OK People, I was away on vacation with my family and have been late on getting this newest post done (sorry, I was in Bruins Mania). I’ll try and do better!
I get a lot of calls from potential buyers looking to purchase foreclosed homes. While foreclosures can often be great buys, and the market is flooded with them, you have to deal with the selling bank, who, in exchange for giving you a good price, wants the closing to be done their way. Inexperienced buyers should tread carefully when looking at these kinds of deals, and having an attorney to protect the buyer’s interest is of paramount importance.
Here are three tips to keep in mind when shopping foreclosures.
1. The Waiting Game
The selling bank wants things done on their timetable, not yours. It may be worth it in the end, but be prepared to do some waiting. There is often a great deal of waiting involved, from the time of the offer, through closing. The bank is obviously trying to get the most money they can, so they tend to review multiple offers before accepting. It can often take weeks, or sometimes even months, before the lender will accept the offer, and the acceptance typically comes with their specific conditions for acceptance. For example, the bank will provide a written “Rider”, which contains additional contract terms, that becomes part of the accepted offer. Among these terms is the time-frame for having a home inspection, the time for obtaining financing, and the time for closing. So after waiting for weeks or months for the offer to be accepted, the bank typically allows only a short time, usually ten days, for the home inspection to be completed, and for you to get out of the deal if the inspection yields bad results. You have to do it within the bank’s time frame, or you can lose the right to back out of the deal.
Another wait can be for the recording of the foreclosure deed. The lender may have completed the foreclosure process, but the bank is not the official owner until the foreclosure deed is recorded at the appropriate registry of deeds. The banks often market the property before this recording is done, and accept offers. So even if your offer is accepted, you can be stuck waiting for the bank to record its foreclosure deed, before they can sell to you. And the wait can be significant. If you are prepared to wait, which can be difficult if you are also trying to sell your current home at the same time, the rewards can be well worth it.
For the most part, these homes are sold “as-is”, so a home inspection is a necessity – there is no individual seller who can tell you about the roof, heating system, etc., so the home inspection is invaluable. You don’t want get stuck with major problems, making what seemed like a great deal at the time, actually a money-pit. Again, you will have limited time to have the inspection done, but DO NOT SKIP IT. I have clients tell me of past horrors, such as finding out that a malfunctioning heating system was not built to code, thus costing thousands to repair and basically re-do from scratch. A home inspection would have found the heating system problems, and the buyer may have rethought the deal, or asked the seller for concessions. Lastly, if the inspections yields negative results, you can use the report as a way to negotiate for concessions or a lower price with the seller.
Bottom line is that you have to deal with any issues at the property prior to closing. Most, if not all, of the selling banks require, as part of their P&S, that there is no recourse after closing. Make sure you have the property inspected and know what you are getting into – once you close, any problems become your problems.
3. Clear Title
These properties are obtained by the banks through foreclosures, auctions, or short-sales. There are a number of issues in MA regarding foreclosures done improperly, or signed improperly by the lenders using “robo signers”, as well as other procedural issues that can void a foreclosure or leave a cloud on title that cannot be rectified for years. I am dealing with a case now where, due to an improper foreclosure filing, the parties have to basically wait a whole additional year for the lender to have proper title and the sale to finalize – it is a real mess. Therefore, it’s a good idea to have the title to the property checked by an attorney/title examiner before you sign anything. Although it is an extra expense, the cost is small when compared to possible issues down the road.
A title exam will show if the foreclosure deed has been recorded , so you will know if the bank already owns the property or not, if there are are liens against the property for taxes, judgments, or otherwise, and if there are any old title issues that were never rectified. Again, there is nothing worse than sinking a ton of money into a property for a flip, only to lose buyers or have your deal stalled due to some past title problem. If you have to go through the land court to fix a title issue, expect it to take a very long time, due to the huge number of cases on their docket. Further, as there is typically no recourse after closing, you need to know that you are receiving clear title before you close. Again, anything found later, becomes your issue.
Foreclosures can get you a great value, at a great price, if you act prudently and are aware of the pitfalls. If you are considering making an offer on a foreclosure, please call me so I can help you through it, and make sure you are protected. Call me at 978-657-7437 or vists www.montefortelaw.com . The website is going to be updated soon as well, with lots of new improvements.
Lastly, for a great article about buying foreclosures, check out this one by Bill Gassett, of Re/Max: http://massrealestatevoice.com/post/984910/buying-a-foreclosed-home-or-potential-foreclosure-property