Buying Foreclosure Property
Stepping On A Land Mine
When you are buying a foreclosure property, either from the court or MLS, you are buying it “as is”. You have to remember that you are buying the property from the court or the lender directly. They have never owned or lived in the property themselves. The lender or court cannot warrant something for which they have no knowledge or control. Their interest is to recover the money they have lent to the original owner.
When you are buying a foreclosure property, the standard purchase and sale agreement are amended to protect the courts and the lender. Firstly, any reference to chattels are removed, this includes all the chattels on the property. The second area which is struck from the standard purchase and sale agreement is the deposit. The deposits are paid into court and governed by the court process. In case the property is on MLS it is held by a realtor in ‘trust’.
Next are the usual provisions pertaining to the property. All the classes are deleted since the court and/or lender want to keep their liability to zero. If there are outstanding deficiency orders, the new owner will inherit all those obligations.
Since the property is in foreclosure, there are no warranties to the structure, foundation or copy of survey (also known as RPR in Alberta). The lender and/or bank will not warrant compliance or lack of encroachments of any item. Just remember who is selling the property.
Most naive Real Estate Investors think that they are getting a property at bargain price. The truth is that the lender and the courts are required by law to sell the property within three to five percent of appraised value. If you look at the current condition of the property, and have the property inspected, chances are there may not be any utilities turned on since the previous owner has defaulted on the utility payments. They can only be turned on once a new owner takes possession, then and only then will they discover all the surprises. At that time, the new owner will realize that they bought a lemon.
Courts in general would like to receive clean and unconditional offers. They will not engage in negotiation. The judge is in no hurry and/or under any pressure to take first offer. The judge is obligated to obtain the fair market value for the property in question.
After reviewing all the above points, one may realize that the largest investment of their life was in fact a step on a land mine, which will explode in your face due to lack of knowledge, experience and greed.
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The above information is provided as a guideline and is not intended to give a professional legal advice. Please consult a real estate lawyer for their opinion on your particular case.
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