The 411 on Buying a ‘Distressed Property’

“Distressed properties,” meaning those that have been either taken back or are at risk of being taken back by lenders, aren’t as numerous as they were 10 years ago during the real estate meltdown. But they still do exist, and you may be interested in purchasing one.

Here’s why: While the term “distressed” may conjure up images of homes that are in poor – maybe even unlivable – conditions, this often isn’t the case. Many of these properties have been well- and in some cases meticulously maintained by their owners, who, for whatever reasons, are now unable to keep making the mortgage payments.

In the case where the property is in less than ideal condition, the lender may be offering it in “as is” condition.

This isn’t as scary as it sounds, in that you will still have the opportunity to get a home inspection, and then make a decision based on the results of that inspection.

Often the owners will still be living in the properties. In a short-sale situation, for example, the owners may be current on their mortgage payments, but expect that the payments will be more than they can afford once the rate on their adjustable-rate mortgage adjusts upward.

In this case, the owners work with their lender to sell the property before it gets to the point of foreclosure. They do this mainly to keep a foreclosure off their credit report, as this may cause a significant drop in their credit score.

One thing to keep in mind is that purchasing a distressed property may take longer to complete than a traditional sale, but that’s not always the case. What often determines how long the transition will take is the caseload of the seller’s lender, and how well-staffed the lender is to handle that case load.

If you are interested in buying a distressed property and want more information, contact your mortgage professional.