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Reasons Not to Buy Foreclosure Property as Real Estate Assets

Real Estate Attorney

When an owner or homeowner defaults on mortgage payments, or when they are unable to repay their debts, their home is sold and considered as a foreclosure property by the bank, or mortgage lender to whom debts are due. To a real estate property investor, a foreclosure home can serve two purposes that include buying at a lower price as an investment and reselling it later at a higher price, or getting a new home at a cheaper price than the market equivalents. However, buying a foreclosure property can come with some pitfalls that need careful assessment before a purchase is made.

Considering the fact a foreclosure property purchase can be a complex process that may need legal advice, consulting a competent real estate attorney can help identify legal complications and the best strategies to navigate them, or refrain from a loss-making investment. Following are some complications real estate planners may face.

Low Asset Value

There is a high possibility the foreclosed property is sold at a lower value due to an economic downturn, bad condition, or an unsafe neighborhood. In an economic downturn, house prices may be down due to low resale value or multiple foreclosures in the neighborhood, making it hard for investors to identify any future value unless the economic condition improves. Finding a new buyer under dismal conditions can be a potential pitfall.

Funding issues

Finding loans for a foreclosure property is hard due to its already low value and dismal conditions. Moreover, because many foreclosure properties are bank-owned, they prefer providing their own financial structure that may not be favorable to an investor. Additionally, banks usually have little to no idea about the property and its condition itself, making it more difficult to make a real estate valuation or assessment as per the current condition. Their main reason to sell is to recover their old debts, rather than hold it as an investment.

Potential Repairs

Although the new property owner will do repairs and renovations to make a property look like a home, there is no formal quantified assessment of the work that needs to be done if a house is bought on auctions. Many houses come with conditions and delays before possession are given. It is also possible the house was subject to vandalism from prior owners, or crime in the neighborhood. These need careful legal assessment before a purchase is made.

If you wish to know more about closing a real estate transaction in Illinois or speak with an experienced real estate attorney, contact the offices of Covert Marrero Covert LLP at (630) 717-2783 and schedule a free consultation session.

By Brian Covert | Posted | Posted in Real Estate Attorney

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