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FORECLOSURE PURCHASE FAQ SHEETFrequently asked questions when purchasing a foreclosure property.Disclaimer: The following is information on some of the intricacies involved with purchasing a foreclosure property. The information contained herein comes from our experience to date with representing lenders and buyers of foreclosure properties. It is intended to inform you of key circumstances unique to purchasing a foreclosure property. While we hope your particular transaction goes smoothly, there are many delays that can happen in the purchase of a foreclosure property. Please read below.
Q: What is a foreclosure or REO property? A: "Foreclosure" is the legal right of a mortgage holder or other lien holder to gain ownership of a property if their mortgage or lien is in default. A "foreclosure property" is a property that has been gained through the foreclosure process and is owned by a financial institution or investor. An "REO" (Real Estate Owned) property is the same as a foreclosure property; it is a term typically used by professionals in the mortgage industry.
Q: How do I know if the home I want to purchase is a "foreclosure"? A: In most cases this will be disclosed on the MLS in the agent and public remarks such as: "bank owned", "REO", "foreclosure", and purchased "as is". It may also be in a special MLS search field available to Realtors. If it is not obvious in either of these fields contact your Realtor and they can find this out for you.
Q: What paperwork do I fill out if I want to buy a foreclosure property? A: Your Realtor will complete and have you sign a standard
Q: Who signs the purchase agreement on a foreclosure sale? A: A lender who gains ownership of a property through foreclosure will typically hire a company to manage the property - this is called an "asset management company". This company will hire a Realtor to list the home for sale and they will coordinate cleaning the property, changing locks, winterizing, negotiating offers, etc. The asset manager will have authority from the lender to sign an approved purchase agreement or they will arrange for a representative of the lender to sign it.
Q: Once I submit an offer on a foreclosure property, how long does it take before I get a response? A: You should receive a VERBAL response on your offer within 24-48 hours. Verbal negotiations can go back and forth for a few days until the buyer and seller agrees on terms. Once an agreement has been reached on all terms, it can take from a few days to 2 weeks before you receive signed documents from the lender.
Q: Is my earnest money refundable when I buy a foreclosure property? A: In most cases, your earnest money is only refundable up to a specific point in time - usually up until the inspection period expires. After the inspection period has expired, and you communicate to the lender that you want to move forward with the transaction, your earnest money usually becomes non-refundable. For this reason, it is imperative that you have your financing in order prior to writing your offer.
Q: Are there any other fees specific to purchasing a foreclosure property? A: Yes - the PER DIEM FEE! Lenders that own foreclosure properties want nothing more than to sell the property as quickly as possible with minimal financial loss to them. To "hold" onto or "carry" the property costs the lenders money. Therefore, when they accept a purchase agreement from you, they fully expect you to perform (i.e. close the transaction on the day stated in the purchase agreement). If the closing date is delayed for any reason by you as a buyer (i.e. underwriting on your loan is not complete), you will be charged a daily fee - called PER DIEM in the contract. The fee is usually $100-$150 per day.
Q: Are the appliances and other personal property included in the sale of a foreclosure? A: When a bank or other lending institution acquires a property by foreclosure, they only have the rights to sell the real property. They do not have the rights to sell any personal property that may be left in the home (i.e. appliances and window treatments). While the appliances and window treatments may be in the home when you see it, and they will most likely still be there when you close on the property, they can not be part of the purchase agreement.
Q: Are the appliances, plumbing, electrical, and mechanical systems still "warranted" when purchasing a foreclosure? A: No. You will be purchasing the property "as-is". Because the seller is a bank or other financial institution, they have never lived in the home, they can not and will not guarantee that anything is in working order when you purchase the property. This is why it is extremely important for you to get a complete home inspection so you know exactly what you are buying. Home inspections typically cost $300-$500 depending on the size of the home. You will most likely be asked to sign an "as-is" addendum when submitting a purchase agreement to a lender on a foreclosure property. When you buy a property "as is" - NOTHING is warranted by the seller. You are buying the property in its current condition, with any and all defects and/or environmental issues.
Q: Will I see a property disclosure statement telling me what is/is not working on the property? A: Upon sale of any property, the state of MN requires one of three things to satisfy MN state statutes regarding property disclosure: 1) A property disclosure statement, 2) A qualified 3rd party inspection, or 3) a WAIVER of disclosure. Because the seller is a lender or other financial institution and they have never lived in the property, you will not receive a property disclosure statement.
Q: Will the closing take place on the date specified in the purchase agreement? A: Keep in mind that some lenders that own foreclosure properties are LARGE financial institutions. They have many people working together to sell the property. There is always the chance that a closing can be delayed. If you plan on moving into the home after closing, it is VERY important for you to have a back up plan and a temporary place to stay in the event that the closing is delayed. In NO circumstances will the lender allow you to move into the property, or allow you to move your personal belongings into the property prior to closing.
Q: Can I choose the title company or real estate attorney that represents me at closing: A: According to MN state law, yes, you can choose who represents you at closing. HOWEVER, in most cases, if you use the title company representing the seller, they will pay for your title insurance policy, which will save you money.
Q: What other costs are involved? A: De-winterization and lock changes. When you hire a licensed home inspector to inspect the property, in many cases the home will have been "winterized". In a "winterized" property, the plumbing lines have been blown out, and the main water supply to the property has been shut off. You will want the inspector to check the plumbing for leaks, pipe cracks, proper drainage, etc. In most cases, the seller will require you to pay for having the property "de-winterized". The cost of this is usually between $75-$150 dollars. The brokerage that lists foreclosure properties, sometimes have a LARGE number of listings, where they use the same master key on all of their listings. After closing it will be your responsibility to change the locks on the property to ensure that your property is secure. Costs can vary depending upon the style and type of locks you choose and on the number of doors on the property.
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