Top 10 Considerations for Purchase of Foreclosure and Short Sale Properties

1. It often takes 14 days (or more) for the bank to respond to an offer on a foreclosure or up to four months to respond to a short sale offer.
2. With foreclosures, you will often forfeit your earnest money (typically 1-2% of purchase price) if you back out of the sale or cannot close for any reason after the inspection period has passed.
3. With foreclosure properties, the seller typically takes no responsibility for title or material defects with the home. Also, there will often be little or no ability to seek recourse from the seller of these properties for problems encountered after the closing. (recommendation - get title insurance and purchase a home warranty)
4. The seller of foreclosure properties will often require you to get a 2nd pre-approval from but not necessarily have to use their specified lender . They also may try to require you to use their title company for the closing. (recommendation – before using their title company or lender, check with the Commerce Department and other title companies to ensure the company is reputable and get an estimate of total costs to ensure the costs are in-line with what other companies would charge)
5. The utilities may be turned off so bring a flashlight when looking at these homes and have the utilities turned on after your offer is accepted and before performing a property inspection.
6. Ensure you have a place to live while performing any required repairs on the property prior to moving in.
7. Ensure you have good estimates of the time, money and complexity of any required repairs BEFORE writing any offer.
8. Some loan-types (example FHA and DVA) will not allow you to close on the property or will require money to be set-aside in a special escrow account if there are any required repairs (i.e., broken windows, missing plumbing fixtures, habitability issues). (recommendation – check with your lender before starting to look at foreclosure and short sale properties regarding limitations in your preferred financing program)
9. Any personal property (i.e., appliances, manuals, remotes, window treatments, spare parts) may not be in the home when you close. (recommendation – write these items into the purchase agreement but especially with a foreclosure, this may still not guarantee these items are present after the closing)
10. The advertised price on a short sale property and some foreclosure properties may be far less than what the mortgage-holding bank will be willing to accept. (recommendation – as with any other property, do your homework and seek professional advice from a Realtor® to determine how much to offer)

Definitions
Foreclosure: Home is "owned" by the Real Estate Owned (REO) division of a lender. Home was taken back from an owner who defaulted on their financing.
Short Sale: Home is still owned by the mortgagor or the person(s) who took out the
mortgage(s) to purchase the home. The mortgagor is having trouble financially and has asked the bank(s) to take a short pay-off of an amount less than they owe on the mortgage(s).