Hello all,
Article written by: Tom Di'Mercurio
Rules of the Road
As with any real estate purchase, there are certain “rules of the real estate road” and others which are extremely important in evaluating a foreclosed home.
1. Know what you are getting into before you commit to purchase. Due diligence is important in any real estate transaction but never so important as with a foreclosure. There are several reasons for this review. In most states, corporate and institutional sellers of foreclosed real estate are exempt from the typical Seller’s Disclosure Statements regarding the condition and defects of a property. This means that a Seller who has been through foreclosure may have information about the property that you will never know (such as there was a flood when the pipes burst last winter). Moreover, these Sellers will limit their post-closing responsibilities. Generally these properties are sold “as-is” “ where is” but with comprehensive protections to prevent a Buyer from ever coming back to the Seller after the sale. Unless you are a sophisticated investor or a general contractor, it is especially important for the purchaser of a foreclosed asset to avail themselves of all applicable inspections.
Because many foreclosed assets are in inferior condition vis a vis a typical owner resale, they may, on the surface, appear attractively priced. If you are a real handyman with expertise in large and small-scale repairs, you may avoid what otherwise might be a “Money Pit”. On the other hand, some of the best deals are on those properties which are really beaten up or but really only require cosmetic repairs such as carpet, paint and touch up. During your due diligence, try to ensure that the reason the property was foreclosed was not because it is located on an underground spring or that the backyard is sliding down the hill, or that the property suffers from some other inherent property related defect. Don’t be afraid to ask the neighbors. You’d be surprised what you’ll find out!
2. You wouldn’t go to a podiatrist if you needed brain surgery. Deal with a real estate agent or professional who is experienced in handling foreclosures. In most areas where there are lots of foreclosures there are many brokers/agents whose real estate practice is exclusively dedicated to foreclosed assets. They can help you with values, property condition issues, and what to expect in the transaction. They will tell you based on market conditions if this is a house that can be fixed and flipped or whether you will have to hang your hat there for a while waiting for the market to turn.
3. Don’t hire the moving company based on the contract closing date. As a class of assets, foreclosed assets have many last minute title problems, liens and encumbrances, assignments and transfers that may not have been properly identified and/or handled during the foreclosure process. The typical Seller’s contracts allow for reasonable extensions in anticipation of these frequent problems. Many states require that certain documents be recorded into the name of the Seller post-foreclosure, which bear taxes and other transfer penalties. This can mean delays for your closing if the proper vesting has not been completed prior to your closing. If you have committed to moving out of your home or apartment you may have to move twice. Just because you are ready to close, doesn’t mean the Seller or the title company will meet that deadline.
4. Always obtain title insurance, even if your purchase is a cash sale. I recommend this even if you are an experienced title attorney and even on a tradional resale transaction. I recommend it doubly on a foreclosed asset. Corporate and institutional sellers generally convey their foreclosed assets by Special Warranty Deed that only requires the defense of title for the period during which the institution owned the property.
Having said all of the foregoing, there still remains an opportunity and an upside to acquiring a foreclosed asset. In my 30 years in the business, I have seen some absolutely incredible deals where upon closing the happy buyer had a substantial equity, over and above, his down payment.
Tom Di'Mercurio
Chairman/CEO
Tom Di’Mercurio is the President of BuyBankHomes, the nation’s largest free Internet listing service of foreclosed homes or REO assets. He is a career mortgage banker specializing in non-performing loans and REO, writes extensively for industry periodicals, and is a licensed real estate broker in Texas and Colorado and an industry consultant. Di' Mercurio graduated cum laude from the University of San Francisco as well as earning an MBA with honors from St. Mary’s College of California. He can be reached at [email protected].
Article written by: Tom Di'Mercurio
Rules of the Road
As with any real estate purchase, there are certain “rules of the real estate road” and others which are extremely important in evaluating a foreclosed home.
1. Know what you are getting into before you commit to purchase. Due diligence is important in any real estate transaction but never so important as with a foreclosure. There are several reasons for this review. In most states, corporate and institutional sellers of foreclosed real estate are exempt from the typical Seller’s Disclosure Statements regarding the condition and defects of a property. This means that a Seller who has been through foreclosure may have information about the property that you will never know (such as there was a flood when the pipes burst last winter). Moreover, these Sellers will limit their post-closing responsibilities. Generally these properties are sold “as-is” “ where is” but with comprehensive protections to prevent a Buyer from ever coming back to the Seller after the sale. Unless you are a sophisticated investor or a general contractor, it is especially important for the purchaser of a foreclosed asset to avail themselves of all applicable inspections.
Because many foreclosed assets are in inferior condition vis a vis a typical owner resale, they may, on the surface, appear attractively priced. If you are a real handyman with expertise in large and small-scale repairs, you may avoid what otherwise might be a “Money Pit”. On the other hand, some of the best deals are on those properties which are really beaten up or but really only require cosmetic repairs such as carpet, paint and touch up. During your due diligence, try to ensure that the reason the property was foreclosed was not because it is located on an underground spring or that the backyard is sliding down the hill, or that the property suffers from some other inherent property related defect. Don’t be afraid to ask the neighbors. You’d be surprised what you’ll find out!
2. You wouldn’t go to a podiatrist if you needed brain surgery. Deal with a real estate agent or professional who is experienced in handling foreclosures. In most areas where there are lots of foreclosures there are many brokers/agents whose real estate practice is exclusively dedicated to foreclosed assets. They can help you with values, property condition issues, and what to expect in the transaction. They will tell you based on market conditions if this is a house that can be fixed and flipped or whether you will have to hang your hat there for a while waiting for the market to turn.
3. Don’t hire the moving company based on the contract closing date. As a class of assets, foreclosed assets have many last minute title problems, liens and encumbrances, assignments and transfers that may not have been properly identified and/or handled during the foreclosure process. The typical Seller’s contracts allow for reasonable extensions in anticipation of these frequent problems. Many states require that certain documents be recorded into the name of the Seller post-foreclosure, which bear taxes and other transfer penalties. This can mean delays for your closing if the proper vesting has not been completed prior to your closing. If you have committed to moving out of your home or apartment you may have to move twice. Just because you are ready to close, doesn’t mean the Seller or the title company will meet that deadline.
4. Always obtain title insurance, even if your purchase is a cash sale. I recommend this even if you are an experienced title attorney and even on a tradional resale transaction. I recommend it doubly on a foreclosed asset. Corporate and institutional sellers generally convey their foreclosed assets by Special Warranty Deed that only requires the defense of title for the period during which the institution owned the property.
Having said all of the foregoing, there still remains an opportunity and an upside to acquiring a foreclosed asset. In my 30 years in the business, I have seen some absolutely incredible deals where upon closing the happy buyer had a substantial equity, over and above, his down payment.
Tom Di'Mercurio
Chairman/CEO
Tom Di’Mercurio is the President of BuyBankHomes, the nation’s largest free Internet listing service of foreclosed homes or REO assets. He is a career mortgage banker specializing in non-performing loans and REO, writes extensively for industry periodicals, and is a licensed real estate broker in Texas and Colorado and an industry consultant. Di' Mercurio graduated cum laude from the University of San Francisco as well as earning an MBA with honors from St. Mary’s College of California. He can be reached at [email protected].