Investment propertyForeclosure Opportunities Not Always Pretty
When I get a letter from those exploring a foreclosure purchase, it reiterates how many people look at foreclosure as a rags-to-riches proposition that will leave them with the golden egg-laying goose, but one that doesn"t require basic care of the goose -- food, shelter, protection from wolves, etc.
Such was the case of this potential buyer who said she was looking to buy her first home.
"I found one house that the real estate agent said was bank owned, sold as is, a fixer-upper. It is reasonably priced with little information but it foreclosed. The house was dirty and filled with stuff. They said the garbage will be emptied. They were unable to tell me much about utilities and said a home inspector would not be able to check it. The electricity is turn off."
"Are there disclosure laws? What information can I insist on getting if I paid the expenses. What arrangements can be made to check without buying it first? Who is the best person to talk to in these situations? We are looking for a place to live in and fix for a few years then be able to sell. I am unsure if it is worth looking into."
Where do I start?
You will find with most foreclosure properties, also known as REO"s (or pre-foreclosures, also known as short-sales), that they are dirty, have a lot of junk inside them, are in disrepair and there"s limited information.
Think it through. If you"re not making your mortgage payment, then that means you are in financial stress. If you"re in financial stress, that means you have only enough money to pay the grocer. If all you have is money for groceries, then you"re not going to pay for a cleaning lady, roofer, painter, creditors -- and lastly, the lender. Get the picture?
It"s trickle-down economics, but in reverse.
Do you get to inspect a property before you buy it? For some lenders, yes. But it"s usually not part of the contingency section, meaning, if you agree to buy the house, you get it in its current condition, no exchanges or substitutions allowed. You get the soiled carpet, busted a/c, vermin infestation, etc. What you get in exchange is a house that is truly under the market as far as pricing is concerned, and you get to add some repairs and sweat-equity to create a healthy financial gain.
While there are state-mandated disclosure laws in most states, you may be waiving those rights in the huge bank-owned addendum, which is an as-is monstrosity. It eliminates nearly every protection a buyer has in a Realtor-written pre-printed contract, except that you get your deposit back if for some reason the seller cannot perform on the contract.
Read the fine print. Read the fine print. Read the fine print.
Since most REO property representative take a long time to make a decision on their contracts, time is really not of the essence (practically speaking) and you have the time to pour over the contract, addenda and clauses. Do it. Your bank account and future peace of mind may depend on it.
The best person to talk to when looking up these type properties is an agent who has walked that path before and can truly point out the pitfalls and tar pits you need to avoid. Every lender"s contract and property is different. They are not written in a manner like the Realtor contracts that are customary and pretty much the same house to house.
You can try to talk with the bank representatives and listing agents, but many times they are non-responsive and not very consumer friendly. (Don"t mean to make anyone upset, but that"s what I"m finding in the DC area.)
That means you need a buyer agent more than on any other type of transaction when you"re talking foreclosure and/or short sale that is being offered online or in the Realtor MLS. Don"t make the mistake of trying to go it alone.