Is the Foreclosure cost really the only cost?

Question:

I was looking at some Foreclosure homes and I liked one that cost around $40,000. But is that the only cost you need to pay or are there any other hidden fees? I find it a little shocking, if this is how it works, that you can own a house for $40k when most in this area are $200k+

Answer:
If it sounds too good to be true, it probably is. Foreclosures are seriously risky business. There may be many legal and closing-type fees and it probably needs a lot of work. Also, the house my be subject to a lot of conditions such as redemption from the owner. If the previous owner still pays all late payments and fees, etc. within a stated period of time, they may be entitled to re-possess the property, leaving you out of luck. You also may not be protected if the house is structurially damaged, termite infested, etc. Buyer Beware!

You also pick up any liens on the property, which may be substantial. The houses are not sold in the traditional sense, but auctioned off. You need cash, and expect the actual cost to be bid up, the bank itself may have a bidder there to make sure they don't loose too much money.

You do have to be careful. It sounds as if someone is foreclosing on a 2nd mortgage.

When the house was purchased they may have done a 100% financing deal with and 80/20 loan. Which means there is a first mortgage for 80% or $160,000 and a 2nd mortgage for 20% or $40,000.

You will not be able to take possession of the property by foreclosing on a 2nd mortgage.

There can also be other leins on the property for taxes or mechanic's liens or judgements.

Is the Foreclosure cost really the only cost?

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