Foreclosed residential units appear to be attractive options for buyers looking to own new properties, but as enticing they can be, interested buyers should always proceed with caution and make necessary research before agreeing to a transaction and writing checks.
Properties are foreclosed for certain reasons including failure or refusal of occupants to settle their financial obligations. So unlike conventional procedure of acquiring a residential property, this is a special case that needs a special attention.
As part of due diligence on the part of the buyer, here are some questions that he or she should ask the agency responsible for disposing foreclosed properties:
(Have pen and paper handy to jot down notes.)
1. Is the property currently occupied?
This should be the first question to ask. A “no” would be more straightforward, but a “yes” puts you as a buyer in a precarious situation. While it is assumed that occupants will be leaving, that remains as an assumption unless it becomes a reality. So what is the assurance a buyer can get? If at this point there is uncertainty, take a pass on this property and look elsewhere, and you’ll be out of trouble.
2. Does the property have clean title?
Getting the assurance that you are about to purchase a property sitting on a legitimate title helps you obtain a certified true copy at the registry of deeds along with a previous version, if any, that was overridden by the current one by virtue of change ownership, and mother title.
3. What is the payment terms?
One drawback of foreclosed properties is that they’re not brand-new and the condition of the house could deteriorate a bit. So you might expect to get some compromise in terms of payment terms to offset expenses for minor renovations. Get to know how much is the minimum down payment, length of payment, interest rates, monthly amortization and other money-related matters.
4. Can you describe this property?
As a buyer you’d like to acquire a house that fits your needs. Does it have a parking space for your car? How many bedrooms does it have? Is it a townhouse or a multi-door apartment? Getting as much information as possible — like photos, vicinity maps and nearby facilities — if visiting it in the short term is not possible — can give a clearer idea if this property suits your requirements in size, location, accessibility and other factors. Otherwise, it may just be best to move with the next available property being offered.
5. Are there outstanding taxes payable?
There are several tax considerations when you acquire properties and it’s important to know who will shoulder them. This includes capital gains tax, which is imposed on sale of assets at 6% of gross selling price, documentary tax, real property tax and creditable withholding tax, which is withheld by the buyer or withholding agent from payment to the seller for the sale of the seller’s ordinary asset/services. Not only this gives you an idea who is paying what, but also by how much and is the buyer inheriting outstanding tax dues or not.
This is a helpful step to be aware of what else should you be paying, anticipating that one big reason for the property foreclosure is that the occupants failed to pay dues in a timely manner and arrears and penalties have accumulated since. Seller likely will disclose this information but make sure to remind if you haven’t been told about it.
6. Are there other fees to pay besides taxes and advertised property value?
As the property you’re about to acquire has foreclosed so there are financial issues involved that led to such situation, you should particularly pinpoint outstanding payments and arrears that were not paid by previous occupant. Payable arrears also depend on type of property you’re looking at. For example, condo unit owners might get charged with monthly dues computed by floor area, or association or maintenance dues owed from property owners living in villages or subdivisions.
7. Are there arrears in utilities?
Unpaid electricity bills could mean the unit is a candidate for disconnection, if not yet disconnected from the grid, and requires extra money and time to get them restored. If not, maybe the unity was not yet occupied and no utility connections like water, telephone or electricity has been installed yet, so check this as well. If electricity/water connections are not available, ask how much would it normally cost for a connection to become available for your property.
8. When will the buyer be given authority or take control of the property?
Will it be enough when he or she pays the down payment or once he or she gets hold of the updated certificate of ownership? The earlier the owner gets the key to the property, renovation can start earlier if one is necessary, and property can be leased to tenants or become ready for occupancy. This also helps you, as a buyer who may have taken a loan to finance the acquisition, make use of the property investment and move out of your current dwelling to save costs.
9. Around how much is the rental rate in the area for this type of property?
If you are planning to acquire the real estate property and convert it as an investment vehicle, it will be good to get an idea how much is the prevailing rental rates, so you can better decide to take this route, or even consider proceeding to buy this foreclosed property to begin with.
10. How old is the property?
Having an old property is a double-sided perspective. If it is old and visibly needs thorough renovation, its price should reflect such condition. On the other hand if it’s built for a number of decades but looks durable, it’s an indicator of good structural condition and requires minimal maintenance work, enabling you to save on repairs for the long term. That is why a physical visit should be done for properties that are not built recently.
11. Is the property accessible?
If you are not familiar with the neighborhood, or live far away from the property, get a vicinity map, or pay it a visit to experience how long does it take to the place from public transport hubs (bus or jeepney stop or highway), public infrastructure such as hospitals, church, market and steady source of water or no power shortage.
Initially you’ll have a bias against it since you can’t help but compare it with your current property, plus the foreclosed property is in decrepit condition after years of neglect and lack of upkeep. But have a neutral mindset, since most likely, you have not yet discovered its inherent advantages or you are already used to the disadvantages of your current residence (scheduled brownouts, dimly lit streets or one-hour commute to work).
12. Is there anything I should know but failed to ask?
Foreclosed properties may have other factors outside of the house. Was there an unsolved murder case or former resident who committed suicide in the neighborhood? Is the place far from police station that robberies or burglaries in the neighborhood are a common incidence? Is it near a dump site or a factory that discharge toxic fumes? Or is it far from the pleasant neighborhood as advertised as it suffers from various forms of pollution?
Such due diligence on the part of a buyer is very important because in many cases properties are sold on a “as is where is basis” which means what you see is what you get. Get help from your future neighbors or assign someone to pay the property/neighborhood a visit if you can’t visit physically.
Have this copy printed out as you go through the details with an agent or selling party. Conversation should be very brief — less than half an hour — to evaluate if this foreclosed property is for you or not.