Frisco TX Foreclosures: Inherent Risk When Buying Foreclosures

by Mike Yeo on January 8, 2011

Frisco TX Foreclosures: So You Wanna Buy A Good Deal?
Learn the Real Scoop When Buying a “Good” Deal

Part 3: Inherent Risks when Buying Foreclosures

Want to buy the best greater Frisco TX deal in town? Chances are high that you may consider a bank-owned property which the Bank seller acquired through the foreclosure process. However, buying a foreclosed home is not a typical real estate purchase. It is advisable to know what to expect when buying a foreclosure. Hence, it is reasonable to also expect inherent risks that comes along with the purchase. Please refer to the previous article (Part 2: What to expect when buying a foreclosure) to fully engage with this next topic.

No Utilities – Who Pays for Utilities?

Some foreclosure properties are sold with no utilities in place. With that said, the home inspection could go 2 ways: Buyers can opt to inspect the properties with no utilities – which means many of the key important property conditions become unknown. Hence, not a good option to consider. The other option is that buyers could have utilities turn on in their name. Assuming that coming up with the additional costs for deposit and utility set up are not a problem, there are still risks in turning utilities on in your name. Should anything goes wrong during the utility turn-on during inspection, the home buyer would have already signed in the addendum to assume liability.

Purchasing The Property As-Is

Most home buyers understand that home inspection conducted at the beginning of the process may not be a catch-all of the property condition. In addition, under Texas state law, banks or owners who never resided in the property do not need to fill out a Seller’s Disclosure Notice. Banks do not know the property conditions. It is purchasing the property as-is. Furthermore, in the contract addendum, you probably have to waive your rights to take legal action against the Bank Seller.

By the time, these properties acquired through foreclosures and become available for purchase, the properties have been vacant for a while. There are risks to property conditions even after a home inspection (due diligence) is performed on the property. Some property conditions are not known until a homeowner lives in there for several weeks or months.

Limited Special Warranty Deed

The unknown conditions of the purchase go beyond property conditions. It includes chain of title. In all bank sale transactions, special warranty deeds are transferred. The banks only guarantees clear title during their ownership. Should there be problems prior to their ownership, it is not the Seller’s problem.

Seller-Advantage Contracts

Most foreclosure sales are written on the Texas TAR 1-4 Single Family Home Resale contract. In addition to that, bank sellers make buyer sign additional contract addendums. This addendum is written in favor of the Seller by the Seller’s attorneys. Whenever there is a disparity, the addendum take precedence of which the Bank Seller makes buyer sign too. In the addendum, buyers waive rights to many opportunities available in a regular sale:

  • Unrestricted right to termination during option period.
    When dealing with a bank, there is no such clause. You purchase the property as-is and if there are major repairs that the Seller agree to fix, the Buyers must move forward with the purchase.
    Just imagine foundation or structural issues with the property.
  • Many outs for Sellers but Buyers dont
    The contract addendum specifically talks about how the Seller is able to get out of the contract should the sale not go their way. Unfortunately, not the case for the Buyer.
  • Waive rights to sue Seller for unknown property conditions and specific performance.

Since this sale is so one-sided, why do buyers do it anyways?

Well, for the most part, home buyers feel that the “savings” or rather “instant equity” in the sale outweighs the risks involved. Hence, the biggest lesson learnt here is that The property becomes a “GOOD” deal only at the RIGHT PRICE – when it is padded with allowances that things (inherent risks) may go wrong.

In situations where there are multiple offers on the property and buyers get in the heat of bidding, this is where I think having a good non-emotional third party such as your Realtor(R) to make sure your original objectives of the purchase is still in line.

Part 1: Laying Down the Ground Work
Part 2: What to Expect When Buying Foreclosures

Special Diamond In The Rough: New Foreclosure Properties in greater Frisco TX areas

View some pre-foreclosures/ short sales and banked-owned properties in Frisco, Plano and McKinney:

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Loreena Yeo
Realtor®/ Broker of 3:16 team REALTY
(214) 783-2210

Super-serving Frisco, Plano, Dallas, McKinney, Allen, Little Elm, Prosper, Celina, Richardson, Dallas M-Streets, Dallas White Rock Lake area communities and other surrounding areas.

Copyright © 2009 by Loreena Yeo (3:16 team REALTY).
Frisco TX Foreclosures: Inherent Risk When Buying Foreclosures

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