Buying a foreclosure property gives you great opportunity to own your dream home at a significantly lower cost. However, this type of transaction has its own nuances that make it more complicated than regular real estate transactions.
You need to approach the purchase of a foreclosed home with caution. Before going any further, check out the guide below.
- When is a property foreclosed?
In Tennessee, as in most other states, a Notice of Default is usually issued if the homeowner fails to make 3 to 6 months’ worth of mortgage payments. The homeowner must cure the delinquency within 90 days or 3 months of the time the Notice of Default is filed. If they’re unable to do this, the home may be foreclosed.
The period between the filing of a Notice of Default and the foreclosure is commonly known as “pre-foreclosure.” A foreclosed home is also known as “owned by bank” or REO (Real Estate Owned).
- What are the benefits and downsides of buying a foreclosure home?
A foreclosed property is often sold at a discount and is especially beneficial if you want to buy a high-end home on a tighter budget.
However, buying a foreclosure also involves several risks and downsides:
- There is the likelihood of the home needing intensive repair and restoration. Any savings you get from the sale could be wiped out by the cost of repairs.
- You buy a foreclosed home as is, with no warranties. If you find major repair needs after you’ve purchased the house, you alone have to shoulder the costs.
- With the bank or lender as the seller, you may have to wait long before the deal is closed and all the needed paperwork is completed
- How can you buy a foreclosed home?
You may purchase a foreclosure either through a public auction or through more traditional processes. A public auction is often held shortly after the home is foreclosed. If not sold at the auction, the home is endorsed to a real estate agent for listing.
- What do you need to consider at an auction?
You can get a bigger discount at an auction. However, you’re also exposed to bigger risks.
Buying at an auction very rarely allows you the chance to have the home inspected, and all you’ll have to go on with are photos and written descriptions. Before the auction, you may try to arrange for an inspection or a property visit, but this does not happen often. In many cases, property owners are highly emotional and tend to be uncooperative.
You also get little chance to look into title encumbrances, liens, and accuracy. An important thing to keep in mind is that Tennessee has a Right of Redemption law, which allows owners of foreclosed homes up to two years to pay off the amount they owe and redeem their properties. Most borrowers waive this right and give the property’s trustee the right to sell upon foreclosure. In buying a foreclosed home, you must make sure that the owner has waived their Right of Redemption or that the redemption period has passed.
Additionally, you will most likely be required to pay earnest money in cash or cashier’s check right at the auction.
- What do you need to consider in buying a listed foreclosure?
A listed foreclosure home offers smaller discounts but comes with less risk. You can have the home inspected by a professional and factor in the potential repair costs in your offer. You will also have more time and opportunity to do a title search and ensure the title is clean and free from encumbrances.
In buying a foreclosed property, it’s important to work with an experienced real estate agent who can guide you through the complexities of such a transaction. Get in touch with The Goswitz Team at 865-218-1159 or at info(at)goswitz(dotted)com to get the expert guidance that you need.