While it may seem like a great investment to purchase a property that has been, or is in the process of being, foreclosed on, there are some things that potential buyers need to be aware of. The thought of purchasing a house for pennies on the dollar seems like a wise investment, but there can be potential pitfalls with purchasing a house in foreclosure. There can also be, however, fantastic gains to be had by being educated about foreclosures and the foreclosure process and knowing what to look for in and Edmonton foreclosure. Here’s a few things that you need to be aware of if you’re thinking of a purchasing a property that’s been foreclosed on.
What is Foreclosure?
Basically, foreclosure means that the bank or mortgage lender has taken back a property where the mortgage is in default. If you don’t pay the bank, the bank takes your house away and sells it in order to recoup monies not paid. Granted, there are extenuating circumstances and the foreclosure process may be halted (usually if the bank is paid what it’s owed by the homeowner or the homeowner arranges for another lender), but for the most part, once foreclosure proceedings start, it’s just a matter of time before the homeowner is evicted and the house put up for auction.
Once a house has been foreclosed upon, the bank will work fairly quickly to attempt to recoup their money. Typically, the bank or lender will put a house up for auction seeking the bare minimum to pay costs and recoup unpaid mortgage payments. Auctions are generally held at the local court house or county offices of the county where the property is located. The highest bidder at the auction typically becomes the new property owner once the bank receives payment for the property in full. Sometimes, the banks require a small down-payment on the day of the auction allowing the new purchaser time to make final payment arrangements and new purchasers will require proof of financing before a winning bid is accepted and finalized. More often than not, houses are sold sight unseen and in as-is condition with no indication of the condition. As such, foreclosure homes are without guarantee and without warranty.
When you’re looking at purchasing a foreclosure property, you’re looking at buying someone else’s failed dream. As such, there can be a lot damage done to the house as former owners take out their anger at their financial situation on the home. Smashed in walls, damaged fixtures, copper pipes that have been removed for scrap; even pouring concrete down plumbing and drains can be found as one investigates the condition of a foreclosed house. Often, when a homeowner can’t afford their mortgage payments, they can’t afford the maintenance and upkeep either, and as a result, new homeowners are typically faced with a seemingly unending list of repairs that have been previously ignored. When it comes to foreclosure properties, it’s a case of buyer beware as there could be a lot of structural damage as well as cosmetic. More often than not, there’s a great deal of work that needs to be completed prior to the house being habitable and in even semi-decent livable condition. New owners can expect to pay for all new appliances, fixtures and anything that can be removed by the previous occupants including lighting, doors and even bathtubs. If it can be removed and sold off, there’s a very good chance the previous owner has long since taken it from the home.
While some foreclosures are in pretty rough shape and in some instances are better off being torn down and rebuilt, there are the exceptions where new buyers need only do a few minor repairs, replace the appliances and add a fresh coat of paint to see their new home livable. Depending on the purchase price of the house, adding the cost of repairs and upgrading could be much lower than the resale value of a properly refinished home. There’s a lot of potential for a good return on investment provided the cost of repair doesn’t exceed the value of the home. Resourceful renovators who are able to do the majority of the work themselves could recoup even more money as they save on one of the most expensive parts of renovation: labor.
Buying a foreclosed property can be full of pitfalls and expense, but if you educate yourself and surround yourself with experts in the foreclosure process, you could realize a decent return for a small investment. It’s advisable that you seek out the advice of a lawyer before purchasing and definitely hire a realtor who is familiar with the process and who can offer advice and help negotiate deals. For a few hundred dollars, potential buyers can hire a home inspector to provide a report (in some cases ahead of the final sale) of the types of repairs and renovations required to make the property habitable to determine whether the cost of repair outweighs the value of the home.
While purchasing an Edmonton foreclosure property can be a daunting and scary proposition, with the right team of experts on your side, like the team at Ryan Dutka Real Estate Solutions, foreclosures can be a wise investment. If want information about buying Edmonton homes for sale in general, or if you have any concerns about purchasing a foreclosure property, or just please feel free to contact us and we'll be happy to answer all your Edmonton real estate questions.