We have noticed that mortgage foreclosures have become more prevalent in recent months. Such actions can eventually result in the property being sold by the foreclosing lender after the foreclosure auction to an independent third party. Our attorneys are often consulted by such potential purchasers. This post will address the legal and practical matters that arise in such post-foreclosure purchases.
Parties to such transactions should be prepared for a one-sided “pressured process” from contract signing through closing. The foreclosing lender often treats the buyer as harshly as if the buyer was delinquent on the mortgage that was foreclosed. Purchasers should expect a contract to be delivered that is not particularly negotiable and that needs to be signed and returned quickly. An experienced attorney should advise the buyer, his lender and the title company of all applicable deadlines and needs to monitor compliance so that the buyer does not incur financial penalties permitted by the contract or potentially subject their downpayment to being forfeited due to missing a deadline. Closing dates are usually stated as “time is of the essence” , making for less cooperation with the seller as to scheduling the closing and potential significant financial penalties for not closing in a timely fashion.
In this type of transaction, the contract will typically contain provisions that differ from an ordinary transaction between individual buyers and sellers. For instance, the property will be sold “as is”, not be subject to a buyer’s repair requests and is not subject to the New York State property disclosure law. Seller standard costs such as document preparation and transfer taxes are assigned to the buyer in these deals. Purchasers may not have the opportunity to conduct customary due diligence prior to signing the contract. Further, a purchaser of post-foreclosure property may not have access to enter and view the premises being purchased to confirm property condition and that there is no tenant or occupant in the premises. Should a person occupy the property, the purchaser would need a qualified attorney to start an eviction action after the purchase has closed.
In addition, provisions contained in post-foreclosure purchase contracts typically mandate that the buyer to use a title company affiliated with the seller or the seller’s attorney. It is a common misconception that the suggested title company must be used and is often not recommended by purchaser’s attorneys. The seller’s suggested title company is usually not in the area where the property is located and may not be objective in raising or clearing title exceptions as required to deliver clear title to the buyer at the closing.
This begs the question, why do buyers enter such transactions, given the higher risks involved? Such parties may believe that they are acquiring the property for a reduced price comparable to other similar properties and rely upon their team of professionals to advise them accordingly.