Buyer Beware! 7 Consumer Tips When Purchasing a Foreclosure Property

Many people think they are getting a steal when buying a foreclosed property. This isn't always the case, and prospective buyers should weigh the pros and cons, especially if they are considering the purchase as a primary residence. Here are 7 tips buyers should be aware of to avoid the possible pitfalls.

1. Foreclosure protection laws. Certain states have laws against buyers contacting a pre-foreclosure homeowner directly. There would be a need for a middleman to ensure a seller’s rights have been fully explained and documented. Ensure that you are working within the state’s law if you are considering contacting homeowners directly to purchase a property.

2. Damage and repairs. When buying a foreclosure, you are often buying a property in “as-is” condition. In addition to the normal maintenance that is sometimes necessary, some property owners are less than pleased when they lose their homes and decide to take their anger out on the house before they vacate. When buying a foreclosure property, budget generously for damage and necessary repairs to the property.

3. Redemption periods. Many states have a period of time after a foreclosure auction in which a foreclosed homeowner can reclaim their property. In these jurisdictions, if the previous owner pays the back the total amount of fees and payments within an allotted timeframe, they regain the rights to the property. If you are considering buying a foreclosure – especially for living purposes – check your state’s foreclosure redemption regulations.

4. Neighborhood values. A foreclosure property may look like a great deal, but not if the property values in the neighborhood are still on the decline. If you buy a house before the prices have bottomed out, you may be starting out with negative equity. Make sure you are buying a property where the community values are on the upswing.

5. Unpaid utility bills. Many homeowners stop paying their utility bills when they cease making mortgage payments. These bills may carry over after you have purchased a property – keep documented records in case you need to provide proof of the transfer of ownership to utility companies.

6. Review household contracts. Does the property you are buying have a security system? How about a landscaping service? Are the appliances under a home warranty? These may be a few of the contracts that need to be transferred or reviewed on your new property. Again, the documents you have that prove ownership transfer may assist you in conversations with these service companies.

7. Unwanted visitors. Counties are reporting increased instances of vandalism and squatters in vacant foreclosed properties. Ask the neighbors if they have seen any new and illegal activity. Before you move in, check with the local police to get crime reports for the area. In addition, ask them to do a drive by of your property.