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Foreclosed Properties: To Buy or Not To Buy

Whether it’s for business or personal use, foreclosed properties may be a worthy investment. This particularly holds true in this (almost) post-pandemic world. 

COVID-19 wrought havoc on the economy, negatively affecting a lot of industries. That included real estate. During the height of the pandemic, people stopped buying properties and started selling the ones they have. 

The economic crunch also caused a lot of foreclosures on mortgaged properties. It was unfortunate for those who have bought the property through loans only to see them forfeited to their lenders (banks or the government-controlled Home Development Mutual Fund, more popularly known as Pag-IBIG). For others, it was a chance to gain assets at a lower cost. 

To paraphrase a popular saying about trash and treasure: Someone else’s failed investment is another person’s opportunity for success. 

How are properties foreclosed? 

When a lender—either a bank or the local government—repossesses a property, it is officially termed as a “foreclosure.” In the Philippines, there are two ways under which a property is foreclosed. They are Rule 68 of the Rules of Court (Judicial Foreclosure) and the Extrajudicial Foreclosure. 

Judicial Foreclosure

A legal process open to lenders who can file a lawsuit against a delinquent borrower in the Regional Trial Court. It should be in the same place where the mortgaged property is located. Should the court rule with finality in favor of the lender, the borrower has from 90 to 120 days to settle their obligation. If they fail to do so after this period, the property will be auctioned off. The proceeds of the sale will cover the cost of the transaction, the amount owed plus interest, and other obligations attached to the property. The borrower shall receive any excess to the amount of the sale. On the other hand, should the sale fail to cover all that needs to be paid, the borrower’s other properties may be used to cover the deficiency.  

Extrajudicial Foreclosure

In this method, the lender will simply seek the assistance of a Sheriff through the Clerk of Court. The Sheriff will then oversee the public sale of the property. It should be within the province or city where the asset is located. Additionally, the borrower needs to authorized the sale in writing for the process to be legal. The borrower or their heirs have the right to redeem the property strictly within a year from when the sale happened. If they do so, then the foreclosure won’t take effect. 

Buying foreclosed properties: The pros and cons 

Technically, when you are on the lookout for a foreclosed home to buy, you will not be buying from the person who has occupied the property. Rather, you would be buying it from the lender, which could be a bank or Pag-IBIG. However, the condition of the house at the time of purchase is solely the doing of its occupants. That is, unless the lender has had it repaired or renovated, which is not normally the case in the Philippines. Foreclosed properties usually sell “as is,” meaning you would buy them in their present condition, without any improvements. This could be the biggest reason for not buying a foreclosed home. 

Indeed, most foreclosed homes sell at lower prices that you might easily afford. You can choose the one located at a place you prefer. You won’t have to go through all the headaches that building a house from the ground up normally entails. These include securing all the necessary documents and permits and even worrying about the design and layout. With foreclosed properties, those things are already there, and for a fraction of a price at that. 

Unfortunately, that’s not all to it. 

If you are looking to buy a foreclosed, previously occupied house for your own use, you can expect to spend more for its renovation or repair. More likely that the previous occupants also did not have the budget for repairs or maintenance. And we all know the wear and tear that a house goes through as time passes. People who know they will be losing the house due to foreclosure most likely won’t spend to improve or have it repaired. 

Even abandoned homes will have their issues. These could be cracked walls, leaking roofs, clogged pipes, rusted gates and fences, and molds and mildew. Vandals may also have broken in and and filled the walls with graffiti or smashed things. Fixing each one of these issues need a budget . At the end of the day, you may be paying more to make the house livable and comfortable for you. 

Other reasons to think twice about buying a foreclosed home

Back taxes, liens, and mortgages – While these are not your responsibility, they can complicate the sales process. There will be other parties that need to be considered. 

What if the house remained occupied? – Sometimes, the original occupants won’t be willing to vacate the place. In the case of abandoned homes, squatters may have settled there, and evicting them can prove to be problematic. 

So, if you are a regular person just wanting to buy a house for yourself and your family, a foreclosed residential unit might not be your best bet. 

Is buying a foreclosed house and lot a good investment? 

For real estate investors, however, foreclosed properties offer a great opportunity to earn passive income. Normally, they would have the budget not only for the house but also for the repairs and renovations. That would make the property more attractive to buyers and command a selling price that would give them a tidy profit. 

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This is especially true during economic downturns when properties sell at a lower cost. People just need cash while lenders want to recoup their capital, even if it means absorbing some losses. 

How to get the details of foreclosed properties as part of due diligence 

Once you are quite sure about buying a foreclosed property whether for personal use or as an investment for passive income, it’s time to get down to the nitty-gritty of things. You can do most of the legwork yourself if you have the time, energy, and patience. Or you can appoint a real property broker to do it for you. This would save you a lot of trouble, but you’d need to allot an extra budget for it. 

Here are some important steps you need to take to get all the details of the property. This will help you on avoid the headaches that can result from not doing your due diligence. 

  1. Make sure you familiarize yourself with the location of the property. It might look in great shape and has all the features you like, but if it turns out to be in a place that you would not want to go to, much less be in, then it’s certainly not for you. 
  2. Contact the bank officer or accredited broker of the property through email, phone call, or inquiry form to get all the details you need. 
  3. If you don’t get any reply or have a hard time contacting the point person, personally go to the acquired assets department of the bank or the Pag-IBIG department that handles such an inquiry. 

Once you have all the information about the property and they all align with what you have in mind, then you need to set a visit to the place to check it out from floor to ceiling. It would be best if you get experts such as a civil engineer and a home builder to accompany you so that they can dissect the property thoroughly.

Buying foreclosed properties 

With Pag-IBIG 

Just like banks, Pag-IBIG will also foreclose properties but only after giving the delinquent borrower enough chance to still keep it through loan restructuring. They can even buy back the foreclosed property later on. But if nothing works out, then the agency has no recourse but to sell the house at a lower price through public bidding. If the auction fails to secure the target sale price, a negotiated sale opens for the property that offers as much as 30% to the buyer. 

To check out the Pag-IBIG foreclosed properties for sale, you can either go to their office in Mandaluyong for properties in Metro Manila or to any of their regional branch for provincial properties or to visit their website and go to their Property Finder page. 

Once you have zeroed in on the property you want, here are the next steps to follow to join the auction: 

  1. Visit and inspect the property in person. 
  2. Register as a buyer at the Pag-IBIG office by filling out the Purchase Offer Form and dropping it into the designated drop box together with a copy of your valid ID and a proof of income if the payment term you have chosen is Long-Term Installment (LTI). 
  3. If you were lucky to win the right to purchase the property during the auction, you will receive a Notice of Award. You will then have to pay a reservation fee of P1,000 within five days. 
  4. You will then receive the Notice of Conditional Approval of Sale. 
  5. Sign the Deed of Conditional Sale and submit it together with the documents that show that you have a Pag-IBIG Loan. 
  6. Start paying for the monthly amortization 30 days after signing the Deed of Conditional Sale.  

With banks 

  1. Check out the list of acquired assets from your bank of choice. 
  2. Visit and inspect the property you plan to purchase. 
  3. Fill out and submit the Offer to Purchase form and Buyer’s Information Sheet together with the required documents (copy of valid ID, proof of income, etc.) 
  4. Wait for the approval notice from the bank on the offer to purchase. It will be accompanied by the Terms and Conditions. 
  5. Agree to the Terms and Conditions, then settle the amount of the property. If you are purchasing through a bank loan, you will need separate approval. 
  6. You will then need to wait for the advise on the time and date of the turnover of the property. 

Helpful tips on buying foreclosed properties 

Again, you need to do your due diligence when buying foreclosed properties (and any property for that matter) to make sure that you have a fairly good idea of what you are getting into. From the physical condition of the property to its liens and encumbrances, you should know every minute detail about it to save yourself from issues that might pop up later. 

Here are a few more things you should know before taking the plunge: 

  1. Prepare additional funds for other expenses such as transfer taxes, documentary stamp taxes, and registration and notarial fees. 
  2. If you would be getting the services of a broker or agent, make sure they are accredited especially if you’re acquiring the property through a government auction. Accredited brokers are more reliable, and you can be sure they know what they are doing. 
  3. Make sure you know and understand the terms and conditions attached to the transaction so there won’t be any unpleasant surprises. 
  4. Better if you have a pre-approved home loan even before you participate in the auction or negotiate with the seller. This will show that you are determined to buy the property. 
  5. Compare the asking price with the current market price to see if you will be paying more than you should. 

Final Thoughts 

At first glance, foreclosed properties may be a steal, especially if you’re a real estate investor looking for a great investment. They can also be attractive to individuals looking to acquire a home for the first time but have a limited budget. But if you’re not careful, they can prove to be a big headache, which is why keeping in mind all the things discussed here is a must. 

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