Foreclosure Mistakes - Foreclosure Blunders You Should Avoid
While foreclosure investing is a profitable business activity you must avoid mistakes that may cost dearly. Don't let it happen to you. First, determine your foreclosure goals before you take any action in buying any bank foreclosures or government foreclosures.
Don't forget contingencies in buying foreclosures
Always buy properties subject to home inspection. Having foreclosure inspection gives you great security and peace of mind. You or a professional home inspector may find a structural problem or costly repair item (such a roof replacement, termite problem, wet foundation) that diminishes your profit.
Don't repair or upgrade foreclosure property before things are settled
First, wait until previous owner leaves the property. If the homeowner has foreclosure redemption right as a result of judicial foreclosure procedure in your state, wait until such redemption period is over. Previous homeowner can pay off the full amount of home mortgage loan, accumulated interest and expenses and repossess the property. And, you cannot recover your repair and remodeling expenses.
Don't let homeowner stay in the foreclosed property
You will keep listening to excuses to gain more time if you let the previous owner stay in the foreclosed property. What happens if you receive an offer to rent it? Previous owner is already in bad financial situation. How can you expect the homeowner will be able to make rent payment after failing to pay monthly mortgage payments? Buying bank foreclosures and government foreclosures is a business, not a social event. You must follow business rules if you want to succeed.
Get a clear title of foreclosed property
Any cloud in title may reduce and even wipe out your profit in foreclosure property. Make sure that there are no senior or junior liens, mechanics’ lien, federal or local government tax lien, or homeowners association (HOA) fee. Title report issued by the title company contains ownership and liens against the property in “ownership and encumbrances” report. Have a title search and insurance.
Remember: Foreclosure auction does not necessarily mean that you will not owe more than what you bid. When you get the ownership of the foreclosure house, you may be liable to pay lien holders, tax offices, and others to clear the title, if not already cleared.
Make sure the pre foreclosure sale is not a "fraudulent conveyance"
What is fraudulent conveyance? Homeowner may try to sell the property to you to defraud the creditors just before or after declaring bankruptcy. Some homeowners in difficult financial circumstance may try anything to solve their problems. If creditors prove that you knew about this defrauding action by the homeowner, then the court may suspend the sale.
Stay away from foreclosure and pre-foreclosure scams
Foreclosure property sales are subject to most scams in this country. Don’t buy any foreclosure during foreclosure auctions until you read and understand the foreclosure practices in your state. Reading books full of hype and no-money-down options may mislead you. You are responsible for your actions and mistakes. Don’t believe in the assurances given by people lecturing on free seminars.
Get involved in every single process in buying a foreclosure
- Read the paperwork even if you have a real estate agent working for you.
- Attend the professional home inspection. You may find something that home inspector may overlook. At least, you learn how to inspect, what to inspect, and detect problems.
- Expect the unexpected. Expect delays, expect problems, expect expenses more than you anticipated, and expect last-minute withdrawals.
No matter what might possibly happen, learn from the books, information-rich websites, and from your and others’ mistakes.