Is buying a distressed property an opportunity to get a bargain or a trap?
If a property owner is unable to make payments on their loan, ownership of the property will revert back to the lending institution.
However, banks and the like cannot maintain or keep these properties, nor do they have the time or resources to devote to selling these properties on their own.
Instead, the properties are turned over to Receivers who take on the responsibility of selling the property on behalf of the owner and lending institution. These properties become known as distressed properties.
A Receiver will take on the obligation to sell the property, usually at auction. However, there are several differences in the various contract protections afforded the buyer when contracting under these circumstances. If you decide to buy a distressed property it’s crucial you understand these from the outset.
Buying from a Receiver at auction is not the same as buying directly from the property owner.
A Receiver has different priorities such as;
- Expediently selling the property
- Recouping as much of the lost monies as possible
- Getting the best price for the property in the shortest amount of time
However, a Receiver, unlike a homeowner, is not obligated for the following;
Warranties on the property including;
- Warranties as to planning – such as making sure the property has all of the proper permits for its intended usage and is in compliance with all necessary regulations
- Warranties as to boundaries, easements and rights of way – such as shared driveways or rights of others to cross the property to gain access to adjacent public areas
- Warranties as to Notices of outstanding unpaid debts including utilities, homeowner fees and property taxes
- Payment of Non-Principal Private Resident Charges
- Good Title
Therefore, when considering purchasing a property from a Receiver you may find a bargain, but there could be a catch.
It’s important to consult with professionals who can assist you in researching these various areas of concern.
Some of the professionals you might want to consult include;
- An architect to review the planning of the property
- A Solicitor to research the Title, easements, rights of way, and outstanding payments that could possibly be owed on the home
- A surveyor to review the boundaries of the property
In addition, there are things you can do on your own, prior to going to auction, to investigate the property you are interested in.
While these investigations might be a bit time consuming, the information you gather can be very valuable in helping you make a final decision on moving forward with bidding on the property.
- Visit the neighbourhood on a few different occasions and at different times of the day
- Engage a neighbour in a conversation about the positives and negatives of the area
- Research the actual property values of the homes
- Investigate the percentage of property taxes paid as per the sale price of the home
- Prepare a budget including the cost of the mortgage, accompanying taxes, homeowner fees, home interior upgrades and repairs
- Discuss your finances with an accountant before deciding to take on the responsibilities of the investment
- Secure a written confirmation that you will qualify for a mortgage on the property
By performing your own due diligence on the property you are interested in, and by working in conjunction with the various professionals available to help you with your investigation, you will have a very good chance of unearthing all of the necessary information to help you make a wise choice when purchasing the property from a Receiver.