A power of sale home is one where the owners defaulted on payments so the home is being sold by the mortgage lender. This type of home sale works a little differently than a traditional home sale, but if you love the home, it might be worth going through the process of buying a power of sale home with a real estate agent's help. Here are some things to know.
The Home Is Usually Sold As-Is
Since the mortgage company didn't live in the home, they don't know anything about it. For that reason, power of sale homes are sold as-is. That means you may need to be extra vigilant about inspecting the home and looking for signs of potential problems that could cost a lot of money in repairs once you've bought the home. If the previous owner had financial problems that caused the house to be foreclosed upon, they may not have had the money to keep up with repairs, such as fixing roof leaks or hunting down a small plumbing leak and repairing it. A home inspection is part of the home buying process, and you'll want to look over the report carefully so you're prepared for any repairs you have to make.
The Timeline Can Be Erratic
Mortgage lenders tend to move on power of sale homes quickly. A home sold under this provision in the mortgage documents allows them to foreclose on a home and sell it much quicker than if they had to go through the courts. So, these homes may be snatched up more quickly by interested buyers looking for a good deal. Before you start looking for a home to buy, get a preapproval for a mortgage so you can move fast and so you look more appealing to the mortgage company selling the home.
Even though the mortgage company intends to move quickly, things may slow down once the buying and selling process is underway. Your actions will depend on the outcome of the inspection and title search and the seller's actions will depend on the negotiations between them and the previous owners. When the house sells, the money has to pay off liens, back taxes, and other financial obligations as well as the mortgage lender. This could take some time to iron out before the sale can be finalized.
Also, the previous owner may have a right to redeem the home if they can come up with the money they owe the lender before your purchase closes. That means you could have your heart set on the home only to have it reclaimed by the previous owner before you close on it.
Buying a power of sale home can be a little stressful when you fall in love with a home, but it helps if you understand what to expect going in. Talk to a real estate agent to understand this type of real estate transaction so you're fully prepared for power of sale home buying process as it unfolds.