What are the problems someone should look out for when buying foreclosures in Chicago? Is it easy to buy a foreclosure?
As the real estate market in Chicago is heating up we are seeing increased amount of investors getting back into the market and taking advantage of foreclosures. When I speak of foreclosures I am talking about bank owned properties, NOT properties that are “going into foreclosure” or have yet to be officially taken over by the bank.
If you are looking to buy a foreclosure what are the challenges that you may be facing throughout the process?
Competition: In the past year I have noticed that most foreclosures are priced so greatly under market value that they not only elicit multiple offers, but elicit offers are ABOVE list price. This means that you must go in with your highest and best offer right off the bat.
Timing: Fannie & Freddie owned properties typically have a 15 day clause in the listing not allowing investors to purchase for the first 15 days on the market. This means that only Owner Occupants can purchase within the first 15 days. This does not mean, however, that the bank must negotiate with your offer. Many times they will wait the full 15 days in order to get an offer at or above list price. If you are an owner occupant and want to get the property above an investor you must still present the bank with the “perfect” offer in order for them to accept it and take the property off the market before opening up to investors.
Sold AS-IS: While the basic foreclosure addendums used by most banks allow for an inspection, the banks will NOT make any repairs to the property and will typically NEVER offer you a credit for such repairs.
Cash is King: At the end of the day the bank will net the same amount of money regardless if you are taking out a mortgage or paying cash. Where cash becomes very important, however, is when you are buying properties that are not finance-able. Many people think these are only the burnt out single family homes that we see for $5,000 on Realtor.Com but the truth of the matter is that this issue exists for many condos throughout Chicago. If a condo association has a high rate of rentals and/or litigation financing can become almost impossible. Therefore, if you are buying a property in this type of situation you must ALWAYS come in with a Cash offer.
Remove Contingencies: A great way to move your offer to the top is to remove contingencies in your offer. Remove mortgage contingencies and inspection contingencies in order to lessen the opportunities you have to back out of the deal. This does not mean you cannot inspect the property or cannot obtain a mortgage. It just means that if you are unable to get financing or if you uncover a problem with the property you do not have a legal way out of the contract.
Be Patient: While foreclosures are much quicker than short sales, responses from banks can take anywhere from a day to a couple of weeks depending on the system they use to submit and review offers. The banks will move at their own pace and there is nothing you can do to “hurry them up.”
Backed Assessments: You will receive clean title when you purchase a foreclosure but you may be responsible for some costs. Backed assessments can become your responsibility due to an Illinois law that is a couple years old. This law says that the new buyer may be responsible for up to 6 months of backed assessments. Be sure to review all financials for the property and include this into your budget when considering your offer price.
Paul Blackburn is an Illinois licensed Realtor and associate Broker with @ Properties in Chicago. He can be reached via e-mail Paul@PKBlackburn.com For more information about buying condos in Chicago please visit www.BuyingInChicago.com