Advantages and Disadvantages of Buying a Foreclosure
Generally buyers feel that buying a foreclosure is a profitable deal for them. This could well be true on most occasions, but it also involves certain risks which are discussed in the following lines. If you are curious to know the exact details, you must keep reading for your better understanding.
Missed Payments
Advantages:
-Buyer may get the property on a price lower than the market value as the seller is motivated to sell the property quickly.
-Seller is likely to do the repairs on the property.
-Buyer may get the additional benefit in terms of the closing costs and other commissions being paid by the seller himself.
-Buyer can use regular mortgage financing.
-Desired inspections with due diligence could be made by the buyer within in the contingency period.
-Seller must legally provide complete history of property’s condition, problems, repairs, etc.
Disadvantages:
-Buyer may not get a price lower than the outstanding value of the seller’s debt.
-Sellers still have to move out.
Pre-Foreclosure/Notice of Default (NOD) or Lis Pendens Filed by Lender/Short Sale
Advantages:
-Buyer may get the property on a price lower than the market value as the seller is motivated to sell the property quickly.
-Desired inspections with due diligence could be made by the buyer within in the contingency period.
Disadvantages:
-Buyer may not get the expected benefit, as the lender may disapprove the price.
-Short sale is a lengthy and time consuming process.
-Sellers still have to move out.
Foreclosure Auction
Advantages:
-Property will only be sold for the outstanding amount of the mortgaged loan.
-Cash payment requirements reduce competition.
Disadvantages:
-Inspections are not allowed.
-Buyer may take property and owe other liens, back taxes and mortgages. Buyer must research state of title prior to auction.
-Buyer has to search for the issues relating to the property himself as the bank does not provide history.
-If bank believes auction will not recover a good price, bank may buy the property at auction.
-Upset homeowners normally damage the property prior to the auction.
-Buyer has to pay for their own representation.
Post-Foreclosure Bank-Owned Property REO (Real Estate Owned by Lender)
Advantages:
-Bank is entitled to negotiate the terms and not the seller himself.
-Title will be clear; buyer will not take on any liens, mortgage or back taxes of prior owners.
-Desired inspections with due diligence could be made by the buyer within in the contingency period.
-House will be vacant.
-Property will usually be listed on MLS; bank will pay real estate agent’s commission.
-REO sales close within a normal period of time.
Disadvantages:
-Buyers will have to do all the repairs himself.
-Buyers will have to do the additional paperwork as required by the bank.
-Buyer has to search for the issues relating to the property himself as the bank does not provide history.
