How to Buy a Foreclosed Property

Summary

    – Buying a Foreclosed Property: Financial Opportunity

    – Disadvantages of Buying a Foreclosed Property

Choosing a foreclosed house or apartment can be a good plan when buying real estate. Here are some tips on how to make the most of your purchase.

Buying a foreclosed property: financial opportunity

It is possible to buy a foreclosed property in 2 ways.

Amicable sale

The amicable sale requires the agreement of the execution judge. The judge sets the price of the property, and this is a minimum sale price below which the property cannot be sold at the orientation hearing. A notary then supervises the sale. 

The seized debtor tries to find a buyer on his own: he is usually under a deadline and therefore in a hurry. If the debtor does not find a buyer within the time limit, the judge proceeds with the forced sale of the property (sale by auction or by adjudication). It will then be easy for the potential buyer to negotiate.

Good to know: if the property is mortgaged, it is important to check that the mortgage has been lifted.

Sale by auction or by adjudication (forced sale)

The execution judge orders the sale by auction in a guiding judgment. The price is fixed based on various parameters such as the amount of the debt, the qualities of the property, etc. It is clearly below the market price. Thus, if there is little competition during the auction, it can make an excellent deal.

Good to know: in case of a public auction, an advertisement must be made at least 1 month before the hearing.

If no one wishes to bid, the creditors become the successful bidder for the amount of the reserve price. The debtor can nevertheless act before the judge if this price is undervalued. Note that it is necessary to be represented by a lawyer to bid on the property. The creditors are paid on the price of the last bid or the higher bid once the time limits for recourse have expired. 

The disadvantages of buying a seized property

Buying a seized property can therefore be an exciting financial opportunity. However, such a purchase is governed by stringent rules, sometimes leading to unpleasant surprises.

Cancellation of the sale

There is no way to cancel the sale:

    – the judge can invalidate an amicable sale;

    – an overbid can invalidate a sale by auction.

Good to know: any person who wishes to make an overbid must do so within 10 days after the auction hearing; he must propose a price that is 10% higher than the price resulting from the auction.

Refusal of the owner to leave

If the property was occupied, the evicted resident (and probably ruined by the sale of his property) sometimes refuses to leave the premises. He has no right to do so, but the eviction procedure is laborious.

Good to know: before buying, it is better to make sure that the property is empty or that its occupant is willing to leave the premises.

Property sold as-is

The property purchased at an auction does not guarantee hidden defects as in a classic real estate sale. It has not always been maintained, the previous owner not having had the financial means to carry out the work and the current expenses. It also happens that the debtor has voluntarily damaged his property being in disagreement with the seizure procedure of which it is the object.

The buyer cannot claim against the seller in case of a severe defect.

For example: if the structure is damaged, but makeshift repairs mask this fact, the buyer risks losing everything.

A substantial renovation is often necessary to make the property habitable. It is, therefore, essential to include these additional costs in the project. Thus, it is important to be accompanied by competent building professionals when visiting the property before purchasing.

Risk of overvaluation of the foreclosed property

The creditor banks are eager to recover their entire debt. They are therefore likely to overvalue the price. It is necessary to know the local real estate market to be sure to buy at the right price while considering the more or less important work to be done.