Buying a foreclosed property can get you a great deal on real estate. However, there are risks associated with foreclosures. Before you submit an offer on that foreclosed property that currently belongs to the bank, make sure you consider the following foreclosure risks.
The condition of the property
The condition of a foreclosed property is not always guaranteed. It is much different than when purchasing a previously owned house through an FHA or conventional mortgage. When you get a mortgage, the mortgage provider usually wants to complete an inspection. Depending on your type of funding for the foreclosure, an inspection might not be required.
This does not mean that you should skip the inspection. Although you expect a foreclosure to be in less than perfect shape, you need to know exactly how much work is needed. Additionally, if you intend to live in the house upon closing and you are obtaining a mortgage, you might be required to do work before moving in. This can be a problem for those who need an immediate residence. You also do not have much legal right after you close so you won?t have any negotiation rights.
The current condition of the title
A house?s title can get confusing once foreclosure occurs. Because there are many required regulations for the foreclosure process, it can also be difficult to track down the title. Most real estate agents recommend title insurance to their clients. This is even more important when it comes to the foreclosure process. Many legal property law cases result from an unsecured title. You must have access to the title to gain ownership of the house. Unclaimed property cannot even be legally sold in many states. According to title 10 of the California civil procedures code, any property that is abandoned, or for whom a legal owner cannot be found, is classified as unclaimed property. If after three years, such a property remains unclaimed, it escheats or transfers to the California government. Realistically, you could end up paying the bank the cost of the house and find that it actually currently belongs to the state of California.
Any obligations of the house
Additionally, you also want to be aware of all obligations of the house. Paying off the mortgage of a foreclosure is not the only financial requirement. If the property owes any back taxes or water payments, for example, you will also be required to pay those off. Because most foreclosure buyers are looking for a deal, you want to also understand other costs that you might have to pay.
Another common obligation that is often overlooked is lease agreements. Buying a foreclosed home or any home for that matter requires you to honor any previous lease agreements. If you are not aware of those lease agreements, you might end up going through a lengthy and costly eviction case. Property law cases can last many months or even years, making it important to evaluate the current obligations of a property. In the state of California, if a tenant has lived in the premises for more than a year, the landlord must provide at least 60 days? notice to vacate in the event of an eviction.
False sellers addendum
California law requires real estate agents to disclose information about any death that occurred on a property within the three years before the sale. Additionally, any known structure or other problems with the house must also be shared. The problem, however, is that once the house goes back to the bank, the bank has never lived in the house and may not be aware of the house?s history. Finding out information later can result in lengthy property law cases also.
You can get a great deal on a house that has been foreclosed. The bank wants to offload it as is and recoup some of their costs. Yet, you also have to be careful with foreclosed properties to avoid legal property law cases. Working with a real estate attorney can help you avoid many of the most common legal problems.