Foreclosed Home Purchases - Buyers Be Aware

Although purchasing a foreclosed property may be a home that is significantly undervalued for the surrounding market, all the experts say that may not always be the case. The key is to "go slowly and carefully" and do your homework first. To do otherwise, could turn a potentially good purchase into a costly mistake.

Once you've located a foreclosure property through either a public records search, newspaper ads, the web, or your agent - you need to find out what comparable homes in the same area sold for in the not to distant past. Try to keep your comparables as close in kind to your property as possible - same number of bedrooms and baths, garage, lot size, and square footage. Concentrate on properties that have sold in the last six months and that are no more than three miles in radius of the home you're thinking about bidding on.

Next, you'll need to focus on some very, very basic steps that are really important to the process. First, speak to a title insurance company and research the legal requirements for the future filings of liens against the property. Typically, if you are purchasing a foreclosed home prior to, or at a courthouse auction, you will be receiving the property via a deed that offers less protection than a General Warranty Deed. It may be a Sheriff's Deed or Special Warranty Deed that will transfer the property. These deeds do not offer the same amount of protection to a buyer as a Warranty Deed. Understanding the risks and limitations of how you'll receive title to the property is imperative to the decision making process.

Second, you need to know about all of the liabilities that are attached to the property. For instance, is the mortgage being foreclosed upon actually the first mortgage and if so, are there any second mortgages? Are there any outstanding real estate tax liens? Mechanic's liens? You must be aware of all the potential claims that can arise and understand that many like IRS and Mechanic's liens can be placed against the home for up to six months after they have been incurred. So, you must check thoroughly with all title, state, county and IRS records to be sure all the liens are present at the time you are bidding for the home.

Third, you must remember that you are purchasing the property "as is" from a seller who could not afford to make their mortgage payments. The likelihood they will have any funds available to fix roofs, plumbing, air conditioners or pool equipment is non existent. So, if at all possible, try to view the property with a licensed home inspector to find out what you'll need to spend on repairs. And, be prepared for all sorts of aggravations. For example, many times you'll find there is no electricity to the property, thus checking on the working order of appliances or air conditioners may be impossible - so plan ahead for these contingencies.

Being aware of what's involved in purchasing foreclosure properties and how the multitude of unknowns can affect the "final" price is imperative. Knowing ahead of time if the property needs repairs and liens to be paid off can save your budget. So, do your homework carefully and thoroughly in order not to get burned.

Gulf Coast Associates, Realtors® is full service realty firm serving the needs of clients from St. Petersburg to Naples. Please feel free to contact us if you'd like  more information on purchasing a foreclosure property in Florida.

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