A foreclosed home could be a deal for the buyer. Foreclosure is the legal procedure used by lenders to enforce payment of a mortgage loan on a house when the debtor is behind on the loan. Homes that are foreclosed on typically sell for under the actual market value of the house, however there are risks involved in buying a foreclosed home.
Foreclosed homes are usually offered in a public auction in the local courthouse or county recorder’s office in the county where the property is situated. The date of the auction and data about the foreclosed property is submitted in public notices in these court offices and in local newspapers. The highest bidder in the auction becomes the new owner of the property when the bid amount is paid in full. The minimum bid amount, or the bid that the auction opens with, can be the balance owed on the mortgage plus legal penalties or a different amount determined by the lending company. You will have to get a deposit with you and evidence of financing, like a mortgage pre-approval letter, in order to buy a foreclosed house in auction. The amount of deposit required varies from area, but a normal amount is 10 percent of the cost, or winning bid. Some auctions require that the deposit be paid with cash, money order or cashier’s check. You can buy a foreclosed house by approaching the creditor if there were no successful bidders at the auction. The creditor becomes the new owner if the residence is not purchased at auction and will negotiate with you in order to avoid long-term possession of the property.
Various legal matters can complicate a buy of a foreclosed home. Any tenants or occupants still residing on the house following the auction become your obligation to evict. Most lenders will evict all occupants before the house goes to auction, however there have been instances where the creditor did not guarantee the house was vacated. There can be unpaid liens on the house that weren’t voided from the foreclosure auction, such as a city water bill, that you’ll be responsible for paying since the new owner. The house can have clouds around the name, or unresolved matters that impact the chain of possession as shown by the land records for the house. Clouds on the name can make it difficult for you to sell or get a mortgage in your house. Research a foreclosed house before the auction in order to avoid unexpected problems afterwards.
Most foreclosed homes are sold”as is.” The lending company will not make any guarantees as to the condition of the house or the part systems, such as the plumbing and wiring, and is not required to make repairs. It is possible to end up with a foreclosed house that has no plumbing, toilet or heating system. Some lenders allow you to have a look at a foreclosed house before an auction, however they are not required to do this by law. You should be prepared to make big repairs to almost any foreclosed house you buy.