For many looking to purchase their first home, a second home or even an investment or rental property, buying a foreclosure may seem like an easy way to get a lot of house at a bargain. While foreclosures are almost always priced competitively or even under market value, buying a foreclosure comes with some hidden hazards and hidden costs which are generally not found in traditional home sales. If you are not careful with your foreclosure purchase, these hidden costs can add up quickly, eating up any savings you found by purchasing a foreclosure over a traditionally marketed and sold home.
If you’re thinking about purchasing a property that has been foreclosed on, we’ve gathered a list of several hidden costs to be on the watch for before you finalize the sale.
- No electricity/heat and the repercussions
If a foreclosure property has belonged to a bank or the lender for a long period of time, the chances are good that the bank has had the utilities shut off. In some areas of the country this can have severe impacts on the electrical and plumbing systems. Frozen and damaged pipes, water leakage, warping or damage from temperature fluctuations can result in large expenses you’ll have to take on soon after purchase.
- Destruction of property / poor property maintenance
Foreclosure is a stressful process which rarely brings out the best in people. Some people, faced with losing their home, may intentionally damage or destroy portions of the home. These damages can be expensive to repair, and may be your responsibility to repair upon purchase of their property.
- Existing judgments and property liens
While some banks and lenders will pay to have existing liens on properties removed, don’t assume that any lien on the foreclosed property you’re interested in will be paid and cleared by the owning lender. Properties in foreclosure can come with judgments and/or liens which you will be responsible for paying in order to clear the title and close on your new property.
- Property that has been stripped bare
Similar to property damage, some people when faced with losing their home, will strip it bare and take anything and everything of value out of the home. Other times, people who know that a property is empty and bank owned will help themselves to what is inside. It is not uncommon to walk into foreclosed properties that lack all appliances and fixtures, but be aware that property stripping can include items like copper wiring and piping. These can be difficult and costly repairs, and certainly not something you want to be surprised with.