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Foreclosure Foibles: The Hidden Landmines of the Real Estate Market

For the sophisticated real estate investor, the foreclosure market can be a dream come true, but for the unwary, it can quickly become a nightmare. There are bargains to be had in the foreclosure market, but there are hidden landmines and pitfalls around every corner.

If you want to be successful and score a foreclosure bargain, you need to go into the marketplace with your eyes wide open. The more you know about investing in foreclosures, the better prepared you will be.

That knowledge will also help you sidestep some of the more common pitfalls, traps that have ensnared many would-be real estate investors and home buyers. Here are some of those potential foreclosure pitfalls – and some tips to help you avoid them.

Potential Pitfall #1 – A Lack of Disclosures

When you buy directly from a seller, you can expect a long list of disclosures, revealing everything from minor cosmetic issues to major structural damage. When you shop in the foreclosure market, you cannot expect any of those reveals.

That means you will have to do your own due diligence, researching the property and its history and looking for hidden problems. You may need to contact the building department for the city to obtain old permits and records. You may need to check for past-due property taxes, disclosures from past sales and other pertinent information. That means a lot of legwork, and lots of time, and it is important to be prepared.

Potential Pitfall #2 – No Pre-Sale Repairs

For a traditional sale, you may be able to negotiate some pre-sale repairs, but you cannot expect any such help when buying a foreclosure. The bank is unlikely to give you credit for structural and cosmetic deficiencies, and you certainly cannot expect the lender to make any repairs before you take ownership of the property.

If you have your heart set on the foreclosure market, you need to carefully assess how much the needed repairs may cost, and you need to be prepared to shoulder that expense on your own. If you are taking out a mortgage, you will need to budget for these additional expenses. If you plan to pay cash, you will need to keep enough liquid to pay for any unanticipated repairs.

Potential Pitfall #3 – No Standardized Process

Every lender is different, and every bank has its own process for handling foreclosures and marketing the properties it owns. Without a standardized process, it can be hard for first-time buyers to navigate these difficult waters.

Buyers in the foreclosure market can make the process easier by learning all they can about local lenders and their respective foreclosure processes. Contacting the lender directly to discuss their processes can be a big help – and give you an advantage in a competitive home buying market.

There is no doubt that buying a foreclosed property can be a great way to score a bargain, but you should not assume that foreclosures are always the deals they appear to be. There are pitfalls galore in the foreclosure market, and if you are not careful, you could end up with a nightmare instead of the dream home you were hoping for.