All Foreclosures Are Not Created Equal

“That home is in foreclosure.” You get an immediate mental picture of an overgrown yard, and falling down house or angry owners who are resentful of the foreclosure and trash the property. Sure, this is true of some foreclosures but not all.

The biggest caveat when buying a foreclosure home is that it is typically sold as is, which means the bank is not going to fix any problems. And unlike a normal home sale, in which disclosure requirements force owners to reveal a home’s every flaw, there’s no such legal stipulation in a foreclosure.

Since banks are often eager to unload these properties, they aim to break even with an asking price that’s typically the sum of the remaining mortgage note plus interest, lawyer fees, and penalties. On average, this ends up totaling about 15% below the home’s actual value—and homes often sell for less than asking price. offers these suggestions if you are considering purchasing a foreclosure.

  • Research how long the home sat vacant, whether it endured freeze and thaw seasons unattended, or experienced anything that may have caused significant structural damage.
  • Hire a home inspector to thoroughly check out the home for major problems. Have the inspector give you an estimate of how much money it will take to make repairs.
  • You can try to add financing and inspection contingencies to your offer. That way, if you do encounter problems with the home or attaining a mortgage for it, you can back out of the deal without losing your deposit. Just keep in mind that asking for contingencies does not mean the bank will accept them; they’re not the norm with foreclosures.
  • Hire a professional to conduct a title search. This may allow you to avoid all kinds of nightmare scenarios—sometimes the bank will clear the liens, but it isn’t required to do so. For instance, let’s say the IRS has a lien on the property for back taxes. That debt doesn’t follow the owner once he sells. Instead, the lien sticks with the property, making the new owner responsible for repayment.

Not all foreclosures mean a bad investment, or a difficult transaction. And some can present great opportunities for buyers.With luxury foreclosures sometimes the bank WILL do repairs.They will spend the money needed to make sure the house is maintained and “in keeping” with the value of the neighborhood. For our listing in Ellicott City improvements included fresh paint, new carpet and a new furnace.What was an unfortunate situation for the previous owner, who took meticulous care of the home, presents a great opportunity for the next buyer.