Thursday, May 10, 2012

Foreclosures: Process and Strategies

In any real estate market you will see foreclosures occur but in a market that has struggled to move forward from a downward adjustment to prices – we tend to see more hit the courts than usual.

Foreclosures are a necessary factor in any market condition.  They help keep communities from stagnating and inventory turning over.  I was in Phoenix last fall. Some neighbourhoods you drive through you find house after house boarded up, dead lawns, and empty pools.  It doesn’t help the community as a whole and stops buyers from looking in particular neighbourhoods.  Banks don’t want to be landlords or property owners.  In the Okanagan we have not had the harsh adjustment to the market that other areas are struggling with but we are seeing more foreclosures than we have over the last few years.

Some home owners' dream turned into a nightmare – some Buyer's opportunity that might not have been available to them.   Foreclosures are not ‘fire sales’.  The courts do have an obligation to obtain as close to market value of current conditions as they can.  Let’s look at procedures and risk.
First and foremost – be sure you are represented by a REALTOR® that has knowledge and experience in this process. In my March 22 BLOG I told you about a specific circumstance where one client was successful and the other sadly not.  For the most part, it came down to the successful buyer being represented by a  REALTOR® who knew how to handle the foreclosure proceeding and offer process. The unsuccessful buyer was very poorly represented in that capacity and blind sided by what happened, so check that out.

  • The purchase price offered on the First Contract of Purchase and Sale presented to the listing  REALTOR®  is used to obtain a court date for all future offers that may come in prior to that court date.  
    • That first offer submitted for consideration is public knowledge and on record with the court. That offer becomes the bench mark subsequent buyers’ may use.  I would encourage the first Buyer in and their REALTOR ® to be present in the Court; prepared to submit a second offer should they discover at the hearing that there are additional competing offers present.
  • All Offers into court must be subject free. 
    • All due diligence on the Buyer's part must be done prior to going to court. The Buyer may choose to make the commitment to pay for a property inspection before submitting their offer.  A measured risk for spending some money upfront, confirming the property is something they are sure they want to negotiate on and not a money pit.
    • It’s my opinion the courts would give greater consideration to a buyer that has done a property inspection than one who has not. 
    • It’s important the REALTOR ® acknowledges in the offer, ALL the due diligence items the buyer performs prior to submitting their offer, with simple statements:  “the Buyer has received and approved....... a Professional Property Inspection, title search, plot plan.....”
    • If there is a unique foot print or zoning usage – “The Buyer has verified property boundaries, zoning, property use and easements.”  It is up to the REALTOR ® to assist their client in researching and obtaining confirmation of all factors that could affect the Buyers use and enjoyment of the property.
    • Note that the Buyer is Aware of Property Transfer Tax.  The REALTOR ® needs to ensure their buyer is aware of that added cost as funds need to be available at completion and not financed through their mortgage.
  • Know ahead of time that the Buyer may not get an opportunity to negotiate. 
    • At times, if the courts have more than one offer to consider and find them all too close to make a choice, the judge may ask which parties are present, giving them an opportunity to step out of the room and alter their offers to resubmit later on, in the docket of that day.  There is no guarantee that opportunity will present itself so don’t count on it.  With your REALTORS® expertise on market values, go into a foreclosure offering what you believe to be ‘your’ top dollar to purchase this property.
  • “As is where is” written into the section identified as TERMS reconfirms the Buyer’s acknowledgement of the Schedule A.  The Schedule A, provided by the seller (Usually a financial institution), is always attached to the listing and to the contract of purchase and sale on behalf of the Seller.  Readers Digest's version of the Schedule A:  the Seller provides absolutely no inclusions or makes any warranty representations on the property. 
    • The Buyer must have NO expectations of the condition of the home from the time they last viewed it to the time they take possession.  In my opinion, this is one of the most important factors – or risks – the Buyer has to consider when purchasing a foreclosure.

Higher the deposit – the more it speaks to the Court.

  • The amount of the deposit (which becomes part of the purchase price) is a strong indicator of the financial ability and preparedness of the Buyer.  Not only does the judge want to award the highest offer – they also want to award it to the Buyer that shows the strongest position of actually closing on the property.
    • The Deposit amount, either already in their REALTORS’®  trust account, or Bank Draft present in court with the offer, 
    • And the disclosures of due diligence done by the Buyer has been known to sway the court’s decision towards a lesser priced offer – not always, but it certainly helps.
    • Be sure the deposit (Bank Draft payable to the Buyer’s REALTOR’s trust account) is with your offer to present.
    • We had one buyer (who didn’t intend to finance his purchase) make an offer on a lower priced property and the Bank Draft for the deposit was actually his offering price.  He was awarded the property even though his price was less than another offer presented.

The second or additional buyer to make an offer after the court date has been set does not necessarily have to present their offer to the Listing REALTOR® prior to the court date:

  • Enquire when the court date is and surprise them by showing up in Court (see my BLOG from March 22).  Be sure the REALTOR®  for the Buyer obtains a Schedule A to include with the offer – often the listing REALTOR®  will post them in their listing documents.

It is an absolute benefit to have the Buyer present with you in court in case there is an opportunity given to amend or better their offer in light of more competition that arrives unplanned.  Being present to address questions or make changes can be the winning move for the successful Buyer.  Remember, it’s the court s job not only to award the best offered price but to award the contract to the most qualified buyer - one they believe will actually close on the purchase so the property isn’t back in their court room in two months time.

One last note – if your buyer has intention to register the property in another name or entity, like a numbered company or family member, it is very important to note that the contract must be completed in accordance with the court order.  That means, however the Buyer wants the title of the property to be registered MUST be the same way the contract is written.  Failing to fulfill the court order as written is a costly position to be in.  Changing the court order after the property is awarded is also costly and has the potential to cost the Buyer the deal AND their deposit.

               Happy shopping!

When the going gets "Tough"...just call me.
Susan Tough