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Things you need to know when buying a foreclosed property
Purchasing a foreclosed property is different than buying a home being sold by a seller. Foreclosed properties are owned and sold through a financial institution and the court is the seller.
When buying a foreclosed property the offer to purchase differs from the standard Alberta Real Estate Association purchase contract – many standard items are altered or deleted.
An aspect that is often different when buying a foreclosed property is the lack of chattles, which are any freestanding items such as washer, dryer, fridge, stove, garage door openers etc. Sometimes they may be included in the purchase but often times not. The process of buying a foreclosed property only relates to the land and the property itself – nothing else is included.
Another change in from Alberta’s standard purchase contract is regarding the deposit and the closing process. The deposit is paid to the court and the closing is governed by court order.
Lastly, anything to do with guarantees or warranties are out of negotiation for the purchaser as the court has no interest to warrant anything to which they have no knowledge or control over. This includes issuing or providing a Real Property Report including anything to do with city compliance or lack of encroachments. If the lender has access to a Real Property Report they will provide it to the purchaser however if they don’t one will not be provided. If the property has changed at all since the Real Property Report was issued they will not provide the purchaser with an updated version.
Buying a foreclosed property requires a lot more due diligence on the purchaser’s side as there is little to no options for further information from the seller. The property comes as is where is.
What are the benefits of buying a foreclosure property?
The number one benefit often is being able to buy the property at a lower price. When none of the usual warranties provided the price is typically much lower. If after looking into it the purchaser discovers that there is no permit in place for building the garage or finishing the basement it is up to the purchaser to deal with it. Likewise if the appliances that were included in the property don’t work that is also left for the purchaser to deal with. All of this results in a much lower price for the property.
Before making an offer on a foreclosed property make sure you are aware of any lack of permits or deficiencies in the property such as a leaky basement. Since the property is being bought with no warranties from the seller and coming “as is” it is up to the purchaser to remedy the situation should there be one.
Ensure that your property inspection is thorough. In most cases you will have access to the property to hire a professional to perform a professional home inspection at your expense. However in some cases you will not.
When submitting an offer ensure it is your best offer. The court and lenders lawyers will not typically engage in much of a back and forth negotiation process. Their preference will always be to accept a clean unconditional (or minimal conditions) offer.
You will want to pay particular attention to the specific court order when submitting an offer to purchase a foreclosed property. Often times it can be a great opportunity to save a lot of money on the purchase however at the same time it has the potential to be quite risky if thorough due diligence isn’t performed prior to the offer being accepted.
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