The Morality of Foreclosure Profitability

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Business

Anyone venturing into the real estate world in search of a house will find the adventure daunting. It is to be expected, after all. Aside from being probably the biggest investment and purchase of someone’s life, the stress related to house purchasing and the mortgage necessary for it is plenty to frighten potential buyers. Working with a real estate agent can simplify the process, but going alone will only bring up unexpected situations that an average buyer is not prepared to handle.

While searching for a home that fits within their budget, buyers are often sidetracked by the much more affordable options of foreclosed properties. While looking for a bargain isn’t something anyone should be judged on, knowing what you are getting yourself into before purchasing isn’t as easy with foreclosed homes.

What is a Foreclosed Property?

When an individual purchases a home, usually they require a mortgage. This means took out a loan from the lender – usually the bank – for the home purchase. This mortgage requires monthly payments from the new homeowner. In case the homeowner is at any time unable to meet their monthly financial obligations towards the bank, the bank has a legal right to seize the property and sell it to cover their bad debt.

This is the process known as foreclosure. It allows the bank to try and recover the amount still owed by the borrower. Until the bank sells the house, the property remains bank-owned. The foreclosure process can vary depending on the state, but it generally begins when the borrower misses mortgage payments or defaults on their mortgage. There are some steps a homeowner can take to try to avoid foreclosure, but these should be taken as soon as possible. If no payments reach the bank, they will send notices reminding the borrower that they missed payments. The last stage comes into play if, after several notices, the borrower continues to miss consecutive payments. That is when the bank will move in and foreclose the property.

Morality and Foreclosed Properties

Those looking for bargains on the real estate market may face the dilemma: Is buying a foreclosed property moral?

This question unjustly makes potential buyers think that they are in some way responsible for the misfortune of the foreclosed property’s previous owner. We say the previous owner because it is the bank’s property when a home is foreclosed.

Neither the potential buyer nor the bank is stealing an owner’s property. The property was the owner’s, but they lost it after failing to make the required payments. Dealing with the human suffering aspect of this situation is not the bank’s nor the potential buyer’s responsibility. The house is up for sale, and someone who can afford it is going to buy it. It’s as simple as that.

It could be reasoned that there is an ethical responsibility in buying foreclosed properties/ For instance, if the bank deals with several foreclosed properties in the same area and doesn’t manage to sell them to individual buyers, they might look to investors. Once investors become owners of individual properties, they can flip them and rent them out. While a homeowner’s family might be interested in the state of the neighborhood, get involved in the community, and are concerned about the area’s safety, investors might not be as involved with their properties. Our final thoughts about the morality of purchasing foreclosed homes are: While you can not help the former owner of a foreclosed home, you can help that neighborhood.

The Reality of Foreclosed Properties

Most potential homebuyers are looking for affordable properties in the current real estate market. Given the appreciation of prices despite the relative financial instability resulting from the COVID-19 pandemic, it shouldn’t be a surprise. However, many potential buyers see the low price tag of a foreclosed property and jump at the opportunity. Being able to buy a property assessed at $300,000 for somewhere around $150,000 is quite the opportunity, but not everything is as perfect as it seems.

There are potential pitfalls buyers should be aware of before jumping on the affordable price. Aside from the property being foreclosed, which does not affect potential buyers aside from prolonging the closing of the property, buyers should consider other aspects of the property. Homes that wind up foreclosed aren’t in the best of shapes.

Maintenance on these homes usually leaves much to be desired. The bank won’t invest in the upkeep of the property because their only goal is to get rid of them. Buying a home “as-is” comes with several risks. It might be that the previous owner did not take care of the property before they were forced to vacate it, or maybe the property has been vacant for years. Vandals or basic mold can have exponential effects on any home, even if it is abandoned.

Something else that potential buyers of foreclosed homes should take into account is that not all banks approve loans for foreclosed properties. This will make it a bit more challenging to get a mortgage approved. Depending on each situation, it might be necessary to buy the property in a full cash payment.

Buyers of foreclosed homes need to be aware that they will have to invest more money into them after the property is purchased. If any interested party cannot put in the work, they should keep away from these so-called bargains. In truth, most are anything but bargains, but other reasons mobilize buyers to invest in them.

Environmental aspects of Foreclosed Properties

Any property that is abandoned, left vacant for months or years, and is unattended can get damaged. Time, weather conditions, hot and cold temperature changes, the lack of heating inside the home are all elements that affect an empty house. Properties that are unoccupied degrade much faster than inhabited ones even if no repairs are done by the people living there. Simply by heating a space, you engage the home’s pipes, preventing them from freezing in the winter and cracking during the summer heat.

Furthermore, foreclosed homes, much like commercial and industrial properties that are abandoned, pose an environmental hazard. If the foreclosed house has a heating oil tank, in time, the oil tank may start leaking, leading to soil pollution and contamination of the groundwater. Depending on when the house was occupied, lead paint, asbestos, mold, or old septic systems can cause severe damage to the environment and anyone looking to purchase them.

Purchasing a foreclosed property requires due diligence from any buyer. All these potential problems need to be fixed as they do not provide adequate living conditions and could even affect the health of future inhabitants. These issues need to be fixed before anyone moves in, and the cost can be higher than the discount gained on the foreclosed property. However, the foreclosed property can become a dream home by resolving these issues, especially if it doesn’t create financial difficulties for the new owner.

Conclusion

Becoming a new homeowner is something that many of us are dreaming about. However, we should be aware that some risks are associated with the bargain provided by foreclosed properties. While some may dive headfirst into such a transaction and regret it during the home’s inspection, those that know what they’re getting themselves into may spend more than they would have anticipated. We can help you find a real estate agent in your area, but you’ll also need a qualified inspector if you’re interested in purchasing foreclosed properties. Buyers should be aware of what they are getting themselves into and have an action plan in place. Real estate professionals can ensure that you have all the details about the property to make an informed decision regarding your future investment.