Buying a NJ Foreclosure Property: The Risks

5834354526_a3011365ac_z

As we know first-hand here at Veitengruber Law, there are currently an abundance of foreclosed homes in New Jersey. In our practice, we typically represent the homeowner who has been foreclosed upon. Sometimes we help homeowners keep their homes out of foreclosure (foreclosure defense), while other times we walk them through the foreclosure steps (usually combined with a bankruptcy).

The fact that New Jersey has so many properties in foreclosure (although the numbers do appear to be slowing down, albeit very gradually) means that these homes are or will soon be available for purchase at Sheriff’s Sale.

Along with assisting clients who are dealing with foreclosed homes, we also approach things from the other end for those who are interested in purchasing foreclosure properties.

Whether for investment purposes or to simply get a great deal on a future residence, more and more New Jerseyans are realizing the potential that our state’s mass amount of foreclosures represent. For example, a foreclosed NJ property that sold for $1.3 million in 2006 may go for $300,000 at Sheriff’s Sale.* Simply looking at the numbers makes buying a foreclosure property look like a slam dunk.

If everything works out in your favor, buying a foreclosed home certainly can be a fantastic way to get a great house at a fraction of its original market value. With that being said, there are a number of things that you need to be aware of before setting one toe into the foreclosure arena.

The ‘perfect’ house can slip through your fingers at any time. As we work directly with homeowners whose homes are in foreclosure, we can tell you that a homeowner can stop the foreclosure process in the blink of an eye by taking one single action: filing for bankruptcy. If this happens, you may have invested a lot of time and longing into a home that suddenly becomes unavailable.

Even if you buy a home at Sheriff’s Sale auction, make your required down payment (20% of the price you agreed to pay for the home), the original homeowner still has the opportunity to pull off a miracle and decide to keep the home by bringing the mortgage current. They have 10 days following the sale of the home to do so, which is referred to as ‘redemption.’ While redemption is a rarity, you still need to be aware that it is a possibility.

If the original homeowners do not use the redemption period to redeem the home, the IRS has the right to take ownership of any foreclosed properties on which there is an existing federal tax lien. The IRS can take up to 4 months to decide whether or not to redeem a foreclosed property.

Foreclosure properties are sold ‘as-is.’ If you purchase a home at a NJ Sheriff’s Sale, you’ll agree to take ownership of the property without having any opportunity to do a proper walk-through or appraisal.

The unfortunate truth is that owners who couldn’t keep up with their mortgage payments most likely weren’t keeping up with home maintenance or repairs either. There may be significant problems for you to discover only after you’ve signed your name to the property.

Tens of thousands, or even hundreds of thousands of dollars in repairs may be necessary, depending on the size and scope of the home in question.  Whether you plan to rent the home for additional income or live in it, costly repairs will delay both, and could have you actually spending more money than if you’d purchased a non-foreclosure home.

Most importantly, if you still wish to enter into the process of buying a foreclosure property, you need a professional by your side, especially if this is your first experience with foreclosed real estate.

Image credit: Richard Elzey

*example only

 

 

Advertisements

One Response to Buying a NJ Foreclosure Property: The Risks

  1. Pingback: Top Reasons Foreclosed Homes in New Jersey Won’t Sell | Veitengruber Law

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: