Buying multi-family homes in pre-foreclosure and in bankruptcy: issues to be aware of

If the multi family home you’re thinking of buying is in pre-foreclosure and part of a bankruptcy, proceed with caution.

Because of the current economic climate, buying multi-family homes in pre-foreclosure can present a number of excellent opportunities. If a multi family home is in pre-foreclosure and is part of a bankruptcy settlement, there are a number of complicated issues to be aware of.

Many owners of multi-family homes were impacted by the economic downturn and the mortgage crisis. Some managed to recover, but others have found themselves with more mortgage debt than they can handle. This has led to an increase in multi-family pre-foreclosures.

A property falls into pre-foreclosure when the current owners fall behind in the monthly mortgage payments (typically, 60-90 days behind) and as a result receive an official Notice of Default from the lenders. This notice will also spell out how long the current owners have to resolve the matter before the lenders proceed with formal foreclosure proceedings. If the owners don’t believe they will be able to resolve the issue of the past due payments, they can sell the property. They can also, in certain circumstances, seek protection under bankruptcy reorganization while they attempt to resolve their financial issues or even while they are attempting to sell the property.

In these rare occasions, there can be competing interests any prospective buyer should be wary of. One major issue is that although the property might be included in a bankruptcy, not everyone who needs to be informed might be. Owners who are seeking bankruptcy protection may skip informing other owners or interested parties of the attempt to unload the property. This could potentially lead to an invalid sale and cost any prospective new owner (you) time and money in legal fees.

A potential buyer, even with a bankruptcy trustee involved, should ensure the property has a clear title and that all owners or interested parties are aware of the current legal situation and pending transaction. In the case of a multi-family property, there is a good chance that there are additional tenants or renters who will need to be informed should there be a bankruptcy and a pending sales as a result.

Both a proper inspection of the property, as well as solid research into the dwelling is important before making a purchase. Buying a property that is not structurally sound will equate to more expenses later, which could negate any savings incurred during purchase. In addition, knowing whether the tenants of the building are a valued part of the community or a nuisance can help with the final decision regarding the purchase. It is also wise to find out information regarding current rents, rental agreements and any leases as well as the payment histories for these arrangements.

One other thing to consider when pursuing a multi family home in pre-foreclosure that is also part of a bankruptcy, and that is that you will likely be dealing with multiple parties should you make an offer to purchase. You will want to try and make contact with the owners to determine as much as you can about their intentions and their circumstances. You will have to deal with the lenders when you make your offer. You will also have to deal with a bankruptcy trustee who may have final sway in whatever resolution is agreed to regarding the property.

A multi family home in pre-foreclosure that is also part of a bankruptcy may present an excellent buying opportunity, but the process will not be simple. Having the advice and support of a seasoned professional will be a useful asset. RealtyNow can help you in this endeavor by connecting you with local real estate professionals with just such experience.