Pros and cons of buying a foreclosed home

Posted12/16/2012 5:00 AM

Q. I have been looking for my first house and have been told to look at bank-owned properties or HUD properties. I am wondering what advantages or disadvantages there are to these types of deals.

A. HUD stands for Department of Housing and Urban Development, a federal agency that oversees and is responsible for a number of federal housing agencies, including the Federal Housing Administration (FHA). A HUD home is a property in which the loan to purchase the property was insured by FHA. When the borrower defaults, the lender goes through the normal foreclosure process. Once the process is completed, FHA pays off the balance due the lender. Accordingly, rather than the property going back to the lender, which is what would occur if the property was conventionally financed, FHA recovers the property.


Bank-owned homes are simply properties that went through the foreclosure process and were not insured by FHA, so the lender retains ownership.

The main advantage to these properties is that since neither HUD nor lenders care to own and manage property, these properties are generally for sale at a discount to fair market value. Disadvantages include:

• You generally must accept the property "as is," meaning neither the bank nor HUD will generally make any repairs to the property, including the types of repairs that a seller would normally make in a conventional transaction. You are still entitled to conduct a home inspection and if you are dissatisfied with the results of the inspection, you can usually terminate the transaction and have your earnest money returned.

• You will often absorb some costs, such as survey fees and transfer taxes, which you would not absorb in a conventional transaction.

• Taxes are prorated at 100 percent, meaning it is likely you will absorb at least part of the seller's prior or current year's real estate tax obligations.

Don't let the disadvantages scare you. Retain qualified professionals (Realtor, attorney) to assist you and do your homework on any properties you are interested in. There are many people purchasing these properties for great values.

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Q. There is a property in my neighborhood I am interested in that has been vacant for about a year. I have now found out the owner died and the property is in probate. How can I find out who is in charge of the estate as I would like to make an offer on the property?

A. First, you need to determine who the owner was. One way would be to knock on some neighbor's doors and ask. If that is not an option, you will need to obtain the property index number (PIN). This can be accomplished by contacting the county assessor's office either online or by phone and giving them the address.

Once you've obtained the PIN, contact the recorder's office, again either online or by phone. Give them the PIN and ask for the name on the last recorded deed.

Once you've obtained the owner's name, contact the county clerk where the property is located and ask if any probate estates have been opened in the owner's name. If so, ask for the attorney for the estate and contact him or her.

If no estate has been opened, you may need to either wait for an estate to be opened, though in many cases, an estate is never opened, or wait for the Realtor's sign to go up. Often, the property is in a living or land trust that allows for the transfer of the property without opening an estate.

• Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to or call (847) 359-8983.

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