| | In the current sub prime mortgage ‘meltdown’, many people are considering investing in foreclosed properties. However, there seems to be a popular misconception that making money off of foreclosed homes is a foolproof way to get rich quick, which is certainly not the case. The truth of the matter is that being successful in the real estate market requires hard work, diligence and patience. Buying foreclosed properties is not without its risks, but with some foresight and proper planning, risks can be greatly minimized and there is an opportunity for profit. One of the biggest mistakes that foreclosure investors and homebuyers make is  buying a property with minimal to no knowledge of the condition of the home. This can lead to costly repairs or replacements further down the road, and there may also be environmental issues with foreclosures.
There are three ways to purchase foreclosed properties, each with its own set of advantages and disadvantages. The least risky is to purchase the property from an owner who is not yet in foreclosure, but who has already been served the papers to start proceedings, known as a pre-foreclosure sale. It can net the buyer an excellent price and give the seller the chance to get out from under an overwhelming mortgage with minimal loss. Pre-foreclosure sales carry minimal risk, as they proceed much like any other real estate purchase. You will have time to get the home inspected and to do some research, this will you assure that you are getting a ‘fair deal’ because you will have full knowledge about the home’s condition.
You can also purchase foreclosed property directly from the bank, which is less risky than buying at auction. When a bank has foreclosed on a home and offered it for auction, with no bids, the bank retains ownership. Most lenders want to sell quickly, as a means of recouping some of the loss incurred in foreclosing. Although you will not get a home for ‘next to nothing’ as television ads would have you believe, you do stand to get a very good price. Again, it is highly recommended that you hire a home inspector to check out the property before you close the deal.
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The final way to purchase a foreclosure is to buy it at auction. Here’s how an auction works. If the homeowner is unable to pay the mortgage and falls behind, the bank may opt to begin foreclosure proceedings, and takes back physical ownership of the home. The property is then put up for auction with a low opening bid. Buying at auction is the riskiest way to purchase, because it limits your ability to examine the property fully, and because it will be sold ‘as is’. Auction properties carry no warranties. Because untrained homebuyers or investors do not easily detect so many defects in homes, this can be a dangerous proposition. Request a home inspection report, one may have been completed, which you can obtain. If at all possible, have a certified home inspector examine the property prior to signing the purchase agreement.
Some problems with homes are obvious, but others are not so easily seen, yet can be the root of serious and costly repairs. One area that few people consider is the environmental condition of a home. Yet poor environmental conditions can spell big problems for both the health of the residents of a home, and for the structural condition of the home itself. When you consult with a home inspection company, inquire as to whether they conduct any of the following: Radon Testing: Radon is an odorless radioactive gas that can leak into homes. It wreaks havoc on air quality and results in many health problems, particularly for young children.
Lead Paint Testing: Lead paint is a hazard to young children, resulting in developmental delays and slowed brain growth. Although lead paint hasn’t been used in homes for many years, it can be present in layers of paint under the newest coats. As the newer paint naturally chips and wears off over time, lead paint can be exposed.
Moisture, Mold and Mildew / Air Quality Testing: Excessive moisture, molds and mildews can all spell big trouble for the condition of a home. These problems eat away at paint and wall coverings, cause flooring to degrade more quickly and can result in water damage and rotting. Additionally, mold and mildew seriously exacerbate many chronic health conditions such as asthma.
A professional home inspector who performs these services can help you to ascertain the extent and severity of any problems and recommend corrective action if you decide to purchase the property.
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