Foreclosure filings went up 27% between July and August, bringing the year’s rise to 60%. This led to many distressed properties being listed on the market, waiting to get snapped up by buyers.
As some of the best real estate attorneys in NYC, Aminov Law Group has plenty of experience filing documentation and paperwork for clients who have chosen to purchase some of these distressed properties.
But there’s more to distressed properties than just an opportunity for potential investors to buy and flip a home or a commercial structure. Understanding distressed properties, the definition, and the surrounding factors allow new investors and potential buyers to make informed decisions before making bids and purchases.
Defining Distressed Properties
A distressed property is a home or commercial property under foreclosure or just about to be. The property is currently under the control of the lender or the bank.
A property may become distressed once its owner fails to meet the necessary mortgage payments or tax responsibilities. The ownership of the property defaults back to the lender. Properties may also become distressed if their owners are involved in a legal issue, such as bankruptcy or divorce, and the property is to be liquidated as part of the proceedings.
Terms to Know
Distressed properties fall under three categories:
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Short Sale
- These refer to properties from homeowners who owe more mortgage than the property’s current market price. As a result, homeowners prefer to make a short sale.
- The short sale takes place when a buyer purchases the property at a lower price than the amount that the homeowner owes the lender.
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Foreclosure Auction
- This occurs when a property owner falls behind on their mortgage, and the property is already under the lender’s repossession.
- The lender then sells the property as-is at an auction to the highest bidder.
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REO (Real Estate Owned) Property
- If the lender cannot sell the foreclosed property through auction or no one has bid for it, the bank will seize control of it.
- Lenders typically do not want the responsibility of repairing or maintaining the unsold property. These homes are placed back on the market at a reduced rate.
Pros of Buying Distressed Property
Distressed properties are an opportunity to purchase properties at low prices. Often, the homes bought this way have excellent fix-and-flip potential. These fixed homes can also potentially yield high profits once repaired and resold.
Many potential buyers also purchase homes this way to buy property in a neighborhood they could not afford otherwise. If you’re purchasing REOs or bank-owned properties, the bank might also make the financing easier through quick approval processes.
Cons of Buying Distressed Property
Foreclosed homes are sold at a low rate due to the house’s poor condition. Some could have also depreciated more than initially assessed. The buyer will have to pay more to fix the property and get it to an acceptable condition for resale.
Furthermore, despite the money spent to fix a property, there is no guarantee that the property will sell at all on the market, much less at a profit that the flipper expects. There are many other homes in similar conditions, and investors face serious competition.
Requirements for Purchasing Distressed Properties
Conduct due diligence before purchasing a distressed property. Personally visit the property and view it. Note down repairs needed, issues, and other concerns that may make it difficult to resell.
You also need to fill out documentation. This includes the offer-to-purchase form and a buyer’s information sheet. Basic buyer documentation also includes valid identification and proof of income. This includes income tax returns, employment certificates, and bank statements.
Preparing your offer-to-purchase files is handled more easily under the guidance of experienced real estate attorneys who can ensure that you are legally protected in every way during this transaction. They can also provide you with valuable advice on whether this property is a viable investment.
Give yourself the best legal standing on purchasing foreclosed or distressed properties by contacting Aminov Law Group today for a consultation. Browse through our resources on buying and selling in New York and learn more about what is required when purchasing property in the state.