Q&A: Navigating Questions about Buying Foreclosed Properties

More and more Filipinos are showing interest in foreclosed properties. Aside from the usual concerns about the home buying process itself, there are questions specific to this kind of property type.

Here, Paolo E. Abarquez, an expert in the field of real estate, together with co-author Trixie Carmela J. Gonzales, answers two of the frequently asked questions from property seekers: 

Q: What is the main draw of foreclosed properties? Is it really the cost?

More often than not, real estate buyers are attracted to foreclosed properties due to their below market value selling price.

There are valid reasons why foreclosed properties are sold at below market value. On the legal side, this is because the sellers of foreclosed properties are usually banks who are regulated by the Bangko Sentral ng Pilipinas (“BSP”) and on some instances may be penalized by the BSP if they fail to transfer the foreclosed property within a given period. On the practical side, this is because banks are not in the business of buying and selling properties and would rather convert these assets into cash to avoid potential liquidity issues should it amass too much foreclosed properties.

Other buyers are drawn to foreclosed properties because of the security of full disclosure of information of the property to be purchased. Given that sellers of foreclosed properties are usually banks or financial institutions, information such as tax payments, utilities payments, property condition, and pending court cases involving the property are disclosed to the buyer.

There are other considerations why real estate buyers are drawn to foreclosed properties. Some buyers look at foreclosed properties as a source of properties in locations where properties are not usually available for sale, such as properties of high commercial value which was over-leveraged by the previous owner.

Q: Are there any red flags to watch out for when buying foreclosed properties?

Despite being sold by reputable sellers, acquiring foreclosed properties has also its own drawbacks which are commonly referred to as “red flags”. Red flags may also be non-negotiables of the buyer of the property. Hence the discussion of red flags below is not intended to be an exhaustive list.

Some red flags to watch out for are:

    1. Occupancy by the previous owner, or worse strangers, of the property. Thus, in such a scenario, the buyer may have to shoulder the cost for the eviction of the occupant, which is done via a court action and may take years to accomplish.
    2. Legal actions by the previous owner attacking the validity of the foreclosure of the property or even the mortgage of the property itself. These actions may potentially interrupt the buyers’ possession and/or ownership of property even before these cases are resolved with finality.
    3. Unpaid taxes and utilities or association dues, may potentially be a red flag. In the case of unpaid real estate taxes, the local government unit where the property is located may levy on properties with unpaid real estate taxes. Meanwhile on some instances homeowner’s associations or condominium corporations may apply for the foreclosure of the property with unpaid utilities and association dues. Some banks actually pay for these expenses in arrears before selling the properties but other banks charge these expenses to the buyers.
    4. Properties sold on an “as is, where is basis” that has extensive damage will entail costly repairs to be shouldered by the buyer, sometimes even more than the acquisition price of the property.

In conclusion, buying a foreclosed property is not the usual sale transaction wherein the seller exaggerates all the exquisite features while unappealing features are hidden from the buyer’s view. Each buyer must cautiously and properly weigh the advantages and disadvantages of buying a foreclosed property because at the end of the day, it all boils down to the buyer’s due diligence.

References:

      • Bangko Sentral ng Pilipinas, Manual of Regulations for Banks, §X311.4 (2017).
      • An Act Providing for a Local Government Code of 1991 [Local Government Code of 1991], Republic Act No. 7160, § 258 (1991).
      • Welbilt Construction Corp., et.al. v. Heirs of De Castro, G.R. No. 210286, July 23, 2018.

About Paolo E. Abarquez | Rocky Terrain

Paolo Abarquez is the managing partner of Vasig | Abarquez | Lumauig | Abarquez | Puno Law Offices (“VAL Law”) and is responsible for litigation and dispute resolution matters.

Before being part of VAL Law, Atty. Abarquez, was a Senior Associate of Puno & Puno Law Offices. He boasts of extensive litigation experience in trial courts, appellate courts and administrative agencies. He is an expert in the field of real estate, property, and land registration with relevant experience dealing with government agencies on the matter. Furthermore, Atty. Abarquez is a director of successful tech start-up companies and has acted as legal counsel of several other tech start-up companies in the Philippines.

Atty. Abarquez hails from Davao City, Philippines and comes from a family of lawyers. He graduated from Ateneo De Manila Law School in 2009 and passed the Philippine Bar Examinations that same year.

You can reach Atty. Abarquez through https://val.law/.

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