Your Guide to Buying Foreclosed Properties

Foreclosed properties are attractive to buyers because of lower selling prices. Acquisition of a foreclosed property requires awareness of the buying process and considerations that differ from a new development.

Nowadays, in this age of rising prices and inflation, prospective homeowners must consider other options other than new developments when scoping for purchases. One of these options is foreclosed properties, which are properties repossessed by either lenders or the local government. Foreclosure happens when the property’s titular owner is unable to keep up the periodic repayments to a lender or the real property tax owed to the local government. There are two ways to acquire foreclosed properties:

  1. Purchase from a lender, such as a private bank or insurance companies. Interested buyers can inquire via websites or offices, or source listings through SPAV companies who help banks sell off non-performing assets. Foreclosed properties are also listed on housing portals such as Lamudi.
  2. Auction from a government agency. Listings and auction schedules are available from HDMF (Pag-Ibig) and SSS, as well as from government banks such as Land Bank and BSP.

Foreclosed properties can be advantageous both to homeowners and investors. Apart from lower selling prices, foreclosed properties come with lower downpayment rates of around 5-10 percent as opposed to 20-30 percent for a new development. Thus, monthly repayment rates are expected to be lower. Foreclosed properties can also appreciate in value depending on ongoing or future developments in its vicinity.

Things to Consider When Buying Foreclosed Properties

Location: This is a consideration for any property, regardless of its condition or selling prices. Homeowners would do well to consider the area’s safety, vulnerability to natural calamities such as floods or earthquakes, as well as access to basic services such as schools and hospitals. Investors may also look at the presence of major thoroughfares, transport hubs, malls and commercial developments in the area.

Additional Costs: Apart from paying the selling price or assuming the responsibility for monthly repayments, buyers also shoulder other expenses when acquiring a foreclosed property. These include real property taxes, association dues in private properties or developments, and taxes and fees for the transfer of the property title. In addition, the documentary stamp tax for transactions has increased by 100% due to the TRAIN Law of 2018.

Condition of the Property:  Foreclosed properties are sold “as is”, meaning the seller will not make further improvements before turning over or selling the property. Prospective buyers must take extra care to check for structural flaws and pitfalls, or features such as plumbing that may require repair. These are additional costs to consider in the acquisition of foreclosed property.


Tips for Buying Foreclosed Properties:

Work only with accredited brokers/agents: Although many buyers prefer to directly engage in the purchase of new property, others may still engage the services of a broker. Working with accredited brokers helps give buyers peace of mind, as well as ensures fewer problems with transactions. This is particularly important when trying to acquire foreclosed properties being auctioned by government agencies since these agencies have lists of accredited brokers in their areas.

Know the buying or auction process: For buyers transacting with banks or private lenders, know the buyer’s selling terms and what documents are needed for the transaction. Buyers participating in auctions must be prepared with a 10% bid bond for their bids as well as the required documents.

Check Financing Options: Several options are available for buyers, such as mortgages and contracts to sell from banks. There are pros and cons for both options: mortgages immediately transfer the title to the buyer, but contracts to sell are more flexible for the buyer.

Have available cash or a pre-approved home loan: Having these on hand before negotiating for a sale or participating in an auction shows the buyer or auctioneer that one is serious about this purchase. It also saves time.

Protect Yourself From High-Interest Rates: Opt for a fixed rate plan or interest rate caps, to prevent unpleasant spikes in monthly repayments. This is important to protect one from hikes due to inflation or other market forces.

Buying a foreclosed property requires as much care and effort as buying a new property. All of this will pay itself back as a worthwhile investment or asset, without hurting the budget!


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