To read Part 1 of this series, click here.
The 6 Steps To Buying a Foreclosure
There are 6 major steps to buying a foreclosure property through the courts. They are as follows:
1. Write your offer
There will likely be a Schedule A attached which is an addendum written up by the lender’s lawyer. Read this closely.
Most Schedule A’s refer to the fact that the property you are purchasing is ‘as is, where is’, with no representations or warranties. Which means exactly as it says – what you see on completion date is what you get. Note that it may not necessarily be what you see today - if vandals ruin the place prior to possession, the lender technically has no liability. Hence the biggest risk of purchasing a foreclosure.
Schedule A’s usually state that if the borrower redeems the mortgage, the property will no longer be sold to a third party. This means you may make an offer, and then not be able to purchase it after all, as the borrower found some cash and was able to bring their payments up to date.
You cannot include any chattels – anything that is not permanently attached is not guaranteed to be there. If you try to include appliances in your offer, the lender will usually cross them out.
2. Make your Offer Subject to Court Approval
Note that even if the bank accepts your offer, the court has to approve it before you have a deal.
3. Court Date Set
A court date will not be set until all your subjects are removed (i.e. your subject to financing, etc.), and even then the court date is usually not for 3+ weeks after your subject removal date.
4. Your Offer Price is Released to the Public
Once your subjects are removed and the court date is set, your offer price becomes public knowledge. The Realtor who is working on behalf of the bank will release this information, as it is in the lender’s best interest to attract higher offers than yours.
5. Court Date Arrives
After all this time of waiting for your offer to go to court – at court date another offer (or more than one!) can be presented into the court.
All offers presented into court must be subject only to court approval and be accompanied by a bank draft for the deposit. In most cases, the judge will choose to look at all offers presented.
Often if the offers are close in price, and sometimes even if they are not, the judge will ask for a sealed bid within a certain period of time from all buyers. At this point you will have the opportunity to resubmit your confidential sealed offer at the same or different price/terms.
With a sealed bid, the best offer in terms of price and terms will usually be accepted.
6. Once the best offer is accepted, the court order is drafted
The successful buyer is then able to purchase the house and hopes that it is in the same condition on possession date as when they viewed it.
Once again, the process is complicated and risky, and not for the faint of heart.
Stay tuned for our next article, Part 3: 7 Common Mistakes Buyers Make When Buying a Foreclosure