Purchasing a foreclosed property can be one way to get a really good deal on a property, however there are some risks involved. There are typically two ways to purchase a foreclosed property:
- Bid on the property at the foreclosure or Sheriff’s Sale/Auction, or
- If no one buys the property at the auction and the bank buys it back, offer to purchase it from the Bank though a normal agreement of purchase and sale.
In either scenario, the purchase will be completed on an “as is, where is” basis. This means you take the property in whatever physical condition it is in, and take title in whatever state title is in. The seller has no obligation to correct any issues with either the title or condition of the property.
Bidding on the property at a foreclosure or Sheriff’s Sale/Auction provides a better chance of getting a good deal, but comes with a higher risk. In this scenario, you will likely be unable to perform much due diligence on the condition of the property. Typically, you would only be able to do a drive by, visual inspection of the exterior. You usually are unable to obtain physical access to the property for a more thorough inspection. However, with enough notice, you should be able to complete some due diligence on the state of legal title to the property. One of the biggest risks with buying at the foreclosure auction is that you only acquire the title to the property that the bank has through their mortgage. If the bank only has a mortgage on a ½ interest in the property, you are only buying a ½ interest in the property. You should always contact your lawyer in advance of bidding and have them do some title research work to determine the state of title to the property. It is important to keep in mind that buying a foreclosed property will remove from title only the foreclosed mortgage and any encumbrance registered on title after that mortgage. Any encumbrance registered before the foreclosed mortgage will remain.
The typical agreement of purchase and sale allows the purchaser time to do an inspection, arrange financing, review title and other standard due diligence. While the property is still sold “as-is” and the lender has no obligation to fix the property condition or title issues, the purchaser will have the opportunity to terminate the agreement if the results of the due diligence are not satisfactory.
In either scenario, purchasers should keep in mind that the seller is not warranting title and is not providing a property condition disclosure statement. The purchase is “as-is” in either case. Once the purchase is complete, any issues with the property are the responsibility of the purchaser. Regardless, with the proper due diligence and realistic expectations, purchasing a foreclosed property can be a good investment in the right circumstances.
In addition to the title review due diligence, you can usually also retain a lawyer to attend the auction sale and bid on the property on your behalf. Connect with a member of our team today. To contact a member of our Real Estate team call us at 902-469-9500 or 1-866-339-3400.