Reader’s Question:
I am looking for an investment opportunity in real estate here in Dallas, Texas and I plan to buy a pre-foreclosure property. Do you think it would be risky if I buy a pre-foreclosure?
Jenna
Dallas, TX
Buying a pre-foreclosure property in Dallas, Texas is kind of riskier than buying a real estate owned. An example of the risk you might take is that the desperate sellers could lie to you about the condition or the presence of liens on the property. The thing that you would really have to pay close attention to is if the seller has entered bankruptcy. If the seller has already been in bankruptcy, the deed might not be valid unless it has gone through bankruptcy court. Furthermore, even if the seller files bankruptcy after the sale, you might have to deed the property back to the seller up to three years after the sale.
Investors certainly do hope to purchase foreclosed properties well below market value. If the seller is already under bankruptcy, the bankruptcy trustee could claim that the sale was a “fraudulent transfer” that was not fully valued to pay off creditors, and this will force the deed back into the bankruptcy estate. To lessen these risks, you can get an inspection, use a knowledgeable escrow agent and look at the property yourself.