Thinking of Buying a Foreclosure? Beware These 3 Risks

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Buying a foreclosed home might save you some money, but watch out! Read on for a few potential pitfalls of buying a home in this less traditional way. 

Buying a foreclosure may seem like a good way to get real estate on sale. After all, foreclosures often sell at auction for a lower price. And while you usually do need to pay cash at a foreclosure auction (and won’t be able to use a mortgage loan to buy a home), you may be able to buy for far less than expected depending on the situation.

The problem, however, is that there are huge risks associated with buying a house that’s been foreclosed on. Here are a few of the biggest potential dangers you could face if you opt to buy a home that’s been foreclosed on.

1. You could end up with unpaid debts that become your responsibility

If you buy a foreclosed home, you could be buying the house with additional debts attached.

Houses could have multiple claims on them, not just from a mortgage lender but also other creditors. If the property owner had a home equity loan or line of credit or was sued and got a judgment against them, these parties could have a claim. Those who have claims on the house could have liens that follow the property. This means you’d end up having to pay them out of your checking account once you become the owner of the home.

Some of these liens may be taken care of by the foreclosure auction, like the mortgage lien if the mortgage lender foreclosed. But many will follow the property — including the mortgage debt if you bought the house after a foreclosure by the homeowners association.

You might have property tax debt to pay as well, or there may be outstanding water and utility bills that have to be taken care of. You should conduct a title search to find out about any claims on the house that could come with it — and that you could become responsible for as the new owner.

2. The house may be in poor condition

Very often, people who are facing foreclosure don’t have the money to properly maintain their houses. This means a foreclosed home could come with many deferred maintenance issues, like roof leaks and foundation cracks. And, in some situations, people get mad about being foreclosed on and they purposefully cause serious damage to the house. This could include tearing out copper wiring or pouring cement down toilets and ruining the plumbing system.

In many situations, you won’t be allowed to go into a foreclosed home to inspect it prior to buying it. This means that you won’t always know what you’re purchasing and you could find a host of big problems when you finally become the owner and take possession of the home.

You need to be prepared for the financial costs of fixing up a property, as well as be ready to bring in whatever contractors you need to make the fixes. It could still be a good deal to buy a home that has sustained damage if you are up for remodeling it, but take those costs into account when deciding whether to go through with the purchase.

3. You may have to go through the eviction process

Finally, if there are people still living in the foreclosed home, you may have to go through the eviction process to have them removed. You generally can’t just lock people out or remove their stuff, but instead have to go to court to get an order that they must vacate the premises and then get law enforcement to help you. You also have to provide proper notice.

This whole process can take weeks and cost money, so be aware of the potential for added expenses and stress.

If you’re ready to tackle these problems and you find a foreclosure you think is a good deal, then moving forward with buying it can make sense. But be aware of these potential problems so you don’t jump into the purchase without a full understanding of what you’re taking on in the process.

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