Lenders can evict the borrower if they fail to make their payments for three consecutive months. This could lead to foreclosure. Lenders may evict the borrower, or sell the house. These sales can be extremely distressing for the current owner and can cause a lot more grief. However, foreclosure properties can provide excellent value for potential home buyers.
Why? The lender’s objective is to sell the property as quickly as possible. The lender won’t allow the property to remain vacant and foreclosed. They want to sell it quickly, not wait for the highest price. While most foreclosures go to auction, you can still purchase them with no bidding.
You can purchase houses at a fraction of the market price by purchasing foreclosures.
If you’re considering purchasing a cheap mortgagee-in-possession or foreclosure property, keep these six rules in mind.
1. Organise your finances well in advance
Remember you are purchasing this property from a bank so the settlement period is likely to be short and you shouldn’t expect any flexibility. Pre-approval for the property is important. Your finances should be organized before you shop. That way you will know exactly how much money you have to play with and you’ll ensure the transaction runs smoothly.
2. Expect a quick settlement
When it comes to foreclosures, the vendor’s goal is to quickly sell the property. This means you can expect a swift settlement with very little room for movement.
Reliable lawyers will make sure your paperwork is completed by the deadline. Likewise keep close tabs on your lender to ensure your loan is processed and all i’s dotted and t’s crossed well within the vendor’s timeframes. You don’t want to find yourself in a situation where you’re forced to pay penalty fees for late settlement
3. Expect a large repair bill
Chances are the last occupant of the property left in a hurry and didn’t care about whether or not the tops of the kitchen cupboards had been washed down recently or the pool filter checked. It’s safe to conclude the previous occupant had been going through a period of severe financial hardship. If they didn’t have enough money to pay their mortgage, chances are their home maintenance and improvement budget was pretty non-existent too.
You will need to have a budget in order to improve your property. This will allow you to decide how much money you can borrow and how much you can spend on repairs and improvements in the first few year.
4. Be on the lookout for unexpected surprises
People can do strange things when they are faced with financial stress and the prospect of losing their home. The previous owner tried to set fire to the property several times before settlement. Before the buyer could take possession, the bank repaired the damage. It is always a good idea to inspect the property at the last minute before you settle.
5. Don’t buy site without seeing it
If the property you are purchasing is in a location far from where you live, it’s tempting to do the deal online. But remember, vendors and their agents will make the property look as good as possible in photographs so it’s difficult to ascertain the true state of the property until you see it with your own eyes. It is recommended that you inspect the property at least once.
6. These golden rules will help you to buy any property.
Don’t avoid the tried and tested conventions of successful property buying just because you’ve bagged a bargain. Look around at the area. Is it increasing or declining? How have property prices performed over the past few years? How do you see capital growth opportunities? Before you move, look into employment opportunities. Check the local vacancy rates and rental yields to ensure that you are getting a good deal.
By Jackie Pearson
This story was first published in 2012 and was revised in June 2018.