Jamaica
News - Real Estate Sales (April 18, 2004)
Foreclosure - Acquiring a
property through auction
FORECLOSURES CAN appear to provide golden opportunities to
buy a property on the cheap. And, for the very persistent or the very lucky this
can be true. Many persons read the paper, look out for that magic word AUCTION
and salivate.
They just know that this is their opportunity
to acquire they a house in Cherry Gardens for $2 million or a quad in Greater
Portmore for $400,000. And Sunday Business
is in no position to say that dreams can't come true.
However, an auction is not a fire sale. There are
rules governing the minimum prices set for the properties. So when it comes to
foreclosures, luck is what you make it and is usually a function of attending a
number of auctions and getting a feel for the runnings. Properties
are put up for auction by financial institutions when, on average, three months
have elapsed since the last mortgage payment. That's right, just three months.
And so, when the property appears in the newspaper, there are certain steps that
you, the interested party, must take.
FIND THE PROPERTY AND VIEW
When you find the property that you like, it is your responsibility to visit the
location and view the property. Now this can be tricky, since "most
properties up for auction are occupied. And, if it is owner occupied, it is
unlikely that they will let you in to view."
Therefore, your powers of persuasion will
determine how far your viewing takes you. You might end up bidding on a property
without ever seeing the interior. But if it is raw land, you will not have to
worry about viewing.
The main problem will be finding the property.
That will entail the cost of paying a land surveyor if you cannot find the lot
on your own.
VALUE THE PROPERTY
After that you will either have to guess or pay a valuator to tell you the
market value of the property because it will be auctioned at a minimum price,
not just any arbitrary dollar figure.
The minimum price is the reserved price. The
reserved price can be the open market price, that is, the price that the
property can sell for if it wasn't up for auction. The reserved price can also
be the forced sale price. This is the amount that the property cannot be sold
below.
But what exactly determines the minimum price?
The minimum price that the property can be sold for at auction consists of the
loan amount owed, the equity (monies already paid) of the homeowner, the auction
fee, interest owed on the loan and other administrative costs. These components
add up and is the reason why auctions provide few, if any, deals.
PAY A DEPOSIT
When you have identified, viewed and priced the property, on the day of the
auction you have to be prepared to pay a deposit immediately if your bid is
successful. The deposit can be in the range of 15 to 25 per cent of the auction
price. If you are the successful bid, the auction company will require the
deposit of cash or manager's cheque to be paid on the same day.
DID THE HAMMER DROP?
However, there is one small catch. Until the auctioneer's hammer drops, your bid
is not the final word. Perhaps you have noticed that some auction ads have a
'Withdrawn' sign over them? Well, a property can be withdrawn from an auction
for a number of reasons, namely the fact that the owners have paid up the
outstanding amount. And what does that mean to you? Because the auction is
really 'an invitation to treat', a term that protects the financial institution,
no matter what cost or inconvenience that you go through, anytime before the
hammer drops, the property can be taken off the auction list.
So why would anyone go through all of this
trouble to purchase a property at auction? Well, there is still a general belief
that one might get a deal because even up to 10 years ago, properties were sold
for what was owing. But that is no longer the case in Jamaica." Why? Case
law suggests that selling the house too far below market value creates a
material disadvantage to the mortgager which can be remedied upon appeal.
In other words, if the property is sold cheaply, it is unfair to the homeowner.
And so to get lucky in auctions, it will take
hard work, determination, ready cash and a lot of patience.
|
