The news is full of stories about the hot real estate market, especially in Southeastern New Hampshire. Stories of bidding wars and offers in excess of the asking price evidence that there is more demand for properties than available inventory. As a result, prospective buyers are considering buying properties at foreclosure auctions. With the appropriate due diligence, foreclosure sales provide opportunities in a competitive market.
TIP #1 Review the Notice of Sale. It will spell out some of the terms of sale, including, whether they are foreclosing a first mortgage, the amount of the deposit, where and when the sale is happening and the book and page reference for the mortgage being foreclosed. This will be helpful to getting your title search done. (See Tip #3)
TIP #2 Review the Sale Agreement. The winning bidder is required to sign a sale agreement or similar document. The terms contained in this document are non-negotiable and have become more and more detrimental to the buyer, including requiring the buyer to pay the seller’s and buyer’s share of the real estate transfer tax (currently 1.5% of the sale price), prohibiting assignment of the sale agreement, and stating that the seller will not sign any title insurance documents.
TIP #3 Have a full title search done before you bid. Unlike a traditional sale, there are no contingencies in a foreclosure sale. If there are title issues that have priority over the mortgage being foreclosed, the buyer will take the title subject to those issues and spend time and money attempting to cure them. For example, if the bank is foreclosing a second mortgage, the buyer will take title with the first mortgage still on the property. The buyer will likely be notified by the bank holding the first mortgage that they need to pay it off or the bank will foreclose. Liens and attachments sometimes survive a foreclosure, depending on their type and recording date. The auctioneer and foreclosing bank have no obligation to provide this information to potential buyers.
TIP #4 Determine if there are occupants. Buyers of foreclosed properties purchase subject to the rights of tenants and occupants. Frequently the buyer will have to go through an eviction process to get possession of the property from the prior owner or occupant. In addition to the time and cost involved in the eviction, there is also the risk of damage to the property.
TIP #5 Check to see if there are outstanding taxes. Purchasers of foreclosed properties purchase subject to outstanding real estate taxes. The municipal tax collector will provide you with the status of the taxes. If there is more than one (1) year of back taxes outstanding, you should also ask when is the earliest date the municipality can take title to the property by tax deed.
These five tips cover some common matters confronted by buyers of foreclosed properties but is certainly not a comprehensive review of all matters a buyer may confront. Each situation is unique and buyers should do as much due diligence before the auction date as possible.