Buying distressed properties
My mother was fond of using the expression "penny wise and pound foolish," which I always thought was interesting coming from a woman who would track department store dresses waiting for them to go on sale. But, as usual, mom was right, especially when it comes to purchasing distressed properties.
If you're thinking of jumping into the distressed real estate property market, you should know a few things before you take the final leap. First of all, what exactly is a distressed property? Basically these are homes that have either gone through foreclosure or are being marketed as short sales.
A foreclosed property is already in the possession of the lender, but a short sale is still technically owned by the homeowner. In the case of a short sale, the homeowner typically can't afford to maintain the mortgage, but the lender agrees to the sale of the property for less than the balance of the mortgage instead of actually foreclosing on the property.
Buying a foreclosure from a bank or lending institution can be faster than a short sale, since you are dealing with a motivated seller who wants to get this property and the expense of maintaining it sold as quickly as possible. Short sales can take weeks or months to negotiate offers, since the layers of lending institutions frequently involved in a mortgage process may not be clear. Also pricing on actual foreclosures is usually more aggressive than on short sales.
In addition, if you're looking for move in just bring your toothbrush condition, you can forget about finding that in most distressed properties. Many of these properties are in rough condition especially if they have sat idle for some time with minimal or no maintenance. Previous owners may have also taken fixtures and left properties damaged both inside and out.
Generally, lenders sell distressed properties in "as in" condition, and it is the responsibility of the buyer to verify the condition of the property. Because of this it is important for distressed property buyers to have a thorough inspection by a qualified home inspector or engineer. That being said, there are a large number of new condos in Florida that are also distressed properties. Properties like this could actually be in very good condition or never even lived in.
It's also not uncommon for title issues to be a problem with distressed properties. Liens from previous loans, unpaid contractor bills, taxes, utility bills and home owner association dues are among the issues that are common with homeowners who have not been able to meet their financial obligations. These are items that must be satisfied before a closing and can become a negotiable point between the buyer and the lender. Because of this attorneys and title companies both need to be involved in a short sale or foreclosed property transaction.
The bottom line is for you to consider if all of the potential problems and the property's condition really represent enough of a bargain to make you want to go forward. Sometimes the hype about distressed properties is just that. Everyone assumes it's a great deal, therefore, a lot of offers come in making the property more competitive than it should be.
Our battered real estate market has just as many opportunities for picking up a great investment as it has for headaches. If it looks too good to be true, it usually is. Just ask your mother.