Typically when one considers buying a foreclosed property, they envision purchasing a property at a foreclosure sale on the courthouse steps. While thousands of properties are sold each month at such foreclosure sales, many of the foreclosed properties are purchased at these foreclosure sales by the bank holding the mortgage. Banks typically will not hold real estate long term as a bank’s ability to own real estate is heavily regulated. Accordingly and in an attempt to recoup their cost associated with the foreclosure, the bank will place the property on the market for sale.
Locating Foreclosed Properties
Foreclosed properties are typically listed for sale in the same manner as non-foreclosure properties. There are many brokers that specialize in foreclosed or “bank-owned” properties and these properties are listed on the Multiple Listing Service (MLS). Locally, properties in the greater Houston Area (including most parts of Montgomery County) are listed on the Houston Association of Realtors’ website www.HAR.com. In addition to being listed on an MLS, a bank may also list foreclosed properties that it owns on its website.
The Purchase Process
The process of purchasing a foreclosed property from the bank is similar to purchasing a non-foreclosed property with the exception that the seller of the property is the bank. While the foreclosure process will serve to clear the original mortgage and most ancillary liens, it is important that the buyer conduct adequate due diligence to ensure that the title to the property is clear and that there are not outstanding encumbrances on the property that are not satisfied at closing. It is also equally important that you have the property inspected by a licensed inspector to ensure that there are no unknown defects or problems with the property.
Risks of Purchasing Foreclosure Properties
The potential risks of purchasing properties at a foreclosure sale (namely little or no time to fully inspect the property and conduct an exhaustive title and lien search) can be substantially minimized when purchasing a bank-owned property as long as the buyer obtains and utilizes proper professional services. The bank will often have the utilities turned off on a property to save expenses, so a complete inspection of the property may be hampered or limited. Because the bank attempts to minimize their expenditures on the foreclosure properties, the properties normally sold “as-is” and the bank is typically not willing to make repairs or improvements to the property.
Eric R. Thiergood, Sr.
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