While millions of Americans struggle to make mortgage payments and worry about losing their homes to foreclosure, many others are looking to buy homes for the first (or second, or third) time. Naturally, these two sides of the real estate market have converged in the public consciousness, and the idea of "buying foreclosure properties" seems to be cropping up everywhere.
But before you jump on the foreclosure-buying bandwagon, make sure you know what you're getting yourself into. Consider this cautionary tale.
A recent article in Motley Fool tells the story of a couple who decided to buy a home. They ended up purchasing a house whose previous owners were in the middle of foreclosure proceedings. Though their purchase of the home should have brought an end to any foreclosure actions, they returned home from work one day to find all their possessions (including food) gone and their locks drilled through - in the home they'd just bought!
Turns out, JPMorgan Chase, the bank that owned their mortgage company, was so swamped by foreclosure paperwork, things got mixed up and the foreclosure proceedings on the couple's house weren't halted as they should have been.
Now, the couple is working with lawyers to determine appropriate compensation - but all their stuff is effectively gone: the contractor hired to remove it from the house donated it to secondhand stores in the area.
If you're considering buying a home, you've likely heard about buying foreclosure properties or buying properties from real estate "short sales." Part of the reason for that is that record numbers of houses are going into foreclosure right now, as the effects of the subprime lending boom begin to show themselves.
For real estate-savvy buyers, foreclosure properties or homes bought at short sales can be bargains - that is, buyers may be able to get them for less than their market value. But in some cases (such as the one described above), the purchase of foreclosure properties can be disastrous.
Both types have the potential to be sold at a price below their market values. But, as the story above shows, even a "good investment" can turn into a major net loss if you don't have all your ducks in a row (and make sure the mortgage company does, too).
Buying a home is a complex process. Buying a foreclosure property is even more complex, since you need to have an idea of what kind of value you're getting, whether or not you'll owe money in addition to the price you bid, what condition the house is in and more.
The government's department of Housing and Urban Development (HUD) offers a list of guidelines for homebuyers. No matter what kind of house you're shopping for, be sure to follow these steps.
Don't rely on one person or one resource when making a purchase as significant as a house. Explore many reliable sources, learn as much as you can and take your time before making major decisions.
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