A few months ago I helped various buyers purchase distressed properties, one with 10 mechanic liens filed against it, a listed HUD house (U.S. Department of Housing and Urban Development) and a house listed by the FHLC (Federal Home Loan Corporation). Each one of these houses had challenges that a buyer should be aware of when thinking about purchasing a distressed property.

One such home was a new build not completely finished which had more than 10 mechanic liens filed against it at the courthouse. The recorders and county auditor’s websites offered good information about this property. A title company staff person that completes all the property searches at the county courthouse provided the best source of up-to-date information for the buyer to review. The search notes were full of good information that enabled the buyer to write a good offer that would protect their future ownership after the transaction was closed. After the buyer reviewed the search notes from the courthouse, which included all the lien information, and all the terms of the offer were acceptable to both the buyer and seller, the buyer proceeded to do a home inspection and this transaction was set to close. At the closing table the title company completed one last title search to insure that no last minute liens were filed at the courthouse against the property as the seller was signing all the paperwork to transfer the ownership to the buyer. I highly recommend that all buyers have legal representation at all real estate closings especially when purchasing distressed properties. This buyers attorney did a tremendous amount of investigation work to ensure that the buyer had protection to obtain proper ownership.

The buyer that purchased the listed HUD house purchased the house through an electronic bidding process which needed to be completed by a licensed real estate agent. This buyer’s bid price was the highest therefore HUD designated these buyers as winning the bid and they were able to purchase the HUD house. There are very specific guidelines and extensive contract paperwork that needs to be completed when purchasing a HUD house. The buyer purchases the house in as is condition; the HUD contract does provide the buyer with a home inspection contingency which enables the buyer to call the contract null and void. HUD will not make any repairs that might be found through the home inspection; the buyer purchases the house in it’s as is condition or calls the contract null and void if the condition of the property is not satisfactory to the buyer. In Central Ohio it is local custom that the seller, at the seller expense, provide the buyer with title insurance. HUD does not provide title insurance so it would be wise at the closing that the buyer pay the additional money to purchase title insurance to protect their ownership of the property that is going to be purchased.

The buyer that purchased the house thru the Federal Home Loan Corporation had to wait 5 days to receive an answer to their initial offer. The FHLC did accept the buyers offer but on the condition that the buyer review and accept all the terms and conditions of numerous FHLC addendums. The addendums informed the buyer that the house was being sold in as is condition. The buyer was able to do a home inspection but the FHLC would not make any repairs; buyer could call the contract null and void if the inspection was unacceptable to the buyer. The FHLC did pay for the buyer’s title insurance but not the county transfer fee which is a Central Ohio local custom to be paid for by the seller. There was a last minute glitch; the FHLC was not able to obtain clear title to the property so the closing was delayed for 2 weeks to enable the FHLC to resolve the cloud on the title.

Buyers are able to take advantage of many currently listed distressed properties that are great deals. My advice to buyers is to be patient; it could take longer to get answers from those who are in ownership of the distressed properties. Not all local custom fees are being paid so your closing costs might be more than you expected. Always seek legal counsel to ensure you are not being taken advantage of. An experienced real estate agent will help you thru the process of purchasing a distressed property; it can be stressful but the end result can be quite profitable in the future because most distressed properties are purchased at greatly reduced prices.

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