A Few Buying Tips on Foreclosed Properties:
Be Aware ~ Be Prepared ~ Use a Seasoned Buyer’s Real Estate Agent
The recent downturn in the housing market means that there are more and more foreclosed properties going up for sale, especially in areas which are economically depressed. Although these properties may at first glance seem like a bargain, there are many potential problems that you should carefully investigate. Apart from the usual considerations-did the previous owner intentionally damage the property before abandoning it, etc.-there are a number of under-reported potential issues you should be aware of.
Many of these issues stem from the fact that institutional sellers such as banks are simply not as interested in negotiating as an individual owner would be.
Here are several important issues to understand if you are going to pursue a foreclosed property:
1. It can sometimes take weeks for a bank or relocation company to respond in writing to your offer. Build time into your scheduling in preparation for longer delays in the negotiation phase.
2. Banks and relocation companies often have cumbersome contract addenda. Have a real estate attorney ready to review their addenda and give you some insight into the risks involved with their contract. Often banks and relocation companies will back down from their position, but it may not be worth your effort as a buyer.
3. Banks and relocation company addenda often put them in the position of being able to break the contract at will, without penalty, at any point right up to closing. Plan ahead for this risk.
4. In many markets, banks often contract to provide a warranty deed on a foreclosed property, and then when the closing documents arrive they will instead provide a special warranty deed (a lower quality form of conveyance). Speak to a real estate attorney ahead of time to evaluate your additional risks and determine if it is worth moving forward.
5. Often, at closing, the seller will claim that they haven’t gotten all their signatures so the actual closing may need to be delayed another 24 hours. This ends up preventing you from moving into your home on the date you had planned. The seller may unilaterally change your closing date and as a result the seller may not deliver ownership exactly as scheduled. Building extra time into your schedule will help in this situation.
Examples from a recent survey of buyer’s agents include:
“On a recent foreclosure my Buyers and the Bank (the seller) verbally agreed to their offer. We waited 3 weeks for them to put it into writing.”
“Lender taking 2+weeks to respond to an offer. Lender not informing us they are already considering another offer. Lender going to closing without having valid deed. Lender refusing to turn on utilities for proper house inspection.”
Forms of conveyance will vary by state.
Most of these challenges can be overcome through due diligence. Always “read the fine print.” Have a real estate attorney ready to review contracts and give you insight into the risks involved. Occasionally, banks will back down when confronted with legal counsel.
Be sure to build extra time into your schedule:
- Banks and relocation companies are notorious for dragging their feet.
- Prepare yourself for long waits during negotiation.
- Don’t plan to move into the home or start renovations the day of or the day after a scheduled closing.
- The seller may unilaterally change it and delay an extra day.
- Don’t assume the transaction will close on time and don’t assume that the seller will deliver ownership exactly as scheduled.
Copyright by Terry Westbrook 2008
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