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Expert Advice on Buying a Foreclosed Home: An Interview with Nick Hadous of Hadous Co.

By Nick Hadous

Tell us a little bit about your firm and the areas of law that you practice.

Our firm practices law in Arizona, California and Michigan. Our primary practice areas are civil and commercial litigation, bankruptcy, and real estate. In addition to being an attorney, Robert Hadous is a licensed real estate broker in the State of Michigan. Robert routinely represents buyers and sellers, attends real estate closings, and drafts sale and purchase and other closing documents.

Can you briefly describe the main ways that buying a foreclosed home is different than buying a typical home?

Buying a foreclosed home means a buyer is typically taking possession from a bank or other lending institution (i.e., non-bank lender/investor) rather than the previous owner-occupant. In Michigan, a Sheriff's Sale is the most common means of foreclosure. Although individuals can purchase properties at a Sheriff's Sale, banks and other lending institutions are typically the successful (and sole) bidders at these sales.

Often, foreclosed homes have been vacant for some period of time and may have maintenance issues including mold, vandalism or water damage (discussed further below).

When purchasing from a bank or other lending institution, there may be delays in securing the requisite approval(s) on submitted offers (discussed further below). Further, a bank or lending institution typically provides a covenant deed instead of a warranty deed. A covenant deed only warrants against liens and other clouds on title from the date the bank or lender took possession of the property. A warranty deed warrants against liens and other clouds on title pre-dating the bank or lender's ownership. That said; title insurance can provide protection against any risks posed by receiving a covenant deed in lieu of a warranty deed.

What are some of the biggest challenges that prospective homeowners face when they want to buy a foreclosed home?

Sale approval and maintenance issues are two of the primary challenge prospective owners face when purchasing a foreclosed home.

Approval: When a buyer purchases directly from a homeowner, all that is necessary is the homeowner's approval. An agreement can be reached in as little as a day. Banks and lenders operate differently. Approval is typically a longer process and may require approval from multiple levels of management.

Maintenance: As noted above, maintenance issues can pose challenges to prospective buyers of foreclosed homes. Often, the person(s) losing the home has no incentive to maintain the home and may actually "strip" fixtures and non-fixtures such as countertops, cabinets, premium flooring and HVAC units. Additionally, if the home was vacant during a cold winter and no heat was circulated throughout home, there can be weather related damage such as burst pipes, peeled paint, cracked bathroom fixtures, and the list goes on.

What role does an attorney play in the process of buying foreclosed homes?

Attorneys can provide invaluable advice while negotiating a sale and purchase agreement. Realtors often rely on standard form agreements, or "one size fits all" documents. Although these can be used when buying or selling a home (often with no issues), having an attorney review and if necessary negotiate additional terms or contingencies on your behalf can protect you in the event the unexpected arises.

Attorneys will ensure that a buyer purchases adequate title insurance, and advise clients about any relevant state laws that may affect their purchase. For instance, Michigan has a six-month statutory redemption period. This means that the previous homeowner has the right to "redeem" (i.e., buyback) the foreclosed home for six months following the date of the sale. To redeem the property, the homeowner must tender the full amount paid at the Sheriff's Sale within six months.

Ideally, when should the buyer of a foreclosure consult with and/or hire a lawyer?

As almost any attorney will attest, before the buyer has spent any money or signs any documents. In other words: as early as possible. Attorneys will guide buyers through the due diligence period and will often direct them to other professionals who can provide essential advice regarding the condition of the property, cost estimates for any necessary repairs, and comparable market values. Competent attorneys will provide you peace of mind and can save you thousands (if not more) in the event the unexpected arises.

Do you have any advice to help people make buying a foreclosed home as smooth as possible?

Yes, consult a lawyer or an experienced real state professional such as a licensed broker or agent. Do not discount the advice a reputable appraiser and home inspector can provide. The failure to seek competent advice can, as the old adage goes, be "pennywise, pound-foolish."

What's the best way for people to contact you and your firm?

The best way to reach out to us is through telephone, email, or the contact from on our website at www.hadousco.com. Our telephone number is (313) 450-4670 and Nick Hadous can be reached at nhadous@hadousco.com.

We hope these have been helpful. Please do not hesitate to contact me at (313) 415-5559 should you have any questions regarding the foregoing.

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