Here are a few issues which may surface when buying foreclosed home:

  1.  The property is not occupied, therefore, you will receive no seller’s disclosure of known problems or defects of the property.
  2. The buyer purchases the property in “as is” condition. Generally, the institution which holds the property does not want to put additional resources into it, therefore, there is little room, if any, to negotiate repairs or concessions in lieu of repairs.
  3. The deed conveying the property may not be a warranty deed. If you feel unsure about the title the holder is conveying, consult with an attorney prior to executing any addendum to a contract which could potentially limit the conveyance.
  4. Read the Institution’s addendum to the Contract carefully. The addenda contain provisions which supersede the provisions in the contract. Read them carefully and/or consult with an attorney so you fully understand the entire contract.
  5. There is the “multiple offer scenario” which arises quite often with foreclosures. The selling agent will collect offers under the direction of the selling institution. All offerors will be notified of this fact and asked to submit their highest and best offer by a certain deadline. Be prepared for this – it happens often and is why these homes often sell for much more than the initial list price.
  6. Cash is King.  In the foreclosure market and in the short sale market, a cash offer for less money will often be accepted over an offer tied to financing. Institutions prefer the shorter wait time for closing and the over the uncertainty associated with financing. You may also be asked to place a certain percentage of the asking price (10-20%) in escrow upon acceptance of your offer.
  7. There is usually a clause in the addendum to the contract which will state the date upon which the property will close and that if the contract does not close on that date due to buyer’s issues with financing or otherwise, the buyer will be charged a daily fee (often around $100.00 a day) until closing occurs. Be aware of this, and if in doubt, consult with an attorney.
  8. Do not try to purchase a foreclosed home contingent on the sale of your home. Institutions do not have the time or the inclination to agree to these offers.
  9. The bank may dictate the title company used for closing in the addendum.
  10. Utilities may be off on the foreclosed home and you will probably be responsible for turning on the power and water are turned on prior to conducting the inspection. This also means there is the potential for other issues associated with an unoccupied home with no electricity (theft, mold, etc…). Be aware of these risks in buying a foreclosed home.
  11. If financing the purchase of a foreclosed home, it is important to understand that the home must be in a condition such that it qualifies for a loan. Some banks may require that the home be in “habitable” condition. It would be wise to ask your loan officer about this before making an offer.