The Risks and Rewards of Buying Foreclosures
It’s hard to look at the rock-bottom prices for short sales and foreclosures in the Chicago area and not feel you could get a great deal.
After all, residences that are going for 50 percent less can seem like a once-in-a-lifetime opportunity and a dream come true. But purchasing troubled properties is often a time-consuming, stressful and frustrating process, filled with potential risks and hassles.
You buy a foreclosure or short sale as is. There are no warranties. That can be a problem, said Steve Hovany, a housing analyst in Schaumburg.
Often foreclosed properties are handyman's specials. Most have been vacant for months or years and require significant repairs, Hovany said. Not only that, but some previous owners may have been extremely negligent in caring for the home that ruined their life, he added.
Some angry owners with foreclosed homes put concrete down drains, a Chicago-based broker said. The house may literally be destroyed. The new buyer may just get a shell and the land, she said further.
On a brighter note, some homebuyers are lucky enough to get a good deal and are highly satisfied with their purchase.
Kathleen and Kelly Housman did not have a clue about foreclosures and weren't planning to move from their residence in Plainfield.
One day while searching on the Internet though, Kelly saw a government foreclosure listed for $180,000. Back in 2009, the 6-year-old house in Channahon sold for $319,000. By purchasing it, the Housmans could move from 1,500 to 2,700 square feet of living space.
The paperwork was definitely challenging to get through, but we made an offer, and it was accepted, Kelly said.
The two-story house needed major work though. The basement had water damage when the power had been turned off and copper pipes had been removed. So far, they’ve invested $2,500 in repairs.
A vacant property taken back by the bank is considered a foreclosure. When homeowners still live in the residence, it’s considered a short sale. They need to sell the property for less than what they owe on the mortgage. The bank must agree to the lower price, which can take up to 10 months for the bank to decide.
When you purchase a foreclosure, you move into someone's lost dream, said homebuyer Josh Burke.
Even so, he said the three-flat he purchased in West Town, a neighborhood in Chicago, was a great investment, though the process was very challenging to get through.
In 2008, the property was valued at $1.1 million. But in 2010, he negotiated with the bank and purchased it for only $575,000.
Highly apprehensive about foreclosures, Colette Netwig first looked at 40 other properties before buying a short-sale home in Chicago's Albany Park neighborhood.
It's like purchasing something on sale in a store, she said.
Netwig recently closed on a 1920s Chicago bungalow, paying $180,000. In 2007, its estimated value was $400,000 in 2007 and in 2008, between $305,000 to $325,000.
Some people avoid short sales because of how long the process can take, but I closed in only four months, she said.