Wednesday, August 15, 2007

Physical Condition of Foreclosure Properties

I’m going to bid on a foreclosure property … how do I know its physical condition?

That is one of the inherent risks of buying property at foreclosure auctions … you generally don’t know the condition – especially the interior. If the property owner still occupies the property you can’t access it unless it is listed for sale and you can set up a showing. If it is vacant you might be able to peek through the windows, but you are technically trespassing. Generally, you are buying the proverbial “pig in a poke”.

The Lender doesn’t own the property until after the foreclosure, and then only if there are no bids to match their minimum bid amount and they end up receiving the property. That situation presented a dilemma for the Nevada Legislature with the Seller’s Real Property Disclosure form they require for all residential transactions. In a foreclosure sale the Owner isn’t selling the property, and the Lender never lived in it. How could the Buyer be protected from known defects? Who is responsible for disclosing them?

Recognizing that the Owner isn’t involved in a foreclosure sale, the State added a clause in 2005 that requires the Trustee or Beneficiary to disclose any defects of which they are aware. The situation is still problematic for the Trustees or Beneficiaries usually have not been in the property – ever. They might, however, know of problems related to the property and are now compelled by law to disclose those before the property is conveyed. Such problems can be a neighborhood issue, something like all the windows having been vandalized, or the roof being blown off. Any defect required by a law to be disclosed must be disclosed if they have knowledge of it. Perhaps, there was correspondence from the Owner to the Lender relating the need for a new roof and a request for relief from payments so they could afford it. This type of knowledge must be related to a new Buyer by the Lender.

Our Advice: Despite the legal requirement for disclosure, proceed with caution. The Lender most likely has no knowledge of the condition of the home. If the Owner wrecks havoc as they vacate the property just prior to or subsequent to the sale the Lender would have no knowledge of the damage. Lenders usually want to sell ‘As Is”, and may ask that you waive the SRPD requirements. If you are to waive the requirements remember that you must sign the waiver document and have it notarized to be valid. A Buyer can waive the SRPD requirement in any transaction as long as it is notarized.

Be smart in your foreclosure acquisition. Your successful bid might seem like a good deal until you walk through the front door, or when you get a physical inspection to ascertain the condition of the home. Build a cushion in your bid for the unexpected … you can expect it.

When it comes to choosing professionals to assist you with your real estate needs… Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, carsonvalleyland.com, 775-781-5472.

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