So you want to buy a foreclosed house? They are everywhere and everyone and their brother wants to buy one. But are you sure you can bear the pain of buying a foreclosed property?
While the purchase price will be low, buying a foreclosed property is not for the overly picky, the perfectionist or someone who thinks the “customer (i.e. Buyer) is always right.” There are several different categories of foreclosures like “short sales” and buying directly at the sheriff’s sale, but here we are talking about buying a foreclosed property from the lender that foreclosed the loan. These are called REO (Real Estate Owned) properties. I call them a big headache.
Get a good price.
Usually closes quickly.
No one living in the house to evict.
It will take 2-3 weeks to get the Seller to sign the contract.
Can’t schedule home inspection until the contract is signed.
Utilities are turned off when you go to do the inspection.
If property is well and septic, no test is furnished.
Many attorneys handling REO sales do not respond at all—to ANYTHING. Not to the attorney approval letter, the inspection requests or requests of any kind. Multiple calls and emails to get any response from them are the norm. (Codilis and Associates and Pierce and Associates, however, do a great job and respond quickly by email.)
Once you get the utilities turned on and do the inspection, most Sellers will not give you credit for repairs. (Some will give you credits, but only a small percentage.) Just recently, one drew a big X through the attorney approval and inspection letter I sent and faxed it back to me.
No survey will be furnished. You have to buy it.
Usually, the Seller buys title insurance for the buyer, but mot always, so be careful
If you are buying a recently foreclosed condo, under a relatively new Illinois law, you, Mr. Buyer, can get stuck with 6 months of the old foreclosed owner’s condo dues. Nice surprise.
One Chicago area attorney who handles REO closings does not attend closing and fed-x’s the deed to closing. Then he will not sign the closing statement until his client approves it. So you need at least two days to close. Forget it if you want to move in at closing!
If you close “late” you pay a penalty of $100/day or so. If you close more than a few days late you may lose all your earnest money.
How to do it right
Be patient. Don’t buy a foreclosure if it will drive you crazy.
Make the contract subject to attorney’s approval. Many do not have this provision.
Make the contract contingent on your professional home inspection (after the utilities are turned on). If the contract does not allow this, I would not buy the house. It’s that simple.
If the property is well and septic, conduct a well and septic test even if you have to pay for it and make the contract contingent on it passing.
If you are buying a foreclosed condo, ask in the 22.1 disclosure form if there are any back dues owed the association and ask under the attorney approval clause for the Seller to pay all condo dues to date of closing.
Good luck (you’ll need it).
6/4/08: The newest trend: Bank/Seller refuses to “de-winterize” (turn the gas, electric and water back on) making it impossible for the Buyer to do a proper home inspection. Or, worse yet, Bank/Seller forces the Buyer to de-winterize the property, at his or her expense, and makes the Buyer sign a rider taking responsibility if the Buyer wrecks anything in the de-winterizing process.