If a Foreclosed Property Has Been Sitting Empty for a While, Will the Bank Take Less for It?

A foreclosed property usually goes up for public auction. The lender sets a minimum price it will accept at auction, usually an amount based on how much the borrower owed plus additional costs, such as the lender's legal fees. If the property doesn't receive an acceptable bid at auction, the property reverts back to the lender. A deed is prepared and filed, putting the property into the lender's name. Even if a buyer does put up an acceptable bid at auction, the lender may still be left with the property if the buyer backs out or can't complete the financing.

Once the lender becomes the owner, it inherits the responsibilities of property ownership. While this includes paying property taxes and special local assessments, such as sewer fees, it also covers physical maintenance. The lender may be fined by the local government if it doesn't have the lawn mowed or the sidewalk shoveled. If the property isn't preserved and becomes an eyesore or presents a danger to neighbors, the lender may face high fines and other action by the local government. The lender must pay to heat the home during cold months to avoid burst pipes and may need to keep electricity running.

The longer a property sits, the more it costs the lender in maintenance and other home-related fees. The lender must hire a property management firm to take care of the vacant property. The asking price for the property often goes down because the lender is losing money and doesn't want the hassles that come with homeownership.

How much the lender will lower the price depends on many factors, including length of lender ownership, the property's condition and the condition of the neighborhood. Properties in an area with a high rate of vacant, foreclosed homes tend to have higher discounts. Homes in areas with heavy foreclosures may have a discount of up to 40 percent less than market value because of the local market.

The longer a home has been vacant, the more problems it usually has. A vacant property is a target for vandals and squatters, people who camp out in empty properties. Since lenders sell foreclosed homes as-is, you must consider the property's condition and the cost to repair it before you buy.

Sometimes the foreclosing lender is not the current owner. If a foreclosed loan was backed by the Federal Housing Administration, the U.S. Department of Housing and Urban Development may take ownership of the loan immediately after a failed auction or from the lender. HUD has its own rules for setting foreclosed property prices, leaving you with less room for any negotiation. HUD sets prices according to appraisals by professionals. Unless major damage or defects have occurred since HUD had the property appraised, you won't get a lower price. You can ask for a second appraisal prior to buying the home, but you'll have to pay for it.