What Are the Dangers of Buying a Foreclosed House?

Foreclosures that have sat empty may require extensive repairs.
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Foreclosed homes may seem like incredible investment opportunities, as they often sell for well under market value and many can quickly be readied for use as a home or a rental property. Despite their appeal, though, foreclosed homes could come with an array of expensive problems and potential dangers.


Though many foreclosed homes are in good repair and need little in the way of repairs, some foreclosures need extensive work before they are ready for use. In some cases, homeowners take as much of the home with them as possible when they leave; many take the appliances, and some go as far as to take copper wiring and pipes right out of the walls. Some displaced homeowners vent their frustrations on the property, leaving it severely damaged as a way of hurting the bank’s resale prospects. Even if homeowners do not damage the house when they move out, months of emptiness and neglect can have long-lasting effects. Wood can quickly rot in the absence of climate control, mold may grow and sewer gasses can back up in pipes. In some cases, squatters may move in and damage the property. Even the environment can damage an unattended home, as trees and other landscaping can mar the home’s exterior.

Mortgage Issues

Some buyers believe they must pay cash for foreclosures, and that banks will not finance foreclosed properties. Even though many lenders will lend mortgages against foreclosures, many have special requirements for these properties. In addition to standard income and debt criteria, borrowers often must pay for a thorough inspection that proves the property is in good enough condition to secure the mortgage. In some cases, lenders require borrowers to set up a special escrow account designated for repair expenses.


Properties go into foreclosure because the previous owner failed to make mortgage payments, and these homeowners may have also neglected other vital payments. If the homeowner had a second mortgage, for example, the second lender may have legal right to the property. In addition, many homeowners who fall into foreclosure have outstanding HOA dues, fees and even taxes; any of these delinquencies can affect the bank’s ability to legally transfer the property’s title.

Title Issues

In addition to liens and back taxes, the bank’s own foreclosure process can have a considerable effect on the ability to legally sell the foreclosed property. During the height of the foreclosure crisis of 2008 and 2009, banks faced with mountains of foreclosure paperwork employed untrained and, in some cases, unauthorized individuals to sign off on legal documents. As a result, many foreclosures were improperly completed, and the bank did not gain the right to legally sell the property. To ensure a problem-free foreclosure purchase, AARP recommends hiring an attorney or title company to thoroughly research the property’s title and the legality of the foreclosure process.

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