Well, buying a property that is about to be foreclosed is not your typical kind of resale. Normally, when you plan to buy a house, all you probably need to know is whether the seller has a clean title. But now your friend is trying to sell a property. He bought it for $350,000, however 50% of which is owed to the bank by virtue of mortgage. Since it is mortgage, the bank has an inchoate right over the property, which leads you to think that someday and somehow, it is going to be foreclosed. Would you still want to buy it at its full price of $350,000? Of course not.
So you would want to buy it – probably around $150, 000 subject to the mortgage – that is almost 50% of the purchase price. How do you do it? Would you meet your friend first or the bank?
Next, determine if your friend has debts other than the mortgage, which could possibly put a “cloud” over his title. What is a cloud? Let’s say for example you find out that your friend has owed $100, 000 from another person and he fails to pay. Such situation gives the lender a claim over a portion of his property, therefore exposing it to risk of recovery or attachment. When time comes, this claim can create a confusion or doubt to your ownership. Other than debts, you also need to find out whether your friend has delinquent tax liabilities and other fees. If possible, you can consult a real estate attorney.
After successfully obtaining your friend’s payoff information, you now have two choices. First you can pay your friend’s mortgaged value and enter into a sales contract with your friend. As a rule, property should have clean title and free of encumbrances when conveyed to you. Adding such stipulation in your contract will keep your rights more secure.
The second option is to execute a short sale, which is buying the property less than the owner’s proposed purchase price. What you are going to do is agree with your friend with a purchase price and have him signed a contract. If he has a real estate agent, you have the commissioned stipulated in the contract. As easy as it is.
Here’s one last thing…
Buying a property that is about to be foreclosed isn’t really a bad idea. In fact, many people nowadays would want to first look into listings of properties under mortgaged because they are usually sold at a lesser price. The rationale is this, if after you have bought the property and the bank forecloses the same, you are subrogated to the right of redeeming it at a lesser price.
Why some banks do not foreclose properties? The reason is simple. Oftentimes lenders are the highest bidder. When they get the property, they may end up becoming the owners thereof. As a result they also become obligated to pay real estate taxes and other fees. If it is a condominium, they need to pay the condominium fees.
Nevertheless, buying foreclosure is a bit of a grind. It gives you awesome deals but it takes some going through several listings to get the property that you want.