Is it safe to buy a foreclosure?
This is an interesting question, with many parts to it. I will separate the question into two parts: buying a condo listed in the MLS or from a lender vs. buying a condo at a foreclosure auction. I will leave "short sales" out of this discussion, those are pre-foreclosure events.
Let's start with the latter, buying a foreclosure condo at auction. This opportunity gives you the most likely chance to get "a steal" but it also is like running through a field of landmines for the novice investor. This is what the guys you see on TV, the stars of these "flipping" shows do for a living. You'll notice that even these seasoned vets often run into unforeseen problems and are constantly learning lessons the hard way.
Besides property condition, which you have to buy "as-is", there can be serious and costly issues with title and liens on the property. Many people have bought what they think is the right to a property only to later find out they bought a second lien or mortgage, and that a considerable amount of money is still owed on the property. There are lawsuits galore and plenty of horror stories on the Internet, all with the same bottom line. Unless you do this all of the time, and know what you are doing, please perform your due diligence and make sure to exercise caution.
The other method of buying foreclosures, including the ones you see listed on my web site, is a completely different process. These properties have been bought back buy the first lien holder, basically bought by the "the bank" and are now being sold. These are called REO, or "real estate owned" foreclosures. You can thrown properties offered for sale from Freddie Mac and Fannie Mae in this category as well. The buyer has the right (most of the time) to perform a property inspection, and there is enough time to get a loan and close like a normal purchase. This is the safest way to buy, and because of that, it has the most competition. The REO buyer needs to be pre-approved, and have the letter in hand, or if a cash buyer, they need proof of funds or a letter from their bank validating funds. The buyer needs to be able to see the property very quickly, and get an offer in writing as soon as is reasonably possible. Understand there will be a due diligence period after you get the property under contract, and that is the time to check out the property condition, not while you and 20 other people are looking at buying the property.
Sounds pretty scary, huh? I have sold many foreclosures here at the Lake of the Ozarks, and that experience really helps. I can also let you speak with many of people that bought a foreclosure through me, people that had just as many questions and doubts as you might. Just call me at 573-480-6420 for a friendly chat about this or any real estate subject.