Over the past 2 years, distressed properties, foreclosures and short sales, have made up 40% of my sales. There are a number of differences in purchasing a foreclosure as opposed to purchasing a "retail" home.
Probably the most fundamental difference is in the aspect of negotiations. Unlike a "retail" situation, where the Seller could be emotionally attached to the home or an Estate situation where an Heir or Heirs may have sentimental value associated with the property, a foreclosure is simply dollars and what makes sense. That is, there aren't emotions on the Seller's side deciding whether or not the deal should move forward. A Seller could become offended by an offer and not even want to work a deal out with a prospective Buyer as a result. A Lender or Asset Manager who looks at an offer as a "low-ball" and not worth their time, just won't give it their time. They will let the offer sit on their desk until the day comes that another offer rolls in or, in some bizarre instances, months down the road actually contact the Buyer's agent and offer to sell at the "low-ball" price.
Another difference is Property Condition Disclosures. While the Lender has the responsibility to disclose known or discovered by them during the time they owned the property, the trend is that they rarely do. It becomes a situation of "Buyer Beware". This does not negate the Seller's responsibility or liability but in any event the Buyer should understand that they must do their due diligence if they wish to avoid making a bad deal or one that ends in litigation.
The deed conveyance is often different than ordinary transactions. Typically, the buyer will receive a Special Warranty Deed instead of a General Warranty Deed. In either case, the Buyer will still have clear title, free of any encumbrances or liens.
Something you will want to understand in advance is that the 7 page contract used by the Greater Louisville Association of Realtors will be mostly deemed unenforceable by the counter-offer issued by the Seller. Most, but not all, Sellers of foreclosures issue a counter-offer addendum even if they accept the price offered for the house. The reason this is done is because most of these banks have loaned nationwide and aren't prepared to deal with the multitude of contracts all having different governing laws and provisions. The easy answer was for them to prepare one contract that supersedes the local board contracts so they know exactly the terms of every contract.
The time frame is another consideration entirely. With typical transactions, Kentucky law states that most time constraints in a real estate contract are to be completed within a "reasonable time". This could translate to the following example:
"A contract states that closing should occur within 30 days. On the 31st day the closing is finally set for the following day. The Seller cries foul and wants to void the contract because the terms were not met (and he had been offered more money from a co-worker to sell to him). Under State law, 32 days may be "reasonable" and the contract may not be invalidated on that basis."
Every foreclosure contract I have seen has VERY strict time constraints and state this phrase, "Time Is of The Essence". Essentially this means that every time or date is to be held in strict regard. If an action is not completed in a timely manner, the contract is entirely voidable by the Seller. This is by the way, largely one-sided. It normally lays out harsh penalties for not closing in a timely fashion (I've seen penalties as large as $150 day + $20 per day from the Buyer's Agent from their commission). On the opposing side of this argument, there is no monetary penalty toward the Seller if the Seller or their Title company fails to schedule the closing in a timely manner (often the problem is obtaining a clear title free of defects). It may or may not allow the Buyer to void the contract if the Seller fails to obtain clear title in a timely fashion.
The return of earnest money is another tough subject with most foreclosures. Most foreclosures have a minimum earnest deposit of $500-$1000 although I've seen some as high as 3% of the purchase price. Many also state this has to be paid by money order or cashiers check (no personal checks). Many contracts have a clause that makes the Buyer forfeit their earnest money if the contract is not voided on the basis of inspections within the 10 day inspection period.
There are still other differences and caveats, but these are some of the most notable. The important thing to remember when dealing purchasing a foreclosure is to deal with an experienced professional who is familiar with all the in's and out's.
Expert Foreclosure Advice
No comments:
Post a Comment