Foreclosures and short sales often are bargains, but they can come with a raft of expensive problems.
Just ask Adam Melson of Philadelphia. Melson had looked at more than 2 dozen houses and he jumped at the chance to purchase a short sale home that seemed like a decent buy in a good neighborhood.
A short sale happens when the homeowner sells the house for less than the amount owed, and the lender does not get all its money back. Typically, this happens when the home’s value falls. A short sale occurs only with the lender’s permission.
But $40,000 in renovations later, he feels differently.
Melson’s home inspector had said the short sale house was fine — just a little termite damage in the basement. But when Melson tore up the linoleum to repair a soft spot in the kitchen floor, he found the damage went layers deep.
“The boards supporting the kitchen floor were entirely eaten by termites,” he says. “I also learned at this time that the kitchen sink did not drain anywhere. It drained openly under the house.”
Melson ended up replacing an entire wall of his house. That was before his roof started leaking and he discovered thick, smelly mold behind the entire shower unit. “With several other things I wasn’t expecting, I wound up hauling over 10,000 pounds of my house to the dump in rented box trucks,” he says.
Know what you’re getting into before you buy a short sale or foreclosure property and be mindful of these 5 common mistakes:
Foreclosure property owners didn’t want to leave.
“They’ll often take that frustration out on the property,” says J. Scott Steinhorn, a real estate investor with Lish Properties LLC in Cobb County, Georgia, with experience in foreclosures and short sales.
“I’ve seen a couple foreclosure properties where the previous owners clearly took a sledgehammer to the nice hardwood floors, the tiled showers and the cabinets, just to be spiteful,” he says.
Empty foreclosure properties may suffer from issues that arise from neglect — leaks, mold, termites, thieves, squatters and filth — because the property sat vacant for weeks, months or years before purchase.