With the rise in home foreclosures and all the talk about the decline in the U.S. housing markets, I've decided to investigate possibilities for buying another condo in a distant city. One of the things I've noticed is there are many locations with a good selection of bank-owned condos at very attractive prices. Economic conditions may continue to worsen as many developers are flooding certain markets with unsold inventory and defaulting on construction loans since they can't cover costs. This may drive prices lower, giving investors an opportunity to profit. Like any investment, foreclosures entail risks. Let's take a look at a few of those and what you can do to protect yourself.

1.) Ask when a sale is enforceable

In many areas, banks can obtain conduct of sale when an owner falls in arrears on mortgage, taxes, or association fees. Generally this means the bank can list the property for sale, show it to prospective purchasers, and even accept offers. While it's possible to get a great offer accepted on a foreclosed condo, finalizing a sale can often require long waiting. Even accepted offers can collapse if a judge doesn't feel the offer is fair to the owner being foreclosed on.

Typically a court will want to see a third-party independent property appraisal, as well as a report on what was done to market the property. It's not uncommon for an owner who is about to lose his or her home to show up with some form of catch-up payment and have the court give an extension to the foreclosure. Every jurisdiction is different, so it's crucial to have legal representation to make sure a contract is enforceable.
I've represented many buyers in the purchase of a property foreclosure, and my advice is to be fully prepared to compete with other potential buyers on the court day. This might mean upping an offer to be more reflective of market value, changing terms, or increasing deposits or other initial payments. Courts generally favor offers that include a large deposit, and I always recommend the buyer show up in court with certified funds in the form of a bank draft. If you have the foresight to prepare for any of a number of things that can derail the purchase, then these types of opportunities can be very profitable.

2.) Talk about things that might not be included

Remember the condo you are buying from the bank was recently someone's home, and your gain is likely someone else's loss. Homeowners who have landed on hard times suffer greatly, and not all are willing to walk away graciously. I've seen examples of condos stripped of everything of value by an owner being put out. Light fixtures, mirrors, and other built-in items often aren't there when you get the keys.

Make an inventory of what's supposed to be included, and take lots of photos if you can. I also suggest having your attorney review the offer to purchase to make sure there is a clause that warrants the bank will deliver the property in the same condition it was viewed in. Items like refrigerators, stoves, air conditioners, and washing machines will most likely be deemed personal property by the owner and usually won't be there on possession.

3.) Ask about what costs might be for new owners

In areas where many of the suites in a building could be foreclosures, it's a very good idea to check the local laws regarding who is responsible for any unpaid condo fees, tax liens, unpaid utilities, and other expenses directly affecting the building. In many places where unpaid association fees cannot be collected on behalf of the association of condo owners, unpaid balances are transferred on a proportional basis to the other owners in the building. Being that it often takes months or years for foreclosure proceedings to be finalized, this added expense can be huge - especially in buildings where large numbers of foreclosures are happening.

I recently looked at an attractively priced condo in South Florida and found the association fees would be higher than my mortgage payments! Sometimes what looks like a great deal can turn out to be even more costly than buying at market price.

Like any good investment, foreclosed condo opportunities are sought after by a wide range of buyers for both rental investments and homes. Doing your research on market values is extremely important. In my experience, there needs to be a large enough differential between the price of a foreclosure and the price of "normal" properties being sold by their owners to justify the hassle of buying the foreclosure. It's often a good strategy to instead find distressed properties that can be purchased directly from an owner who negotiates terms with their lender to either absorb a loss and transfer title, or allow a buyer to take over an existing mortgage. I'm still on the hunt for my next purchase and things are looking bright.