Foreclosure investing can be a canny way for you to buy property and make a tidy profit when reselling. It is also a great way to buy a home under market value. But keep in mind that although the property and home may be foreclosed, there may be external structures that are not covered by the foreclosure or owned by the lender.
Be Wary of Portable Property
When buying foreclosed property, it makes sense that you should own whatever is on it, but the law disagrees. Anything that can be easily removed from the property or not on a foundation is considered “portable.”
This means that mounted property, like a shed, can be easily removed and reclaimed by previous owners. Trailers also fall under this law. In many cases, the party claiming ownership can just easily come and get the object under question, but greedy lenders or owners may simply move to file a claim instead – and get some of your hard-earned money while you are at it!
Valuables and Personal Property
Previous owners may also leave valuable items that they may lay claim to in the future. Just because you find a classic Harley motorcycle in the garage does not mean it belongs to you. Selling it may get you in trouble in the future.
The best advice to follow is to store the items you find and get in touch with the lender or owner, as well as written notice. In many states you have the right to dispose of the item if the previous owner does not claim it within 30 days.
Tenants and Active Leases
Do your homework! Even foreclosed properties may have a tenant or active lease on them. In many cases, you may have to honor the lease, especially if the tenant has been paying rent. In this case, you may choose not to renew the lease when it expires.
Depending on state law, you can either renew the lease and assume the role of the landlord or provide them with an eviction notice once you assume control of the property. Keep in mind that some states are very friendly toward tenants that prevent eviction (especially since they have no legal obligation to pay the mortgage that holds the property in the first place). Others require longer eviction notices.
In the case of abandoned or foreclosed raw land or commercial properties, you need to carefully research what may have gone wrong. Be wary of deals that sound too good to be true. This can also be an issue with foreclosed homes or short sale properties.
A commercial property that has gone into foreclosure may have been the victim of a bad location or some other issue that made the property undesirable. The raw land you want may seem like a bargain, but the zoning issues it comes with can give you a big headache later on. Or it may be bordered by nationally protected forests or land that will give you problems later, especially if you want to develop.
Fixer Upper? Money Drainer
Before buying a foreclosed house labeled as a fixer upper, remember to inspect the property first. What may be advertised as a mild fixer upper can rapidly turn into a nightmare property and be a drain on present and future finances.