Wed. Jun 7th, 2023

Risks of Buying a Foreclosed Property

When searching for an affordable investment property, foreclosures may present an attractive option – however they do come with their own risks.

Avoiding these risks requires conducting adequate research, which is why we compiled this article outlining five things to watch out for when purchasing foreclosed properties.

Paying more than the current market value

When purchasing foreclosed property, always keep an eye out for potential bargains. Negotiating discounts could save thousands on your purchase price.

Calculating what a foreclosed home should sell for involves many variables. Banks must decide how much they will offer as cash payment and spend to repair repairs on it before making this important determination of profit margins for themselves in the end.

Before shopping for foreclosures, it is also a smart move to evaluate the market value of homes in your neighborhood. Doing this will allow you to avoid paying too much and making long-term purchases that won’t meet your needs.

Use our Home Affordability Calculator to quickly assess current market values of homes in your area and to help determine what budget-appropriate homes there may be in your area. It takes only 60 seconds and will provide invaluable insight into whether a property fits with your lifestyle perfectly or not.

Use of the Home Affordability Calculator can assist in making informed homebuying decisions and avoid foreclosure. Furthermore, this calculator can also be used to estimate what your future mortgage payments might be in case circumstances change or should renegotiation take place for existing loan terms.

Purchase of a foreclosed property can be a challenging decision to make, yet with proper research and the ability to negotiate effectively it can become rewarding and bring many long-term advantages.


homeowners unable to keep up with mortgage payments usually end up losing their homes through foreclosure, leaving these properties open for purchase at auctions or short sales.

Purchase of foreclosed properties can be an excellent way to build equity or generate profits on investments, but it’s crucial that you conduct thorough due diligence prior to making this decision.

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A qualified real estate agent can assist in finding a foreclosed home that meets both your budget and needs. Furthermore, they will guide you through the auction process.

Foreclosures are an increasingly prevalent asset type across many markets, but they come with significant risk. Most foreclosed homes are sold “as-is,” meaning the seller does not conduct an inspection before selling, nor guarantee its condition.

Potential buyers of foreclosure-prone properties face significant hurdles when making their purchase, as this may require costly and time-consuming repairs that were beyond your initial expectations. It would be prudent to put aside money before purchasing, in case unexpected expenses come up – this will enable you to cover them when necessary.

If you aren’t sure whether buying foreclosed property is right for you, consult with a financing expert first. They can explain any risks involved and guide you toward finding an accommodating lender.

Finding financing to purchase a foreclosed property may prove challenging if this is your first experience in the housing market; banks and mortgage lenders tend not to support such deals.

An additional issue associated with foreclosure properties is their potential to come with attached liens due to back taxes or outstanding debts that add an extra cost component when purchasing them. These liens are often placed against them due to taxes being unpaid or other outstanding financial obligations owed against the property.

IRS liens can often impose an expense upon foreclosed properties that must be cleared before closing on them, so doing your research before purchasing one is vitally important.

Unpaid liens

Before purchasing a foreclosed property, it’s essential that any unpaid liens attached to it be cleared up before any sale takes place. Unresolved liens can pose significant obstacles and must be dealt with prior to the closing.

Liens are legal claims made against property owned by creditors or government agencies, either voluntary or involuntary.

In the event you fail to repay a mortgage loan, your mortgage lender can attach a lien against it and sell or take back ownership in order to recoup its losses from missed payments.

Tax liens are another type of lien. Local governments or the IRS can collect any unpaid taxes directly from your bank accounts before any other creditors.

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City and other governments can file judgment liens against your home if you fail to pay your water or sewer bills on time, even after an order of collection has been granted by a judge. These liens remain on the property for 10 years following finalization, even if you sell it before that time has come.

Your lender may have the ability to petition a judge for removal of a lien on your property, although this process can be lengthy and complex, carrying risks for both sides involved.

Liens may be placed against property for various reasons, including construction work, taxes and bills. Contractors or other providers can place a mechanic’s lien commonly known as construction or labor lien on a property to ensure payment for their services until their dues have been fully paid up.

If your lender fails to remove their lien before closing on your home, it’s essential that you consult a real estate attorney who can explain all of your available options. Otherwise, attempt negotiating with them directly to see if they can release their claim before signing any paperwork for closing costs.

Title insurance companies can perform an intensive search of your property to help prevent this situation from arising. If they discover any liens on it, the title company will reach out to the creditor and attempt to reach an agreement that allows for you to clear them prior to closing on your home – although this can be both time consuming and costly process, but can ultimately be successful.


In a competitive market, it may be tempting to forgo home inspections in order to make your offer more appealing to sellers. But this risk needs to be evaluated alongside your real estate agent.

Foreclosed properties present additional risks as they are typically listed “as is.” This means that lenders or banks won’t pay to repair any flaws discovered during an inspection; buyers should therefore take seriously any inspection results they receive.

Home inspection is an in-depth assessment of a house and its systems. A professional will inspect everything from roof tiles and foundation slabs, major appliances and major systems like plumbing. A home inspector can spot leaks, pest infestations or dry rot issues during their examination of a home’s systems.

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Before hiring a home inspector, do your research on their qualifications and experience. Look for one with an outstanding reputation who belongs to industry groups like American Society of Home Inspectors (ASHI), or ask your real estate agent for their recommendation.

Professional home inspectors should give an impartial report and present you with a copy of their inspection certificate containing their name, address and contact information.

Some inspections are performed using special equipment, like cameras or sensors; other times they’re conducted by trained professionals using their hands for visual examination.

Most homeowners must obtain an inspection for their homes before selling them; this is often required legally and serves to protect buyers from being taken advantage of or purchasing an unsafe house.

A thorough home inspector should also evaluate any safety hazards such as fire, water or electrical issues and structural damage in addition to inspecting the surrounding land for grading and drainage issues.

An inspection may cost money, but it could be well worth your while. Not only can it detect serious issues with the property but it can also save you from unexpected repairs that arise later. An inspection can also help determine if a foreclosed property meets your family’s needs and can assist in finding out whether a prospective purchase would make good financial sense for everyone involved.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.