I frequently receive calls from current and prospective clients asking about purchasing a foreclosed home. I’m writing today to give you some insight into that process. There are many myths and legends surrounding foreclosures and the differences between buying a seller’s home in a standard transaction and buying a foreclosed property.We hear a lot in the media about bidding on a foreclosed property on the “courthouse steps”. For purposes of today’s article, I’ll skip over this part (although it’s a lot less dramatic than it seems)! You can tune into the HGTV network for shows like Flip or Flop to learn more about this process, or feel free give me a call if you want to discuss more.
If the foreclosed property makes it past the courthouse steps, the property reverts back to the lender. The lender may hold the property in inventory for several months (sometimes this is because the lawyers are cleaning up the property’s title) In addition to the legal matters, the lender will often order that the foreclosed property be cleaned up, repainted, etc. The lender will also hire an agent to list the property. The listing agent does a price analysis, which is then reviewed and approved by the lender’s representative. The property is then listed on Multiple Listing Service (commonly known as “MLS”), and property will then be available to see through their Realtor.
There are some differences between buying from an individual seller in a standard transaction and buying a property out of foreclosure. Some of the key differences are:
* Lender representatives typically do not work on weekends.
* Lender representative may initially accept a low bid, but the offer is often then passed to the supervisor for approval. As you can imagine, this process takes time, and the supervisor may require a higher purchase price in order for the contract to be approved.
* Foreclosures are sold in “as-is” condition – you get what you see, and the lender is not going to make repairs to the property. An exception to the “as-is” rule is that in some cases, I’ve been able to negotiate for credits after inspections. For example, I was able to get a lender to credit money to the buyer because the furnace didn’t work.
* The lender will set closing date, and it’s not uncommon for a lender to also require the buyer to pay a penalty for each day that the transaction is closed passed this closing date.
* Lenders aren’t required to provide a Transfer Disclosure Statement (this is a form that typically requires a seller to list all the negative issues with the property, the purpose being to inform the prospective buyer of potential problems with the property). There have been instances of owners who’ve lost their house in foreclosure sabotaging the property before they leave. So it’s extremely important for a buyer to have physical inspections completed on a foreclosed property.
In light of the risks and complexities associated with purchasing a foreclosed home, an experienced realtor is a must. Over my 26 years in business, I have represented many buyers of foreclosures. I make it my mission to assist my clients in avoiding the pitfalls and risks of these transactions. If you have any questions about this process, please give me a call.
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