Job loss, divorce and the death of a spouse are bound to throw one’s personal finances into turmoil and are just some of the dire circumstances that lead homeowners to consider a distress sale.
Homeowners resort to such a move when they can find no other way to pay the mortgage and they’re eager to avoid foreclosure by the bank.
As a proactive measure, some homeowners will actively seek a buyer for their property. Someone who can either qualify to assume the mortgage, or buy the property outright for enough money to pay off the mortgage.
But typically, in both scenarios and where quick sales are involved the homeowner doesn’t receive anywhere near the amount of equity that they have invested in their home.
For buyers it’s an opportunity to buy property at a deep discount. But be forewarned, sometimes these unconventional buys are riddled with costs that surface after you’ve signed on the dotted line and are more trouble than they’re worth.
Not only are these bargain-priced houses usually in need of repairs, there may be liens from second mortgages, taxes, unpaid water bills, homeowner-association dues and court judgments. When all of those expenses are factored in, final sale prices often aren’t significantly lower.
That said, for buyers willing to dive into this unconventional market, here are a few tips:
  • It’s best to work with real-estate agents and brokers who are experienced with handling distress sales.
  • Get pre-approved by a lender before bidding on a property.
  • Get a thorough inspection of the house done prior to buying.
  • Arrange for a thorough title search and title insurance.
  • First-time buyers with few home repair skills or little cash left over to invest in home improvements are wise to avoid these kinds of bargain buys.