subject: Buying A Home - Is A Foreclosure Right For You? [print this page] If you're contemplating between purchasing a short sale or a home in foreclosure, you'll find the foreclosure option a more challenging one. A foreclosure occurs when the lender decides to execute their legal right to force the sale of a home when the owner defaults on their loan payments. In today's upside down bank and mortgage industry, you'll find a surge in the number of foreclosures hitting the market - creating new opportunities for homebuyers searching for a real estate bargain. All communities, from the high end luxury homes down to the most inexpensive ones, are susceptible to foreclosure.
When a homeowner defaults on their mortgage, the lender will offer a grace period before they begin foreclosure proceedings. If a homeowner can't cure the default within the grace period, the bank will take steps to foreclose on the home - which creates great opportunities for new homebuyers during the pre-foreclosure, public sale or auction, and when the property reverts back to the bank (called real-estate-owned, or REO).
What makes buying a foreclosure so popular is the low price you get no matter which stage of the process you decide to buy. While there are positive aspects to buying a home in foreclosure, you need to be aware of certain drawbacks:
1) Minimum Buyer Protection - Unlike a normal homebuying transaction, a foreclosure process will force you to sacrifice some homebuying protection. For example, you may not get the opportunity to inspect a home before you buy it and have to forgo any protection from title insurance.
2) Waiting For The Owner To Cure The Default - Many states have laws designed to insure lenders can't swindle a home away from late-paying homeowners on short notice. If you're a buyer, that mans you'll have to deal with tons of deadlines, unexpected delays, court rules, and uncertainty - especially if your state gives a former homeowner the right to "redeem" or buy the property back within a specified time after it was sold in foreclosure (can range from ten days up to a year). If this should happen, you'll receive a refund of all your money. The question you need to answer is do you really want to wait in limbo, not knowing if you'll get the home?
3) More Competition - In the real estate market, if there's a potential for a great deal, you'll find plenty of real estate investors who've already lined up ahead of you.
4) Hidden Risks or Issues With The Property - Unfortunately, owners in foreclosure tend to cut out spending on property maintenance, property taxes, or liened up any remaining equity to secure other debts.
If you still decide you want to pursue a foreclosed property, it's best to find an agent who specializes in them. Many agents don't handle them. If you still plan to use a regular real estate agent, give each agent a limited role so they don't overlap each other. You'll also benefit from hiring a real estate attorney to assist you through this difficult area.
