So, your borrower found a great deal on a foreclosure property. Now they’ve come to you for a mortgage.
Just remember, there are a couple things to keep in mind when buying property in foreclosure.
Your borrowers should understand if there is a likelihood that they could end up in a multiple offer situation. And, what a multiple offer situation could mean for them. If the property is priced aggressively or if the market is hot, it could likely lead to multiple offers in court. Each court has a slightly different process for how they handle this situation. And as a broker, you’ll need to be aware of how your local court handles a foreclosure sale.
In a multiple offer situation, your borrower may end up needing to increase their original offer in order to win the bid.
Make sure when starting this process with your borrowers, you find a lender who is familiar with financing these purchasers and these types of situations. These lenders can often structure the mortgage commitment to be a flexible amount. They can base the commitment on the ultimate selling price of the property. For example:
Let’s say that the commitment says that the mortgage is approved up to a maximum of $xx. And that the loan amount will not exceed xx% LTV. And with this information, the borrower can go to the court already knowing what their maximum bid potential is, just in case they need to increase their offer. Having your borrower go into court prepared and informed, is the best way to guide them through the process of buying property in foreclosure.
Ideally, as a broker, your first call should be to your lender of choice for guidance and information. Not all MIC’s will offer this type of lending and if they do, may each have different requirements and stipulations.