What is a clean foreclosure?

Answer 1

A "clean foreclosure" is simply a phrase used by Realtors when they list foreclosure properties. The term relates very little to the condition of any other property that is listed and is mainly used to differentiate between the standard foreclosed home and the so-called clean one. But due to the nature of these properties and the legal process that takes a home away once the mortgage is in default, designating a property in this manner causes it to stand out just a little bit.

Some homeowners, if they are unable to stop foreclosure and will soon be forced to leave their home, may cause various damage to the property. This may be in an attempt to get back at an uncooperative bank for taking the house and to take their frustrations out against the county legal system, which may allow the foreclosure to go through regardless of predatory lending practices or mortgage lender misconduct. But the fact the many foreclosed homes may have such willful damage means that repairs may need to be done by new buyers.

Also, depending on how long a property sits on the open market, it may fall into disrepair. After a year of having no heat or cooling, even houses in great condition will start showing the effects of the weather. And it may take only one severe storm for the roof to start leaking or the basement to flood. Even if the former owners did no damage when they left, a property which sits empty for a long period of time may become a target of random vandalism, squatters, or thieves.

Obviously, homes in this condition will need extra work before they are completely livable again, and the selling price for damaged foreclosure homes can be far less than a typical house for sale. Clean foreclosures, though, are properties that, although the owners went into default and had their home auctioned off, are not exhibiting any extraordinary signs of damage or depreciation yet. The sales price may be lower than the average price for such a home, but it will not need as many repairs as the typical foreclosure home, either.

In effect, by designating a property as a "clean foreclosure," Realtors are pointing out that purchasing this house may represent a great deal for buyers. As banks are often the owners of foreclosed homes, they can be more willing to work out an arrangement beneficial to purchasers, since they would just like to make up the loss on the legal process and unload the property. With steep declines in housing prices across the country and an unabated foreclosure crisis putting many homes on the market, finding such a property in a clean state for a reasonable price can entice more buyers back into the housing market.