Buying a foreclosure might not be as easy as you think since buying distressed homes has its own issues to consider. People occasionally try to purchase a foreclosure adjoining their property because a distressed home can have a negative effect on the value of their own home. However, they then run into problems and wonder whether or not the whole exercise is worthwhile.
Why is this, and what is it about foreclosures, particularly distressed homes such as short sales on offer at way below their genuine market value? Here are just two of the problems that people come up against when trying to purchase such property that is adjoining or in close proximity to their homes.
Problems With Multiple Lenders
When buying a foreclosure, you will generally be dealing with the original lenders who have foreclosed on the borrower and repossessed the property. Issues can arise when there is more than one lender: for example the lender of the original mortgage, and a second loan, or lien, on the home owed to a second lender.
The original lending company might offer the home for a certain price such as $75,000. Unbeknown to you at the time you make your offer, there may be a lien on the home of $20,000 to another lender. You must also settle that debt when you purchase the real estate, making a total price of $95,000 which you might be unable to afford. The bargain is no longer a bargain!
Excessive Repair Costs
Another hidden cost of buying a foreclosure is that of essential repairs. A home might lie unsold for a few months, or even years, and begin to fall into disrepair. When you make an offer to purchase it at a crazily low price, everything runs smoothly until the inspection.
That might show up problems of which you were unaware, but that your lender insists are corrected prior to you being issued with a mortgage to purchase it. If the costs of these repairs, which naturally must be paid in cash, are beyond your financial means, then you will be unable to purchase the house.
It can now only be secured by paying cash, which could mean it being developed into flats for example, or put to even worse use by individuals rich in cash. Your potential neighboring dream home for your children, parents or friends could turn into a nightmare.
Buying a Foreclosure Can Work
Not all repossessed homes present such problems, and buying foreclosure can work to your advantage. However, the above situations are not imaginary examples, but have actually happened to real people buying distressed homes adjoining their own property.
Rather than being able to own the real estate that has been steadily reducing the value their own home, they have experienced these problems and others, and the distressed properties are either still moldering away next door or have been purchased by cash-rich individuals with their own reasons for doing so.
Be aware of these potential problems before considering buying a foreclosure, or even buying a home next door to a distressed property. Check with the current legal owners of the property before spending a cent in progressing your purchase application. You might be lucky and get a dream home at a very low price- or you might not, and face living beside a derelict property for years.