Real Estate Series: The Lowdown of Foreclosed Properties in a Pandemic
Is buying a foreclosed property a good deal nowadays? Buying a foreclosed home in these uncertain times can still work for you, as you as you know what you are doing.
The pandemic undoubtedly had a profound impact on real estate markets all over the world, and the Philippines was not an exception. Health concerns and stay-at-home orders led to many people putting a pause on their homebuying plans and adopt a wait-and-see attitude. Moreover, social distancing has resorted to many cancelling on property visits or even client meetings.
Also, people who are still on the researching phase are now observed to be updating their homebuying requirements. A larger square footage, outdoor space, connectivity-readiness and access to open green spaces are now considered as non-negotiables when it comes to finding the dream home.
And for those who also need to reduce or are limited to their homebuying budget, foreclosed properties seem to be the right answer. Considered as “a diamond in the rough at the price you can afford,” a foreclosed property can be a real estate alternative for your future home.
Just like any other real estate property, it is also important for you to know what you are looking for in a foreclosed home and how to start with the homebuying process online. Let’s take a closer look at foreclosed properties, the benefits, drawbacks, and steps to buying a foreclosed property.
What Does Foreclosure Mean?
In finance terms, a foreclosure has negative connotations. A property for foreclosure simply means that it is seized and put up for sale by the bank or lender that gave the original homeowner money to buy out the property. As such, properties for foreclosure are owned by the bank or lender.
But why does this happen? Whenever a homebuyer buys a condo, house and lot, apartment, or townhouse for sale on a mortgage, the lender puts a lien or security interest on the property that will allow them to take control if the former defaults on payments, This means that if a homebuyer stops making x number of mortgage payments for reasons including financial difficulty or disaster, lenders will invoke the lien to seize the property.
Buying foreclosed properties in the pandemic
There are three types of foreclosed properties based on on the foreclosure period:
- Pre-foreclosures are properties where the original homeowner is anticipating default on mortgage payments. They can be found in real estate listing platforms such as Hoppler and is looking to get out of a mortgage contract at a mutually-agreed price.
After the sales agreement, the original homeowner assigns the property and all mortgage and other homeowner obligations to the buyer, who is now the new owner.
- Foreclosure auctions are properties who have just gone through foreclosure proceedings. They are usually sold as “cash basis” only.
- Post-foreclosures are properties that are already past the redemption period allowed for owners to pay their dues and to redeem the property back. The lender or the investor who bought the property from the auction officially takes control of the property. These lenders or investors share a list of foreclosed properties periodically through official channels like their websites.
In 2020, supply on foreclosed properties were put to a halt as banks and financial institutions offer relief measures. Moreover, the short supply of foreclosed properties has driven up the competition among those who are looking to move into larger homes. If you do find a foreclosed property, be prepared to pay a bit more for it than you are used to.
But with more people looking to move into the suburbs for larger square footage and outdoor spaces, there is rather an increase of foreclosed properties in city centers, which can be taken advantage of by home seekers who do have the budget to buy a home in these locations. As such, these foreclosed properties may be worth a look, as the country’s economy eases up a bit and if healthcare measures are ramped up.
Fortunately, pre-foreclosures can be a good option when filings are just getting started. You can purchase properties in the early stages of foreclosure at a discount, flip them, or even rent them back to the homeowner for a profit. A nice bonus? It can help prop up home values in your area — always a good move for business
How do you purchase a foreclosed property?
Buying a foreclosed home is a little different from buying a house.
- To find foreclosed properties, you would have to seek out lenders such as Pag-IBIG or major banks and insurance companies.
- Some foreclosed properties or properties or pre-foreclosure properties are also listed on Hoppler.
- Some of the foreclosed properties are aunctioned off, and all of them are sold “as is” or in the current state of condition they were found at the time of the seizure.
- Foreclosed properties come with lower downpayment rates of around 5-10 percent.
There are three ways to purchase a foreclosed property in the Philippines: through a short sale, at an auction, or from a bank after they have failed to sell at auction.
1. Short Sale
A short sale happens when the homeowner sells their home for less than what they owe on the mortgage. When you buy a foreclosed home in a short sale, the bank and not the homeowner needs to approve your offer. The downside on this one is that there is a possibility that you will not be able to purchase the property from the initial price set by the homeowner in the short sale. Moreover, you may spend a lot of time waiting for the bank’s approval.
Auctions are a great place to get great real estate deals. Moreover, you’ll get a home faster at auction than you would if you choose to negotiate directly with the bank or a seller.
The foreclosed properties for sale in an auction are sold as “cash basis.” This means that you need to shell out a significant amount of money to buy the foreclosed property you won in an auction. It also means that if the foreclosed property is considered a hot property, you might be paying more money than the market value price of the property sold to you.
The key in auctions is that you need to be quick and have the money or financing ready to buy the foreclosed property. This means that if ever the auction does allow for financing through a mortgage, you need to have a preapproval for a mortgage ready.
Also, there is a risk when it comes to purchasing foreclosed properties at an auction. When buying a foreclosed property at an auction, you also agree to buy the home as-is without an appraisal or inspection. Majority of auctions do not have the amount of information you need in order to make a homebuying decision. If ever you choose to take the homebuying leap in an auction, be prepared to spend more money on fixes and other improvements.
Moreover, it also means that you might be dealing with the previous homeowners if you choose to buy a foreclosed property in an auction. While a home may be legally foreclosed by the bank or the lender, it does not mean that there are no people who are living at the foreclosed property currently. Some homes sit unoccupied for months, and could attract squatters. Previous homeowners may have some legal issues that they wish to pursue with the bank or the lender, and in the rarest of cases, will squat as well. This can spell thousands of pesos and a legal headache for you such is the case.
3. From A Bank
Most banks do not sell a home directly to an individual homebuyer. But if you happen to get the opportunity of buying one, this is great news! The bank usually clears the title and evicts the current homeowner before you buy a foreclosed property. Moreover, the bank has also done their due diligence and you only need to transact directly with them regarding the home purchase.
If you are indeed lucky, do bear in mind that the foreclosed property the bank will offer to you will be sold “as-is.” Some of these homes also often have severe damage and structural issues and may simply mean more money for you to shell out on improvements.
However, you will get the opportunity to conduct a site visit and schedule a home inspection to see whether it is the right property for you.
The bottom line on foreclosed properties
Much like in 2020, investing in foreclosures during the pandemic season will be a little bit different. As most of your real estate engagements are now delegated online and on social media messaging, you can stay on top the homebuying process on your own. As long as you are aware and knowledgeable about the ways you use in finding and buying your future home, and have the cash on hand to purchase the winning property in one swoop, then you are good to go.
But if you are first-time homebuyer and looking to converting a foreclosed property as your future home, hiring a real estate agent can help save you a lot of headache and heartache. A real estate agent or broker who is an expert in foreclosed properties will definitely help you go through the homebuying process. They can help search good foreclosed deals based on your home requirements, work with real estate-owned agents and other professionals who manages the foreclosed properties to negotiate a best offer based on your budget, order an inspection, and make a winning offer. They can also help determine potential blockers in truly owning your home as well.