WORDS: ANNE SCHAUFFER IMAGE: SHUTTERSTOCK
A foreclosure property is one where there’s legal action being taken against the owner/s, ordinarily for defaulting on their credit agreement by being in arrears.
“Another term for foreclosure is sale in execution (SIE),” says Buyisile Maseko, FNB Home Finance: growth head gold sub-segment. “Essentially, the property is eventually attached, and sold at an SIE by the sheriff, through a public auction.”
Maseko explained the ins and outs of the process, “When it comes to foreclosure/SIE-bound properties, because the bank is not the owner of the property but merely a mortgage holder over it, prospective buyers cannot make any offer(s) directly to the bank – they need to contact the owners/customers directly. Currently, when a customer is under financial distress, the bank makes available options such as Quicksell where the bank has consent from the customer to advertise his/her property to interested buyers – this process entails the use of estate agents.”
The process and the payments
“With foreclosure/SIE, if you buy a property from SIE, there’s no estate agent. There’s a 10% deposit on the full purchase required on the spot and on the day of the SIE, of which 6% will be the sheriff’s commission. There’s no predetermined purchase price – the SIE process derives purchase prices by way of bidding and the highest bid is regarded as the purchase price. Thereafter, the buyer has 21 court days within which they can settle the balance of the full purchase price, as well as settle a portion of the outstanding rates and taxes and levies, if applicable.”
What to look out for
According to Maseko, there are a number of things to consider when buying a foreclosed property, such as, but not limited to:
- Structural defects
- Poor area (that is, lack of basic services, community unrest, crime, amenities, etc.)
- Eviction – because SIE is a court-enforced process, some owners may refuse to vacate the properties; this will be the obligation (at the buyer’s cost) of the buyer to handle such instances
- With sectional titles and secured estates/complexes – there will be levies payable, over and above the rates and taxes payable to the municipalities.
Hints and tips Five pointers which Maseko suggests prospective buyers take to heart:
- Get a preapproval on a mortgage from your bank before making an offer on a distressed property. Consider the fact that you’ll be competing with other potential buyers, so it helps having proof that you’re a reliable prospect to get the bank to accept your bid.
- Look at the condition of the property you’re looking to buy – if a house is too damaged, lenders will often be cautious to finance the purchase. So, if the property needs extensive repairs, you might have to put up extra cash, or take out a second loan to cover the costs.
- Do your research – look at the area where the property is located. It’s not a bad idea to buy a distressed property in a good neighbourhood, but be careful of buying a distressed property in a distressed or extremely depressed neighbourhood.
- Buying a property via SIE is a risk inherent process and as a buyer, you assume all the risk attached to this process. Make sure you understand legislation around foreclosure properties in the country in which you are buying