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Any special things to watch for when buying a foreclosure?

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  • Any special things to watch for when buying a foreclosure?

    I've been very casually browsing listings in Florida and quite a few are foreclosures. The prices are very attractive. I can't help but wonder what the deal is. I realize the bank doesn't want to be in the real estate business and just wants to unload the property quickly but is that all there is to it? Is that the only reason they would list a 100K property for 70K? The pictures look nice. The place doesn't appear to be trashed at all.
    Steve

    * Despite the high cost of living, it remains very popular.
    * Why should I pay for my daughter's education when she already knows everything?
    * There are no shortcuts to anywhere worth going.

  • #2
    Maybe check to see if any liens are on the property and if the taxes are paid up?

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    • #3
      I've mentioned this here in the past, but I can't readily find those previous posts, so I'll summarize... About 10-11 years ago, as the housing market was in freefall, my father purchased a total of 3 foreclosure properties south of the Miami area. He was picking them up for a steal, from county tax auctions, but (in hindsight) he wasn't experienced in it, and wasn't doing it well. Anyway, he found 3 homes, visited them to take a peek inside (couldn't enter, only looked in the windows) and each looked just fine. He paid $15k-$30k each (basically the outstanding taxes due), then went about trying to secure the properties. Bottom line: none of them were clean transactions, and he never was able to secure clear title to any of them.

      Property #1 was occupied by the foreclosed-upon owners, and was by far in the best shape. My dad worked with the sheriff to evict them, but in the meantime, they completely, maliciously destroyed the house. Sledgehammer to walls/ceilings, shattered windows/mirrors, ripped out wiring, cabinetry, and hardware, literally defecated on every surface imaginable, and so on. The $300k home needed over $100k in repairs, and my father let it go to the HOA.
      Property #2 was a small condo, and he literally purchased it for the street address -- Living in it for a couple months allowed them to claim it as their home, and qualified my youngest brother to attend the high school which was far and away the best in the area. No idea what ever happened to it, but it's gone as well.
      Property #3 (the one they kept) was abandoned, covered floor to ceiling with mold/mildew (power was off when he visited, so he couldn't see it in the darkened windows), but was otherwise in good shape. He hired a company to deal with the mold/mildew issues, and once the house had good A/C running for a while, it was just fine. They only had a couple "flare ups" when the power went out due to hurricanes, etc. and the A/C got cut off. However, the bank never stopped trying to foreclose on the original mortgage, claiming that my father owed the outstanding amount on the previous owner's mortgage. After 10 years & 3-4 attempts in court (mostly because the bank never sent representation to the court hearing), the bank finally managed to win their case, and he was forced to either pay the note in full, or vacate the property within 90 days (which he did). They were able to live in the house for 10 years paying only the HOA fees (no mortgage, taxes inexplicably being paid by the mortgaged bank), but it ended up a total loss for him.

      At the time, my father tried to convince me to let him buy a couple properties like this on my behalf... I'm glad that I demurred and passed on the 'opportunity.'

      All of that to say that I've definitely got some (2nd hand) experience & advice:

      Originally posted by Thrif-t View Post
      Maybe check to see if any liens are on the property and if the taxes are paid up?
      - This is a big one. Ensure you know exactly what liens may exist (mortgage, taxes, HOA, utilities, contractors, etc.), and in what amounts. To get a clean title to the house, you'll have to satisfy ALL of them.
      - Work with a lawyer and/or realtor who has solid experience with foreclosures. There's alot of ways for it to go south, so you need to make sure you do it right.
      - On a similar thought, take your time. A clean foreclosure deal can take 3+ months to finalize. If you're in a rush, it's easier for you to make a mistake and the deal can go sideways. I had to pass on a GREAT house in Oklahoma in 2012 because it was in foreclosure, and I didn't have the time available to deal with the process.
      - If possible, ensure that the property is NOT occupied. As you & I have both referred to, foreclosed owners often get mad/vengeful, and will destroy everything in sight if given the chance.
      - Similarly, if possible, walk through the house, and get a proper inspection done. This will pay HUGE dividends.

      You have to remember, with bank-owned or county-owned foreclosures, they don't care about getting what a house is worth out of a property. They just want out of it what they have in it -- the mortgage balance, back taxes, or whatever, and a clean break from a deal gone bad. You can use this to your advantage -- you know what they want, so if you can satisfy what they're after, you can get a bargain on the property.
      Last edited by kork13; 02-25-2019, 05:18 PM.
      "Praestantia per minutus" ... "Acta non verba"

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      • #4
        You're probably going to encounter some issues with unpaid taxes as mentioned. Maybe some noncompliance issues with a HOA if there is one. Then there is the potential for damage either caused by the former occupants or from negligence and/or being vacant for an extended period of time. The bank will have all the info on unpaid taxes and fees. It would be worth getting a detailed inspection of everything in the house including mold and pests.
        Brian

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        • #5
          I have purchased one foreclosure, dealt with kicking out occupants and buying a beat up place as mentioned above. There is another one right down the road from me that I've been following and will try to get soon as available. Spend a few bucks up front and pay a local title company to do a title search to see if there are any liens on the property other than the bank, and figure out what if any taxes are owed. Even if they haven't tore the place up, you can pretty well figure that the occupants didn't have the funds to keep up with much if any maintenance, so there will be some issues. If you can buy it at the right price, any repairs can be made and you still come out ahead.

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          • #6
            Generally, foreclosure properties tend to need a lot of rehab. They have been used, abused, and generally uncared for. I have seen this with many vacation rentals. Post real estate crash of 2008, there were literally hundreds of foreclosures in the Smoky Mountains. In a situation like this where financial ruin hit a massive wave of the population, there were some really good deals. But real estate is really strong right now from coast to coast. A foreclosure in this market with a deep discount is a huge red flag.

            If you are looking at it as a vacation home and a rental, the yield is just as important as the price. I have been in TN looking for my mother a vacation rental for income. We looked at a 1 bedroom with an amazing view in a resort area for $275,000 ($300 a foot). Wow that's expensive, right? Well, it has been yielding around $45,000 a year in gross rents. That is a great return. Not spectacular, but really good. We drove a few miles away and found another, similar 1 bedroom for "only" $213,000. Sounds like a lot better deal, right? Well, due to a somewhat less desirable location, the annual rents are about $30,000. So which is the better deal?

            Hint: We bought the first one for asking price.
            Last edited by TexasHusker; 03-02-2019, 08:41 AM.
            How can you have any pudding if you don't eat your meat?

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