Tip #1: Be Patient.
And I mean really patient. Delays happen. Sometimes it can take weeks just to get the bank or asset manager to sign paperwork. It’s not a quick process, period. If you have a deadline and need to be out of your current home quickly with nowhere to go in the meantime, then buying a foreclosure probably just isn’t for you. It worked out for us since we were renting and we had a very flexible landlord, but I realize this is not always the case. If you have to be out of your home by a specific date, then make sure you’ve arranged for a place to stay in the meantime while you wait for the deal to close. Foreclosure situations are unpredictable, and delays can and probably will arise. Which brings me to my next tip …
Tip #2: Expect Delays.
Just when you think everything is smooth sailing, something may pop up to delay the process. In our case, our closing date got delayed because of a discrepancy with the deed to the house. It turned out that the bank that owned the property had to get a “corrective foreclosure deed” so that they would have the correct deed to hand over to us. This in and of itself can take a long time. Our asset manager was located in California, so aside from the time zone difference, it takes a while for the paperwork to go through the chain of people necessary to get it to the proper contact, have them sign it, then get it processed.
Tip #3: Get a thorough inspection.
Often with foreclosures, there is no disclosure involved, and usually the bank will not make any necessary repairs or knock any money off the price to compensate for work the home needs. Know what you are getting yourself into, and decide whether any possible damage or issues with the house are deal breakers or not. There usually isn’t a lot of room for negotiation. I also highly recommend getting a mold inspection too!
Tip #4: Make your “best and final” offer early on in the process.
Bidding wars are common, particularly if the home is in a sought-after area. We narrowly avoided this situation but if we hadn’t accepted the bank’s counter offer, we likely would have gotten into a bidding war. We found out another buyer was getting ready to make an offer that day.
Tip #5: Have all of your “ducks in a row” ASAP, but fully expect that the seller won’t.
Make sure that you have everything in order throughout the entire process. Don’t make an offer before having your preapproval letter (it’s typically required anyway), have your earnest money ready, and down payment funds easily accessible and ready for a quick close (even though it probably won’t be quick). You want to be prepared for any possible scenario. That said, know that the bank selling the house probably won’t have all of their ducks in a row even though they expect you to. The bank selling our home was very strict about every little detail, but in the end it was their fault the closing got delayed.
Tip #6: Go for the enhanced title insurance.
You will have a choice between standard and enhanced title insurance. I personally recommend going for the enhanced, because even though it costs a little more, it offers more protection which is important in a foreclosure situation. For example, when the bank took ownership of our home, they built a new deck. The enhanced title insurance protects us against any code issues or lack of permits or anything that they may have dropped the ball on, and we won’t be held accountable. The enhanced insurance obviously covers more than the standard, and I’d rather have ourselves covered “just in case.”
Tip #7: Talk to the neighbors.
This is helpful in any home buying situation, but especially with a foreclosure I think it’s helpful to meet the neighbors and ask for any information they may have about the house before you buy it. (For example, does the basement flood frequently? Has there been any past damage you should know about? Is the neighborhood quiet? etc.) Our realtor recommended this and I did it before we put an offer on the house.
Tip #8: Have a Backup Plan
Know that there’s a chance that the purchase just won’t work out. Sometimes things fall through for a variety of reasons, as is the case with any home purchase. Everything is just a bit more unpredictable with a foreclosure. I know it can be disappointing, and our deal came close to falling through on multiple occasions. Have a game plan in place in case the sale just doesn’t pan out.
There are definitely perks to buying a foreclosure too. Obviously a purchase price below market value is a plus. You really just have to weigh the pros and cons and determine if it’s the right decision for you. I don’t want this list of tips to deter you from buying a foreclosure, because it can definitely be a good investment if it works out. I just don’t want anyone to go into it blind without knowing what to expect. If you are considering purchasing a foreclosure, I hope these tips will help you prepare for the process!