A Few Buying Tips on Foreclosed Properties:

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 youshould 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.

What You Can Do

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.
• 
  

You can read more about buying foreclosures and the problems you probably will encounter here.

Foreclosures Selling Faster? Article

Stripped & Violated - This House Could be Next Door Article

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