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4 Key Risks Of Buying Foreclosure Properties
So you find a property that you could potentially acquire for a fraction of it’s market value from the foreclosure listings.
It’s unbelievable that such a rough diamond can be spotted by you. And it’s going to be one of those deals where you make money on the buy…
… or is it?
While foreclosed homes can look like great deals on the surface, there can be danger lurking below the surface. And you might not be able to discover them until you are treading in dangerous waters.
This is why beginners in real estate investing should be very cautious when entering this market. And it is best that they have an experienced hand to aid them when required.
Here are some major risks with acquiring foreclosure property.
Homeowners who have had their homes taken away from them forcefully often have a vengeful axe to grind.
It’s not uncommon to find abandoned homes ransacked and with everything of value taken away.
That’s just the first part.
In extreme cases, they trash the house by destroying fixtures, walls, and windows, leaving the place looking like a bomb had just gone off.
This problem compounds when lenders usually don’t let potential buyers conduct an inspection of a property before an auction.
So you are pretty much screwed if you happen to be the highest bidder of a house that needs a total overhaul… urgently.
2) Unclear title
As you might expect, lenders who are trying to auction off foreclosed real estate cannot wait to wash their hands off these undesired assets.
They don’t want to have anything to do with it all.
This is why lenders don’t guarantee a clear title to these properties. And you would find it tough to get in insurer to offer title insurance to protect you from title problems in future.
What if there are liens against the property? What if someone comes along and lay claim as the rightful owner of the property? And what if the household that used to live in the house are not the legal owners of it?
There are many more “what if” scenarios when it comes to foreclosed houses.
These risks are all on you.
3) Outstanding debts
For all you know, the outstanding debts that the previous homeowner owes is not limited to the mortgage.
There could be unpaid property taxes, maintenance fees owed, or even court judgments against it.
Because every party is trying to get rid of the property from their balance sheet, you might become a victim of undisclosed information that would come back to haunt you one day.
Because ultimately, the new owner is going to be liable for the debts made against the property.
If you think that everybody in the world are law-abiding citizens, you have a huge wake-up call coming your way.
The previous owner might be legally required to vacate the house. But whether they do exactly that is another matter altogether.
You could very well walk up to your new purchase and find the previous owner is still living in it with all the family members… with no intention of leaving peacefully.
Evicting them can be the biggest challenge you will ever face as a landlord or real estate investor.