Buying any home is a big decision, but if you’re considering a foreclosed property, you have a lot to think about. Foreclosed homes can come at a great value, but that can also bring many potential issues that could cost you much more money than you were expecting or even threaten your right to own the home in the first place.
While title insurance can’t help repair an aging roof, it can equip you with the protection you need to avoid culpability for existing liens and other problems that may be associated with the property. Buying a foreclosed home can be a smart financial decision as long as you are prepared and protected. Here’s what you should keep an eye out for.
Understand Why the Foreclosure Happened
Not all foreclosures are the same, and understanding why the foreclosure happened is critical when you are making a purchasing decision. In some cases, a home will be foreclosed due to circumstances beyond the control of the previous owner, such as the loss of a job or death of one owner. However, more sinister scenarios could also be at work, including fraud that captured the home (on paper) from its original owner.
In these more nefarious situations, someone may commit fraud to make it appear that they are the owners of the property instead of the actual owner. The fraudster can then take out a reverse mortgage or otherwise leverage the property to make money, and then vanish. Because the original owners didn’t know that their property was leveraged against outstanding debts that were not being paid, they could have faced foreclosure unexpectedly.
Title insurance can protect you from this and other types of fraud, and it can also ensure that you are safe in any foreclosed homes that you purchase.
Gather Details on Age, Repair Status and Market Value
When buying a foreclosed home, be sure to thoroughly research the history of the property. Learn how old the home is, which can help determine if it is due for any major repairs, or if any major elements of the home have been repaired or replaced, and when. Some major issues to prepare for include the HVAC system, plumbing, roof and the foundation of the home. You could be getting an inexpensive foreclosure that ends up costing you more than other homes in the area once repairs are done.
Similarly, examine the market value. If it’s quite low compared to other local options, determine the reason for this. Foreclosures are not necessarily required to be less expensive than other homes; if the price seems too good to be true, it could be. With thorough research, you could discover a critical element about the current condition of the home.
Stay Abreast of Outstanding Liens and Judgments
The history of the home is one of the most critical points of information you may invest in researching for your foreclosure purchase process. Foreclosures are more likely than other properties to carry outstanding judgments with them, including liens. Liens are debt attached to a home for which the owner is liable. If you purchase the property you will be required, as the owner, to pay back those liens even if they were not yours to start with.
Title insurance is critical for foreclosed homes because these liens could appear later, after you have already made your purchase. Title insurance keeps you from being responsible for the debt if the liens are discovered after your purchase.
Plan for the Home’s Surroundings
Objectively review how the foreclosed home fits into its area. While this means researching the local unemployment rate and quality of the school district, it also means taking a visual look at the property to proactively identify any areas of potential conflict. Perhaps there a tree obstructing an area where you would like to build a fence; if this is right on the property line, be sure to review local records, or have a survey of the land conducted to determine the legal owner.
This is another area where title insurance can be highly beneficial. It protects you in matters of boundary disputes and zoning issues if you discover that the foreclosed property details were incorrectly recorded.
Trust the Pros to Help You Protect Your Purchase and Avoid Unwanted Surprises
Foreclosures can be a useful way to leverage the property market and secure a home for far less than it would in optimum circumstances. To safeguard your investment, be sure to go into this process with comprehensive title insurance. Foreclosed homes are more likely to have outstanding issues and errors in recording, for which a robust title insurance policy can be invaluable.
The provider you choose is just as important as the policy you choose; be sure to work with a reputable and well-established provider. The experts at Mathis Title Company would be happy to help you explore your options for protecting yourself during a foreclosure purchase. Contact our team to learn more or to schedule an appointment to get started.