Good afternoon everyone - it's been a while since I visited last. I have some news you can use about purchasing in the real estate community since foreclosure sales and short sales are so popular. What is clear is that people can get a wonderful deal on a distressed property. What may not be so clear is some of the pitfalls that become of vacant or distressed properties when the owners move out for greener pastures. This holiday post is for all of you who need news you can use, about buying safe, smart and closing the deal. In no particular order......
1) Tour the Property Multiple Times Before Closing!
I have a client who is purchasing a great short-sale property that was in foreclosure in Chicago. The property is zoned as a multi-unit, but the seller took out the kitchen on the second floor. That effectively (although not legally) changed it to a single-family house). THEN, when he decided he wanted a short sale and stopped paying the mortgage and moved out of state, he told a friend that he could stay there ("to protect the property."). This "friend" then in turn, invited a few other people to come and stay. When the client responded to the MLS listing, there were two people we were told were living there. When they went back again to take some measurements and do the inspection, then there were 5 beds and closets full of things. They began to worry - how many people were really there? Would they be gone at closing?
Your tip: Be SURE that your contract provides that you obtain full possession at closing, and that all personal property and people have vacated. Do NOT CLOSE if the people are not out. The seller is obligated to get all of the people out, even if the seller is a bank. If the seller or bank (or whoever is conducting the sale) will not provide assurances of possession at closing, then you need to be prepared to engage a real estate litigation lawyer to possibly start eviction proceedings once you close. Beware, and do an inspection the day before.
** Many people think multiple inspections are just for new construction or rehabs. NO!! You have the right to assess the property condition right before closing. Take advantage of it.
2) Inspect All Systems, Appliances and Fixtures Before Closing!
Most people know that a property inspection is a good thing to do. However, in a short-sale or foreclosure situation it is imperative that you do so. When a buyer tours the property it's all too easy to get distracted by imagining furniture placement or the new granite that would look so wonderful in the kitchen. However, you must be sure the appliances work, can be fixed, or that you understand the costs involved for replacement. They all affect your bottom line. Often the water is shut off, or the property has been winterized. It's important to understand what needs to be done to make the place livable, BEFORE you are past the attorney review and inspection provisions of your contract. Take advantage of those contingencies in real estate contracts - they are there for the buyer's protection!
3) ALWAYS Ask for Repair or For the Seller to Provide Repair Credit
Many times when dealing with banks or with high-volume real estate firms that handle foreclosures and short-sales, people and realtors alike assume that they will never be able to negotiate a repair credit so that they do not bother to inspect like they should, and they don't bother to ask for credits because they mistakenly believe the seller will never agree. ALWAYS ask for a credit. What you do not know, is that just because the seller may not agree to repair or provide any money, is that the bank handling the short-sale or foreclosure has a certain amount they need to be paid off, and in many cases the bank may allow such a credit (which reduces what they receive). It NEVER hurts to ask. DO it. You will thank me when I'm right.
4) Do Not Be Afraid To Solicit Repair Bids Before Closing
SO that you understand your finances and obligations for repairing the property, usually a listing agent will provide necessary access to a potential/prospective buyer who is under contract, if they need time to obtain bids for work. Often that work is wrapped into the financing so the lender will require it. Be sure you schedule time to get that done before closing - which usually will require property access. Either realtor can get you into the property, so do not forget to get that done before closing. It will make the weeks post-closing much smoother if you already know who to hire, what it will cost and what they need to get started to fix up the property.
All in all, you will definitely need a trusted realtor, attorney and contractor to help you with the often murky waters of foreclosures and short-sales, since so many can be time-consuming and complicated. However, once you make it past those hurdles, you can get great deals in hot and up-and-coming areas.
Good luck and happy holidays from Levin Law, Ltd!
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