Buying Foreclosed Properties: Important Pitfalls
Many people have started looking at foreclosed properties as a
new, cheap real estate investment. Properties at foreclosure
sales often sell at a substantial discount, so you can get a
very good deal in many cases. There are several problems you
have to watch out for, however, so be careful.
First, you need to know the status of the liens on the
property. You can't just go in bidding and expect that you'll
come out owning the property - you need to know who has
initiated the sale and what your state law is regarding junior
and senior liens. Many houses don't just have a single mortgage
- they will have been used as security for multiple debts. A lot
of would-be investors get burned this way - they buy a house for
what they think is a good price, only to find out that there is
still a large debt outstanding which they either have to pay or
lose the house to yet another foreclosure sale. You'll need to
do a title search to find out whether there are any other loans,
and you need to be familiar with state law on this subject.
Second, you should watch out for houses which you know nothing
about. Don't just rush in bidding based on the listed
information - that's the biggest newcomer mistake. You need to
know something about the property and it's condition - remember,
the current person living there has just lost their house. They
often don't think twice about damaging it, and their anger at
the bank can result in financial losses for you.