Common pitfalls when buying foreclosure s (10-20 point guide)
Buying foreclosures can be an easy way to make money or an easy way to lose money. Which way you go will largely depend on how much research you do before hand. Here are some common pitfalls of buying foreclosures.
1) Not doing enough home work - before think about buying, read up on foreclosures and land law and research housing prices in the local area.
2) Going over budget - set your self a budget limit and stick to it. If the bidding at a foreclosure auction goes above your limit, walk away.
3) Buying a wreck - a full and proper inspection is rarely possible on a foreclosed property. If you have any doubts about condition of a property, don't buy it.
4) Overconfidence with refurbishments - avoid buying a run-down home to refurbish unless you know what you are doing. Renovations can take much longer than expected and the costs of a refurbishment mount up quickly.
5) Forgetting to do a title check - never assume that the foreclosed loan is the only outstanding loan on the property. Any additional loans secured on the home will pass to the new owner at the point of sale.
6) Outstanding liens - as well as loans, a property may carry liens for government taxes. If unpaid taxes are not paid off, you could lose the property as fast as you gained it.
7) Previous occupants - if you buy a home at auction, the previous owner may be unwilling to move and you may have an unpleasant wait until they are evicted
8) Right of redemption - in some states, previous owners are legally entitled to buy back the foreclosed property for up to a year after the foreclosure auction, for the amount of the winning bid. Many investors avoid buying at auction in states with right of redemption laws.
9) Overborrowing - if you purchase REO's or VA/HUD foreclosures using a loan, make sure you borrow within your means. Otherwise, you may end up facing foreclosure yourself a few years down the line.
10) Frightening off sellers - pre-foreclosure sales are a delicate business and there's a fine line between showing you are keen to buy and harassment. If you get it wrong, you'll scare off the seller and you'll have to find the process all over again.