QUESTION: We are buying a home that was foreclosed upon and sold to a large development firm that fixed it up and put it back on the market. The home seems to be in good shape and the price is right. Are there any issues we should be concerned about in this kind of transaction?
ANSWER: You are wise to go into this transaction with your eyes open and thinking about any possible pitfalls. Such situations as you describe – investors buying foreclosed properties, fixing them up and putting them back on the market – are fairly common. These kinds of situations can result in good outcomes for both the investor, who makes money on the transaction, and the buyer, who typically gets a spruced up property at a good price.
There are, however, some extra precautions you need to take as a buyer of such a property.
First of all, make sure you have an attorney carefully review the title to make sure the foreclosure was performed and concluded properly, and all issues cleared up. Be sure you take out a title insurance policy.
Check with the local building and zoning authorities in the community to make sure that all permits were properly obtained and closed out both from the recent renovation and also from the previous owners.
Make sure there are no building or health or other code issues with the property and that all of the renovation and construction work was done and completed to community standards.
If there were any additions made to the home, pay particular attention that they were properly permitted and completed. Ask for proof from the investment firm selling the home that all contractors and other workers were paid in full.
Be sure to have the property inspected by an experienced and competent home inspector to ensure that all of the renovations were properly done with quality materials and workmanship. Make sure that any problems were properly addressed and fixed by the renovation, and not simply “covered over.”
Be especially on the lookout for any signs of mold or termite infestation since the property may have sat empty for along period of time during the foreclosure process. Ask neighbors about the house and its history, how long it sat empty and any problems they were aware of with the home.
Linda Goodspeed is a longtime real estate writer and author of “In and out of Darkness.” Email her at: firstname.lastname@example.org.