Buying foreclosure or court-ordered sale properties can be a very rewarding experience — like any home purchase.
However, there are many additional steps that add an increased level of risk, which is why many purchasers shy away from the process.
Becoming competent with the additional requirements and working with an expert realtor in these types of properties can increase the success you may find when buying a foreclosure. This will also ensure a more sound approach in dealing with the potential emotional pitfalls that you may experience.
Buyers in this hot market are often looking for a deal or an opportunity to save money on the purchase of a property, whether as an investment or for their personal residence. The idea of buying a foreclosure is often brought up by clients as a method to achieve this goal.
As an expert in acting for both lenders and buyers in this process, I thought I would share some of the benefits and risks to help you decide if this is the right opportunity for you. Like all home purchases, the process is not cut and dry, but key differences are fairly standard. It is wise to work with a realtor with experience in foreclosures to help guide you through the additional steps and potential variables.
- Like any purchase, the first step is to identify a suitable home. Your realtor will be able to identify whether the home is in foreclosure.
- Once you have a found a home you wish to pursue, you will negotiate the terms of your offer, similar to a more typical purchase from a homeowner.
- Unlike a typical purchase, the completion date and possession dates will be unknown until the courts approve the offer. Once due diligence is completed conditions removed, the sale must still be approved by a master or judge at court.
- The court date can be 2-4 weeks after the buyer’s conditions are removed.
Things to consider before searching for a foreclosure
- If you are selling your home to purchase of the foreclosure, there is no guarantee that you will be able to line up the dates
- The possibility of competing offers that will arise on the court date deter many buyers as a bidding war can result from more offers being made on the court date. If the property is a good deal, there is a higher likelihood of competition. You will only have one chance on the court date to amend your first offer or to submit your first offer
- Offers must not contain any conditions- except approval of the court and you must have your deposit on hand. This puts the responsibility on the buyers to ensure that they have done their due diligence and are ready to close in 10-30 days after court approval.
- Redemption of the mortgage by the owner can happen up to the date of court approval. Should the owner who is in default obtain suitable financing or bring the mortgage back into good standing, the deal can collapse immediately.
- The final risk falls on the purchaser is the state in which the property is received, should they be successful I court. It is important to know that fore- closures are almost always sold “as is, where is” with no representations or warranties.
- The seller may remove or damage anything without repercussion. It is also possible the sellers or tenants will not vacate on the date specified by court order. Again, it falls on the new purchasers to take appropriate action to legally obtain possession, sometimes through a sheriff , at an additional cost.
- The main benefit and the most common reason buyers want to purchase a foreclosure are for the financial savings.
- Due to the risks and uncertainties of purchasing through court order, homes are often discounted and sell between 5 – 10 % below market value.
- These homes can offer a great opportunity to get ahead and build some quick equity.
If you feel that buying a foreclosure might be something you wish to pursue, I strongly recommend that you plan ahead, discuss your goals with your team of professionals, including a realtor, and be patient while waiting for the right opportunity to come along.
If you would like further information or would like to discuss in detail the option of buying a home in foreclosure, I am always available. Visit us at www.SolonREM.com
Happy house hunting!