Legal Safeguards For Selling A Distressed Property
Selling a home is hard already, but it’s an even more uphill battle if they’re considered a distressed property. Fortunately, the law is on our side.
In this article, join Pete Buys Homes as we go over the common distressed property types and the legal safeguards we can take to protect our interests.
Common Types of Distressed Properties
In real estate, distressed properties are homes in poor condition, in financial trouble, or both. These homes can have mortgage issues, owe property taxes, be in pre-foreclosure, or need expensive repairs to be put on the market.
We can classify them into four common types:
- Short Sales: These are transactions in which the homeowner sells for less than the mortgage amount owed with the lender’s approval under certain conditions.
- Foreclosures: Homes are repossessed by lenders or counties due to unpaid mortgages or property taxes, often sold at auction.
- Defined as properties defaulted to the lender due to unpaid mortgages/taxes by the homeowner. These are typically sold at auctions.
- Real Estate-Owned (REO) Properties: On the other hand, REOs are the unsold foreclosure homes at auctions. Lenders typically sell REO properties with the help of a real estate agent and are typically sold at a discounted price.
- Dilapidated: Defined as neglected properties beyond affordable repair.
Challenges of Selling a Distressed Home
Selling a distressed house will inevitably result in lower offers thanks to several key factors.
As mentioned, distressed properties need extensive repairs or are under some financial challenges that make them less appealing to buyers. Additionally, traditional financing options are limited for such properties due to their unique condition.
Thanks to these factors complicating the sale, motivated sellers don’t have a lot of leverage to negotiate. They are usually pressured to sell quickly and to anybody interested (usually real estate investors), especially if they have debts that need to be paid promptly.
Legal Safeguards You Can Utilize
Fortunately, safeguards exist that allow distressed houses to be sold. For example, homeowners with said properties have some breathing room for this matter– the Illinois Foreclosure Mediation Act.
However, comprehending these legal complexities would require you to have the guidance of a real estate attorney by your side. This is to prevent any missteps or misunderstandings and to utilize them to their fullest extent.
This act was particularly designed to make the burden of navigating distressed properties a little easier to deal with. For example, this act allows homeowners to require their lenders to engage in mediation before initiating foreclosure proceedings.
At this time, the homeowner can propose a solution to their lender. It can range from loan modifications to scheduling payment plans. All in all, these measures are done to prevent the foreclosure process as much as possible.
Additionally, buyers can benefit from these safeguards. The Illinois Homeowner’s Bill of Rights helps buyers avoid getting thrown under the bus by opportunistic lenders.
This bill prohibits lenders from engaging in predatory practices and prevents would-be homeowners from increasing their foreclosure risk. For one, lenders must provide several disclosures before extending a loan offer to a buyer.
Properly reviewing these documents will minimize potential risks that would make the seller a distressed property. The guidance of an exceptional real estate attorney can also help protect the buyer’s interest even further.
Find A Better Way To Sell With Pete Buys Homes
Distressed properties can be difficult to sell through typical or conventional means. Thankfully legal safeguards keep the playing field fair for all three parties: the lender, seller, and buyer.
If you found this article helpful, great! If you think we’ll be able to help you even further through a quick chat, contact us today and we’ll be happy to answer any questions.