The Art of Buying a Foreclosure
When done right, buying a foreclosure can be a terrific investment when it comes to real estate. Done wrong and it will cost you.
There are typically two different types of foreclosure properties. One circumstance is when the bank has taken ownership of the property and now is “bank owned”. The other is what we call a “judicial listing” when the courts have ordered the sale of the home.
When a foreclosure home is listed, we, the agent are called on to provide an evaluation of the home’s value – so it’s not always like HGTV and foreclosed properties are dirt cheap. They can be cheap, but if there’s market value to be had, we will get it.
When you are purchasing a home that is seller occupied there are certain warranties and representations made by the seller. Things like, the appliances will be in working order on possession day, that the home will essentially be “as is” on possession day as it was when we viewed it and wrote the offer.
In a foreclosure circumstance, the bank is not promising the buyer ANYTHING about the state and condition of the contract. You literally have no recourse whatsoever once you have moved in – it is being sold “AS-IS WHERE-IS AT TIME OF POSSESSION”. And that means if you remove conditions in advance of your possession and something happens in between those dates, there is still ZERO RECOURSE.
Often what will accompany a modified offer is a “Schedule A” and becomes part of the contract. Make sure you go over these contracts with your LAWYER (not just a notary) so you know exactly what you are getting yourself into.
In most cases, you can put in conditions to your contract, like financing and property inspections. Judicial listings, typically do not allow for conditions. In the case of a bank owned property, you can submit an offer with a due diligence phase. Depending on how well the home was taken care of, you may find mould, asbestos, foundational issues, potential water damage or other things that could prove to be problematic and the bank will not be responsible for ANYTHING. They will not repair anything for you prior to possession. Any findings in the Inspection Report is ON THE BUYER to remediate once they take possession.
I always recommending hiring experts to help give a full scope of what repairs you may have to do. Banks will not always agree to a lower price even after the results of the home inspection so you will likely have to be prepared to remove conditions (or not) after reviewing the home inspection report. That being said, that is primarily the “job” of an inspection report – to reveal the home’s current condition, regardless if the home is a foreclosure or not.
The bank will also not promise that an appliances will be in working condition or even that they will be there on possession day! These properties will generally not have a Real Property Report let alone municipality compliance and same goes for permits for any work done in the home – you get nothing. You may be getting a great price, but foreclosure properties definitely require more due diligence.
When buying a condo in foreclosure the bank will not order the Estoppel Certificate (this is a certified document from the property management company confirming not outstanding fees, any special assessments or lawsuits/threats of lawsuits). Some management companies will have their documents for order online but it is also the buyer’s responsibility to obtain condo documents as the banks will not provide those either.
There are more items to check off when buying a foreclosure property so make sure you’re hiring the right agent to guide you through this process if you have never gone through it before. Hopefully this helps you all out when buying foreclosures and as always, any questions, send us a message!