Buying a foreclosure home? Get the foreclosure checklist
The physical condition of a foreclosed property is well known to be an important factor in determining a property’s appropriateness for investment purposes. Most deficiencies can be determined through a visual inspection. Having a checklist will keep you organized.
Real estate title, taxes, municipal assessments, and HOA fees
But every bit as important as the physical condition of the property is the condition of its title. And the condition of the property’s title is something that should be left to the experts: real estate attorneys and title agents. While a lender’s foreclosure will wipe out liens junior to its mortgage, you must remember that there are certain liens that are superior, that is, that have priority over a lender’s mortgage and are not extinguished through foreclosure. Among the liens that may fit into this category are real estate taxes, municipal assessments, and Homeowner Association fees.
This means that even after the foreclosure is complete, and the title passes from the seller, there are still outstanding amounts owed. Only an inspection of the public records (preferably by a certified title searcher such as a title company or real estate attorney) and an estoppel letter from a Homeowners’ Association, can quantify what that amount is. These fees do not go away when title passes. So, if such items are outstanding, they must be added to the calculation of the purchase price in order to accurately determine the gross cost of the property.
Just as real estate taxes, municipal assessments, and Homeowner Association fees can be hidden from view when inspecting a property, so too can many environmental issues be present, but not obvious. Hazardous materials are often found around the sites of gas stations and dry-cleaning establishments, although these are by far not the only possible sources of contamination. Lead based paint, mold, and radon are hazards that may not be obvious to the naked eye, but they are just as serious as title defects, a leaky roof, or sinkhole. If any of these elements are suspected, use the foreclosure checklist to sort them out. Call the local health department to see what information they may have on this issue, and do not hesitate to have inspections done professionally. The presence of hazardous materials can completely wipe out any price advantage received by entering the foreclosure market. In fact, as a holder in due course of the property, the new owner may also be exposed to expensive remediation and fines.
Each property fits within a zoned area, which means that the governing body has designated it for a specific use. Within the category of residential zoning there maybe single family, multifamily, or multi use designations. When a property is originally built, it is pretty certain to comply with the zoning use for the area, otherwise it would never have received its Certificate of Occupancy. However, as time goes by homeowners might add structures or additions to the original house. They may subdivide the home to make two dwellings; they may convert a garage to a living unit; or enclose a carport to make it into a garage. There are numerous ways to violate the zoning laws. These uses of the property outside the zoning guidelines are called ‘non-conforming’ use. If discovered, the authorities can require that the property be restored to be in compliance with its zoned classification. This process can be very costly and may result in the buyer not being able to use it as originally planned.
Water, Water Everywhere
Water can be a big consideration in the real estate transaction. For one thing, if the property is in a flood zone according to FEMA’s flood maps, any lender financing the property is going to require flood insurance. Depending upon which flood zone the property is in, and the value of the property, the premiums for flood coverage can be high. While making expense calculations for the property when preparing the home buyer’s checklist, an estimate for flood insurance must be included.
Riparian rights have to do with the rights the public has to access to waterfront properties. If there is a dock, bulkhead, or marina contiguous to the property, a check of the Army Corps of Engineers website will tell you how riparian rights affect others’ use of the property.
We recommend that you use the Foreclosure Buyers Checklist as a guide for keeping track of issues that affect the purchasing decision. As noted, some issues not initially apparent can be deal killers if they end up as surprises after the transfer of title This checklist outlines a step-by-step approach to buy a foreclosure help to keep you organized and look for key features that you may not pay too much attention to otherwise. Being prepared ahead of time will assure you of the best possible foreclosure buying experience.