If you are planning on buying a foreclosure/bank owned property there are few things you need to be aware of.
Foreclosed homes are sold as is. That means when you make an offer, the contract will specifically state that the Seller will not make ANY repairs, even small ones. The banks usually will not let you make any repairs for legal reasons. This can cause an issue with the loan closing. If the appraiser finds any issues that are required to be fixed, you nor the bank will be able to make the fixes.
All homes must meet HUD guidelines in order to close. Some (but not all) of the more common HUD guidelines are:
- Utilities. All utilities including water, gas and electric must be on and in working order when the appraiser visits.
- Peeling paint. Peeling or chipping paint is a major HUD violation.
- Missing household items. Appliances are typically not required to be in the home, but basic items such as kitchen cabinets, bathroom cabinets, toilets, showers, bath tubs, etc. cannot be missing.
- Windows in the home cannot be broken or missing.
- Flooring. There must be flooring installed throughout the home.
- Walls. There cannot be any holes in the walls.
- Mold or water damage. There cannot be any water damage or any signs of mold.
- Roof. The roof must have at least three years of life left and not have any holes, missing shingles or leaks.
- Electrical. GFI outlets are required in all kitchen and bathrooms.
- Safety concerns, especially outside. Proper railings on decks and rails on steps must be present.
Keep in mind, the flooring or paint can be dirty or outdated but it must be there. If the floor is dirty or old but 100% intact, it will be okay. Missing or broken tiles or bare floors are not okay.
It is sometimes hard to find a foreclosure that will meet these guidelines, but not impossible. If you think you would like to proceed on making an offer on a foreclosure please be sure to send the address to your loan officer so we can check out the specifics and determine if it will pass the appraisal.