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Riegler & Berkowitz is a Suffolk County general practice law firm that handles all matters involving Personal Injury, Real Estate, Criminal and Traffic Defense, Civil and Commercial litigaition throughout Long Island, the five boroughs and New York State.

Article written by Glenn S. Riegler, Esq. for Luxury Magazine.

 

 

Luxury Magazine Spring 2015

How do you know a property is “distressed?” By “distressed,” we mean property owned by a person who lacks sufficient funds to pay the property’s operating expenses and present financial debt. The answer may be obvious, e.g., property is marketed as “distressed,” property is in foreclosure, seller is in bankruptcy or seller owes more on their mortgage than the property is worth. Or seller may be upfront about it. But if not, what are telltale signs of distress?

• Property taxes are delinquent.
• Property in serious disrepair.
• Property taxes are delinquent.
• If there is a Tenant, are the Tenants complaining about property or owner.
• Mechanics’ liens filed. While the seller has made improvements, it cannot pay for them.
• Seller has numerous judgments or tax liens filed against it.

As Attorneys, we must manage our client’s expectations from the beginning. Buying distressed property is not like buying non-distressed property. There are always hurdles and bumps in the road to closing, and the odds the transaction will fail altogether are greater due to financial and psychological stress on seller and/or the Seller being in serious default under its mortgage loan. On account of this, attorneys should thoroughly explain to the client the basics of distressed sale, short sale, foreclosure or bankruptcy process. In addition, discussing with clients the likely scenarios that may play out among buyer, seller and seller’s lender is key so as to prepare client to endure greater uncertainties, longer delays, and incur more expenses.

With distressed properties, contingencies need to be thought out which will allow buyer to terminate the transaction if certain conditions are not met, such as a time limit to close or the premise deteriorates beyond what was originally contracted for. Thus, a complete building inspection is critical. Buyer should certainly have the right to full access to the building to complete such inspection.

In addition, obtaining Title Insurance is key so that the title policy will insure that seller’s mortgage, mechanics’ liens and any other liens have been satisfied as well as insuring any of the interests held by the lender.

These are just some of the special issues to be considered when buying distressed property.