Know the Pros and Cons of Buying Foreclosed Properties
For property investors and homebuyers, buying a foreclosed property from a bank may seem a better alternative to buying properties directly from the developer. Foreclosures are former collaterals or securities for loans that were repossessed by the bank to recover exposure from bad real estate debts. These properties collectively are termed by the banks as Real and Other Properties Acquired (ROPA) in their books and form part of their Non-Performing Assets (NPAs).
For those who are considering foreclosures, we have listed the PROS and CONS to guide you in your hunt for the property that perfectly matches your requirement whatever your end goal may be.
- Buyers can purchase properties at a “bargain” price
Foreclosed properties are normally regarded as “distressed” assets and, therefore, sold at a much lower price than market value.
Banks likewise give special rates and terms as incentive to buyers who have expressed serious intent in purchasing any of their foreclosures so as to dispose the property in the fastest way possible.
- Buyers can sell properties again at much higher price
If you’re a property investor, you can renovate the property or “flip it” and sell it at much higher price to ensure a higher return on investment.
If you’re a homebuyer, with some repairs and upgrades, you can turn a foreclosure into a home and expect some appreciation in the property’s value.
- Property titles are consolidated immediately after foreclosure
Property titles are immediately transferred in the name of the bank and, thus, assumes ownership and inevitably liable to pay all fees and expenses related to owning the property.
- Taxes and utilities are updated
If the property is consolidated in the name of the bank, the bank is the one that will pay for property-related expenses such as monthly dues, real estate taxes, etc.
- Buyers are dealing with a reputable seller
Banks are more open and transparent when it comes to the property’s condition and legal documents.
- Property titles may still have legal liabilities
There are instances where foreclosed properties have pending court cases (lis pendens), i.e. have illegal occupants or informal settlers; with existing lease or title still in the name of the former owner; or with any other legal or non-legal impediments that may prevent one from occupying and possessing the property.
- Buyers buy foreclosed properties on “as is, where is” basis
Properties are offered for sale by the banks on an “as is, where is” basis. This means the prospective buyer will take the risk in acquiring the property in its current state, i.e. a house and lot or condominium unit in dilapidated condition; a vacant lot but occupied with informal settlers; or a lot infested with outlaws.
- Buyers should make extra-effort to do a due diligence
Buyers should make the extra effort in inspecting the condition and documents of the property because foreclosed properties are almost always in the “as is, where is” basis, in which the buyer will purchase the property on its current state and will have to deal with various issues.
- If necessary, hire an engineer to help you estimate how much it will cost to clean the title, to renovate and upgrade the property, etc. before bidding a justifiable price with the bank.
- If the property is in the state of pre-foreclosure, the homeowner must look for another buyer to avoid going into foreclosure.
- “Cash is King”- paying in cash when bidding for a foreclosed property will make you get a massive discount.
Check out foreclosed properties from our partner banks HERE.