If you are looking to purchase a foreclosure property, then there are very important things you need to know before buying.  First you should understand how foreclosure works, so you know why and where you’re getting your property from.  A foreclosure comes from a homeowner that has defaulted on their mortgage and can no longer find a way to pay it.  It can take up to a year in some states before the property goes up to auction.

©Orange County Short Sale - flicker

©Orange County Short Sale – flicker

At the auction you will be competing with professional investors and sometimes even the bank (they want to make sure they get there money back from the property).  If you do go to the auction to make a bid on a foreclosure property, make sure you have the cash, because you will be paying right there, at least the deposit and then you may have 30 days to acquire the rest of the balance.

Another type of foreclosure property that you can purchase is a Department of Urban Housing and Development or HUD homes.  These come from FHA-financed loans defaulting and were not priced low enough to put in the time and effort of renovating.  There can be some really great deals here, so keep that in mind.

Make sure you know what you are getting yourself into with the condition of the property.  The homeowners may have trashed it before they left.  There have been accounts of food strewn about foreclosure homes, burn marks and holes in the carpet and walls.  Most houses will smell too, due to the fact that the Air conditioner has probably been shut off and no air circulation has been going on.  Keep all this in mind when you are viewing the property, no matter how good the price may seem, you may be getting a dump.

Taking a walk through the home is very important before you buy it, you don’t want to find out it needs 10,000 dollars of structural repairs afterward.  Make sure you bring someone with you to formally inspect it, so you know exactly what you are getting yourself into.  Of course there will always be some surprises after you purchase, but with the right research and preparation, they should be minimal.

If you do find a home that you like, meet with a Realtor who is experienced with foreclosures, so they can write up a offer fast and submit the proper paper work.  If it is a new property on the market you will want to get as close as you can to the perfect offer.  If the property has been on the market for months, you should not have to pay full price.

Finally keep in mind that you most likely are required to sign a multi-page addendum of some kind, releasing the bank from any liability associated with the home.  It will basically say that the bank knows nothing about the property and make no representation about the property, and finally are not liable for anything ever related to the property.  Basically giving you full responsibility for the place.

Foreclosure properties are sold as-is, the bank won’t make any repairs.  This is why you want to thoroughly examine the place and bring knowledgeable people with you to help out.  Just keep in mind that a foreclosure property can great deal, but many times, because of lack of knowledge, investors can end up losing a lot of money!

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