Buying a property in foreclosure – what to consider and what is the process?
As the economy stalled in 2008, the real estate market started to cool. Many homeowners were not able to maintain payments on their mortgage, or they could ride out the term but then were not able to renew their mortgage. For whatever reason, they have allowed the lender to take over ownership of the property. The lender must move through the foreclosure process, and a point is reached when the lender is permitted to list the property for sale. The lender is required to try to obtain the highest possible purchase price, but this is often less than it would be if the borrower was listing the property as the home is not cleaned up and in show ready condition. Often, the home is only at the base level of upkeep. This can be good for a potential buyer though as the property may be obtained for less than its fair market value if you are willing to put in the effort to clean it or fix it up.
Once the lender lists the property, potential buyers can view it just as they would for other properties listed for sale. However, once a person provides an offer to the realtor, the court process is triggered. The court must approve the offer to buy, and part of the process includes notice of the proposed offer and an ability for any other interested third party to show up at the court date and make a better offer. The court advises third parties of the initial offer, and if anyone indicates they would like to make a better offer, the court allows the third party, or third parties if more than one want to make a competing offer, to submit a sealed bid to the court. The initial offeree gets a chance to increase or change their original offer buy also submitting a sealed bid. Once all bids are in, the court reviews them and the highest bidder wins. Offerees must be willing to accept the property as is, where is and normally they are required to close the purchase within 10 business days of the court date, so funds should be available almost immediately. The successful buyer will get the property free and clear of any mortgage or financial charge, with any shortfall being a cost to the lender.
If considering purchasing a foreclosure property, be sure to complete your due diligence before submitting an offer because you will be bound to complete the purchase even if issues are discovered following submission of the offer should the court accept that original bid, or should you win a bidding war. Be prepared to come to court with a threshold amount you are willing to pay, as we have heard of as many as 20 competing bids at a recent foreclosure hearing. When you take possession of the property, be prepared to have a property where the borrower took things a seller would not normally take. Toilets have often been removed, as have anything of value that a seller thinks they can convert into cash. The property may be in a state of disrepair too because the borrower does not care about the property any longer, despite sometimes being permitted to continue to live in the residence pending the sale.