Dear Kari,
My wife and I found the perfect house. It not only fits our “need” list but also our wish list. Our Realtor told us that the property is a foreclosure and has tenants at this time. We are not sure what that means to us. Could you please shed some light on this?
Answer:
Yes, this is very common in today’s real estate market and it is wise to understand all the possibilities.
Let’s first look at who the tenants could be. Perhaps they are long-term tenants with a one-year lease or maybe the lease is month-to-month. Or maybe the original owner is still living in the home. The property owner could have been caught between the recent decline in housing values and the rise of mortgage interest rates and unable to sell the home for enough money. Or, the owner could have moved and then rented their house out while defaulting on their mortgage. Some renters find themselves with a new owner and they do not even know it. The tenant continues to pay rent to the former owner who often pockets the money but does make repairs or even pay utility bills.
Some banks are stuck with increasing numbers of foreclosed properties that they can’t sell.
Prior to May 20, 2009, it was common for the renters to lose their leases upon foreclosure. Now renters in foreclosed properties no longer lose their leases. President Obama signed the Protecting Tenants at Foreclosure Act of 2009.
This act ensures that leases survive a foreclosure and that the tenant could stay at least until the end of the lease term, even a one-year lease. Month-to-month tenants would be offered up to 90 days notice before having to leave the property.
Note that there was one exception created for the buyer who intends to live on the property. This buyer may terminate a lease with a 90-day notice to the tenants.
The tenant of a landlord who defaults on a mortgage and creates the loss of the lease may have cause to sue for the damages it has caused them. Many people in this situation have done so.
Remember that buying a foreclosure home is very different than buying a home with a traditional seller who is willing to move to their next home.
Most buyers and their agents will encounter situations like a bank’s asset management department being very hard to reach. Many times a new person is talking to you each time you call. A quick turnaround and fast attention is usually not what you will receive. Typically, getting to the people at the bank who have the authority to make final decisions is a time-consuming and frustrating process. You will have to weigh the pros and cons of buying a foreclosure against your current situation.
Several buyers find the wait well worth their efforts. We have all heard the great bargains in the marketplace for the strong die-harders who persevere through the process.
Here are a few things that would be wise to know about buying a bank owned foreclosure:
• The property will be sold in “as-is” condition.
• Even if the property is listed at a much lower price the bank may not be willing to take that price.
• The bank will give the buyer an addendum, which means that everything in the main contract is nullified if this addendum covers it and takes it out. Also the addendums are written only for the bank’s interest.
• Several addendums allow the bank to cancel the contract up to the sale date.
• Bonuses are offered to the buyer to use the bank’s title company and they may also want to use their escrow company to do the closing, this is because the banks are receiving kickbacks.
• Termite inspections are to be paid by the buyer and in a traditional sale the report is paid by the seller.
• The buyer will be held to the closing date or risk the per diem, which can quickly add up.
• Possibility of a bidding war.
• Could take up to 3 weeks or longer before you get an answer or just a phone call.
Buying a foreclosure can be a great experience if one looks at the process as an adventure and does not get emotionally tied to one property. Pretend it is a wonderful game and if you win, you really win big.
Keep in mind that, if the property is currently occupied with tenants and you intend to move in, there could be some resistance from the tenants not wanting to cooperate with the new law and you may need to evict them.
Eviction can be necessary yet an expensive and long, drawn-out process. New property owners have been known to offer the tenant incentives to have them move, such as lowering their rent, paying their water and electric bills or forgoing a whole month’s rent to help the tenants have a new deposit available for their next rental situation. You can be as creative as you like.
Contact you local attorney and accountant for more information.
Kari McCoy has been a Realtor more than 25 years and owns the Kari McCoy Group,
Residential Real Estate, at Coldwell Banker. She can be reached at (916) 943-9540 or sold@karimccoygroup.com.
