With the rise in foreclosures and the resultant drop in real estate prices, coupled with the lower interest rates available for "qualified" borrowers, an increasing number of people are buying property at foreclosure sales. The idea is to purchase a house at the "distress" sale price, and end up with a bargain.
As in any other business transaction there are issues that must be considered, aside from the matter of having financing/available funds ready at the time of the foreclosure sale. Some can turn what seems like a "great deal" into a nightmare. For instance:
1. There are no guarantees or warranties that accompany the house. You buy what you see - no more, no less. Further, there is no obligation on the part of the foreclosing party or the auctioneer to point out flaws or defects with the property
2. It is imperative to have an attorney or title company (depending on the state where the property is) check the land records to determine if the foreclosing entity has good title through its sale. In essence, can the company legally foreclose?
3. Getting financing BEFORE the auction is critical. You will have to place a rather large deposit in order to be a successful bidder, and that IS NOT refundable because you discover, later, that you cannot obtain a loan. How can this be done? One way is for you to have your local bank view the property with you. You will have to get an appraisal from a company approved by the bank, and have the full title report available. In addition, it would be wise to get a home inspection - obviously this is not possible if the house is occupied.
4. If the house is occupied by the owners or tenants at the time of the sale, once you buy it it is YOUR responsibility to have the tenants or former owners (who have just become tenants) leave the property. This might well mean eviction, a process that can take, without any major fighting,3 months. With arguments and the tenants trying to stretch out the time they have before they have to vacate, you might not get possession for 6 months.
5. Consider an alternative to buying at the foreclosure sale. You can contact the owner, or the realtor who might be trying to sell the house pre-foreclosure, as make your offer. If it is less than the amount owed, typical in most foreclosures, you might suggest that you want to make an offer directly to the lender for a "short sale". This is where the lender takes a loss, but gets rid of the house. Keep in mind that the lender will have to pay at least 15% of the balance owed, just to foreclose - and then it has to pay taxes, maintain the house, market the house for sale etc. This way you can get an inspection, have time to get financing, and not have to evict the owners because they will leave by agreement when you buy the house.
Last - let the buyer beware
Author's Copyright by Richard I. Isacoff, Esq., June 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
As in any other business transaction there are issues that must be considered, aside from the matter of having financing/available funds ready at the time of the foreclosure sale. Some can turn what seems like a "great deal" into a nightmare. For instance:
1. There are no guarantees or warranties that accompany the house. You buy what you see - no more, no less. Further, there is no obligation on the part of the foreclosing party or the auctioneer to point out flaws or defects with the property
2. It is imperative to have an attorney or title company (depending on the state where the property is) check the land records to determine if the foreclosing entity has good title through its sale. In essence, can the company legally foreclose?
3. Getting financing BEFORE the auction is critical. You will have to place a rather large deposit in order to be a successful bidder, and that IS NOT refundable because you discover, later, that you cannot obtain a loan. How can this be done? One way is for you to have your local bank view the property with you. You will have to get an appraisal from a company approved by the bank, and have the full title report available. In addition, it would be wise to get a home inspection - obviously this is not possible if the house is occupied.
4. If the house is occupied by the owners or tenants at the time of the sale, once you buy it it is YOUR responsibility to have the tenants or former owners (who have just become tenants) leave the property. This might well mean eviction, a process that can take, without any major fighting,3 months. With arguments and the tenants trying to stretch out the time they have before they have to vacate, you might not get possession for 6 months.
5. Consider an alternative to buying at the foreclosure sale. You can contact the owner, or the realtor who might be trying to sell the house pre-foreclosure, as make your offer. If it is less than the amount owed, typical in most foreclosures, you might suggest that you want to make an offer directly to the lender for a "short sale". This is where the lender takes a loss, but gets rid of the house. Keep in mind that the lender will have to pay at least 15% of the balance owed, just to foreclose - and then it has to pay taxes, maintain the house, market the house for sale etc. This way you can get an inspection, have time to get financing, and not have to evict the owners because they will leave by agreement when you buy the house.
Last - let the buyer beware
Author's Copyright by Richard I. Isacoff, Esq., June 2009
http://www.isacofflaw.com/
rii@isacofflaw.com
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