Published On: February 15, 2018
Looming maturity dates (for which borrowers are not prepared to pay the remaining balance) or other monetary defaults of numerous commercial mortgages may present many opportunities for purchasing property on a discounted basis. With proper precautions and investigation, what appears to be a “deal” really can be a “deal.” However, purchasing a property at a foreclosure sale or other distressed sale has many traps for the unwary. What appears to be a bargain can quickly turn into a nightmare, if the buyer rushes into the purchase without enough information.
Bidders often forget that, at a foreclosure, they are agreeing to purchase the property “as-is,”
Bidders often forget that, at a foreclosure, they are agreeing to purchase the property “as-is,” subject to (i) no closing contingencies and (ii) all of the property’s defects and deficiencies. If a bidder is successful, the bidder is committed to completing the acquisition of the property, regardless of the condition of the property. There are countless examples of expensive post-acquisition issues that could have been easily detected with minimal due diligence. Some of these latent issues include environmental conditions, liens and deed restrictions, and major repair items. Accordingly, purchasers of real estate at a foreclosure sale should undertake the same due diligence as if they were purchasing the real estate in an arm’s length non-foreclosure transaction from a third party (even though time may be limited).
The purchase that may seem like a bargain can become a financial disaster if purchasers do not enter the purchase with their eyes wide open.
Prior to bidding, every bidder should obtain a title report, which will identify the liens and encumbrances that will continue to burden the property following the foreclosure purchase. In addition, although access to the property is often limited prior to foreclosures, the prospective purchaser should also try to obtain a basic property condition report prior to bidding. If purchasers are not careful, they could end up purchasing a property that is (i) subject to debt far higher than the amount of the purchase price or (ii) in very poor physical condition.
Although this may sound unfair to the buyer, the buyer is typically paying a substantially discounted price. The money saved is often spent on performing repairs and improvements that have been neglected by the financially distressed owner. Also, lenders price their loans with the anticipation that they will be able to sell the subject properties at foreclosure with minimal costs and liability exposure. If lenders were subjected to the same costs and liability as a seller in a “regular” sale, the borrowing costs and interest rates for all borrowers could increase.
Proper due diligence and consulting with your attorney on the front end can save tremendous heartache on the back end. If a deal looks too good to be true, it probably is, and the purchaser should not be afraid to walk away from the sale if they feel they do not have sufficient information.
About the Author: Diane Drain
Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.
*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*
“You folks are the BEST OF THE BEST in Arizona.” M.H.
You and Jay are the best attorneys I have ever had or needed and thank God for the Honorable Robert Gottsfield in recommending you folks – I would have never made it through the entire process without you and Jay and God Bless you both always and stay in touch as well. You folks are the BEST OF THE BEST in Arizona.
“My only regret is that I didn’t find Diane sooner.” K.H.
I can’t say enough good things about Diane. The way she handled my not typical circumstances was amazing. I was very nervous to start the bankruptcy process but Diane just has a very comforting way of explaining the whole process. My only regret is that I didn’t find Diane sooner. If you find yourself in a financial situation that you can’t correct on your own, please Call Diane Drain as soon as possible.
“Filing for bankruptcy can be a stressful life event” R.A.
Filing for bankruptcy can be a stressful life event, and selecting the right attorney can add to this stress. Diane and Jay were a pleasure to work with, and it is obvious that they are passionate about helping people get their life back on track. I would highly recommend them if you need a bankruptcy attorney.
Published On: February 23, 2022
WHAT HAPPENS AT THE END OF A COVID-19 FORECLOSURE FORBEARANCE? Can servicers demand a large balance? Generally, the servicers should not be demanding full payment following a COVID forbearance. There [...]
Published On: July 29, 2021
CFPB Releases Online Tool to Help Renters and Landlords Access Federal Assistance New resource helps renters and landlords find state and local programs distributing federal rental assistance funds WASHINGTON, D.C. [...]
Published On: July 16, 2021
Arizona Residential Eviction Actions Procedures – effective July 15, 2021 IT IS ORDERED that the following procedures are applicable to eviction actions governed by Arizona Revised Statutes, Title 33, filed [...]
Published On: May 16, 2021
There is so much mis-information about a forbearance of home mortgages during COVID-19. Know your options before making a decision not to pay your mortgage. (11/18/21 UPDATE - see summary of foreclosure alternatives) This [...]
My intention is to put you back in control of your life
Start with $0 down*. We provide affordable payment plans.