Over the past few years we’ve seen a lot of mortgagee sale opportunities but most people have been very wary of engaging in such a purchase. With the economy and the housing market going on the way back up, you won’t see as many of theses sales around. So why am I talking about it now? Because you probably have more confidence in the market and it doesn’t seem such a scary prospect. It’s human nature to feel more confident in the housing market when financial indicators are pointing up, rather than down.
There may not be as many of these bank sales around now, but they will be there, you just have to look a little harder. Purchasing property through mortgagee sales can be a great way to invest in the property market, as long as you seek the correct advise and know what to look out for.
Usual buyer protection cover may not apply
Mortgagee sales are a way for banks to recoup their costs and they will be striving to get the best price possible. Therefore, the bank doesn’t want further liability hanging over the sale and this can leave the buyer exposed in ways not present in a normal purchase.
Check the sale and purchase agreement
Look for what is crossed out or deleted and therefore, not applicable to your purchase. What risk are you liable for depending on guarantees no longer applicable? The bank will often remove guarantees you would normally be covered with when purchasing from a vendor, as they will not want to be exposed to any risk or after-sale issues.
Ask to check for the following in the sale agreement:
- How the agreement treats chattels, fixtures and fittings. Does the agreement entitle you to these or are they being removed from the property? Because you view the property with floor and window coverings, dish washer and light fittings does not necessarily mean that they are part of the purchase. Imagine a worse case scenario and walking into your new property to find no kitchen units or bench tops!
- With a mortgagee sale, vacant possession and a clear title is paramount. Be sure to include this in your agreement if not already present.
Be aware that the property may be sold with very unhappy occupiers
They may not be agreeable to the sale and you need to be aware that you could be purchasing a property which has been the result of willful damage prior to your possession.
BEFORE you purchase a mortgagee property, check with your insurance company
Insurance providers are well aware of mortgagee sale risks so you need to know what is not covered. Theft, damage and vandalism are risks that you need to factor into your purchase price.
Check out the property prior to bidding
- Don’t rely on internet descriptions and photos
- Don’t rely on real estate brochures or phone calls with estate agents
- Visit the property yourself and take photos of each room so you know what is there prior to the sale.
Be ready for any potential problems
If your bank or insurance company aren’t doing their best by you, that doesn’t miss you should miss out on the mortgage sale. Contracts with deleted guarantees and limited insurance means that you need to be a proactive purchaser.
- Factor in the cost of interior decorating in case of worse case scenarios
- Factor in the cost of landscaping or a new garden if required
- Don’t purchase if you don’t have the financial flexibility to fix up the mortgagee property if necessary
- Don’t rely on insurance as a fallback
…and good luck. There are some bargains to be had, it is simply a case of Buyer Beware.