I often get contacted by people inquiring about foreclosure properties, excited about the low cost. While there are some good deals to be had, go into a foreclosure property with your eyes wide open, aware that there may be hidden costs.
- Foreclosure properties are sold ‘AS IS’. That means if the plumbing, electricity, heating, etc don’t work it’s the buyer’s responsibility to fix it…same if the roof leaks, etc…and you may not know everything that and does not work prior to closing.
- Most foreclosure properties have outstanding utility bills, sometimes in the form special assessments. As mentioned in a previous post on closing & the water bill, be sure to research these and also make sure funds are escrowed for the final water/sewer bill…if the seller doesn’t pay or escrow funds for it at closing, it becomes the buyer’s responsibility.
- The city may have assessed fees for tree, weeds, grass and snow or garbage removal, police boarding, vacant building registration and zoning. Although your title company researches county records for both these and the costs in #2 above, it is possible to miss something due to incomplete records…sometimes the city/county is behind in recording everything. Any fees not paid by the seller at closing become the buyer’s responsibility. Contact the city directly to ask for any outstanding bills/fees.
- Many cities require a city inspection, which may require some repairs prior to selling a property. In a foreclosure situation all repairs become the responsibility of the buyer, and some cities require funds be escrowed at closing for these repairs, usually 1 1/2 times the estimated cost. Escrowed funds will be returned to you after you complete the repairs. This means you not only need the funds for the repairs, you also need funds to be held in escrow until the repairs are completed.
If you are considering purchasing foreclosure property, be sure to budget for other expenses beyond the purchase price.
