will not accept offers from unrepresented buyers, simply as a means of sorting out the legitimate buyers.
Many of the same steps you would take in buying other kinds of property apply if you are making an offer on a foreclosed property. Tour the property carefully to be sure you know its assets and its problems. It may be worth the investment to have the property professionally inspected ahead of an offer, if the lender will allow. Have your REALTOR® do the research to determine what other properties in the area and of similar condition have sold for recently.
With foreclosures it becomes even more important to research the legal status of the property.
Are there unpaid taxes you will be asked to assume? Is there a lien of any kind on the property (e.g., for work the previous owner ordered but never paid for)?
In the end, be prepared for a slow process with a considerable amount of paperwork. Engaging a REALTOR® with experience in buying foreclosed properties will be of considerable help throughout, as well as in introducing you to lenders who will be interested in financing your purchase.
(This article was provided by the Colorado Association of REALTORS).