1. Location makes a difference -If the entire neighborhood is depressed it will be more difficult to recoup value in the home. Have your Realtor give you a snapshot of the neighborhood. Also consider things like the school district and the the proximity to public transportation. Most cities in Minnesota have programs in place for buyers of Foreclosed properties. Make sure that you work an experienced Realtor who knows abut the different programs and how they affect buyers.
2.Make sure that you have the funds to rehab the property – Let’s face it, the majority of these homes are not in move in ready condition and will need to be fixed up before they can be occupied.In Most cases your lender will inspect the home and point our a variety of things that will need to be done in order for them to finance the purchase. In some cases you can assume the repairs and fix them as you go but typically the bank will want you to prove that you have the funds before you can proceed. Most likely you will have to place it in an escrow account where it’s payable only to the parties involved in the renovation.Form the banks point of view it makes no financial sense for them to invest in a dump if the buyer is not going to make any improvements that will add value to the property.Consider your intended use for the property. If you are renting, get it up to code,make is safe and keep it simple. If you are occupying the property be careful what you spend. Just because you got a great deal on the home doesn’t mean you should turn it into the Taj Majhal!
3.Vacancies - Inevitably the longer the home sits vacant the more problems arise. Insects, vandalism (taking copper from the plumbing and appliances) and squatters are common. In order to protect it’s homes most cities have programs in place to monitor vacant properties. be aware that most cities in Minnesota have a TISH (truth in sale of housing) or POS (point of sale) programs. The city will pre-inspect the homes a note any items that must be repaired or replaced before the home can be sold. In the case of most foreclosures buyers will assume all repairs. The buyer will have to make the majority of the repairs before occupying or renting the home.
4. Inspection – Simply put get a home inspection. Most foreclosures are sold “as is” and with no warranties or guarantees on the condition of the property. The banks have never lived in the property so they can’t make any claims regarding the condition. Most banks will allow an inspection period for buyers. It’s worth the upfront cost to know if there are major issues that need to be addressed. In most cases you can cancel your offer with no penalty during your inspection period if you find that the property is simply too risky of an investment. If the water is turned off make sure that you arrange with the listing company to have it turned on and de-winterized (if necessary) for your inspection. Most home inspectors ill not turn on the water for you because they don’t want to be liable for damages.
5. Assessments -Most foreclosed homes in Minnesota will have some sort of assessment. Vacant building fees, back taxes and city projects are all common types of assessments. When you write your purchase agreement make sure that you ask the seller (bank) to assume any levied assessments. Levied assessments are for work/ services that have already been performed (sidewalk repair, garbage) or for fines imposed for code violations. Most banks won’t assume pending assessments. You can ask for it but it their is competition it makes your offer much less attractive to the lender. Make sure that you go on to the county website and look up the property. It will show if there are any assessments against the property. Banks are not forthcoming about this information and it’s up to the buyer to do the research. You should also call the city assessor just in case.
6. Read the fine print – Most REO or foreclosed Minnesota properties have bank addendum’s that buyers are required to sign. Check for items like “non-refundable earnest money agreements”,”Per Diem” and contingencies. Bank addendum’s can be lengthy. Make sure that you take time to read through each page and understand exactly what you are signing. In most cases the bank addendum will supersede any documents you have signed with your Realtor.
7. Financing – In most cases if a house is in poor condition their will be restrictions on financing. Most banks will not accept FHA financing if the home is in bad shape. A lender won’t finance a property that has a lot of problems unless they know those problems will be addressed by the buyer. Conventional is easier but the preferred types of financing for forecloses are Rehab, FHA 203K, Homepath and of course cash. Check the financial remarks on the listing and make sure you have an experienced agent who can advise you on your best options.
If you are interested buying a Minnesota Foreclosure or have additional questions please contact me.
Tags: bank owned home, buyer, foreclosure, REO
