Why It’s Necessary to Conduct Due Diligence Before Buying Properties at an Arizona Foreclosure Auction

Due diligence as it relates to buying property is the right to inspect and review all aspects of the home or property before closing on the purchase. In a normal real estate transaction, you get the opportunity to perform extensive due diligence on the property to hire all the inspectors and experts necessary to be confident in your purchase. We put together a few key things you’ll want to add to your due diligence real estate checklist and explain why conducting due diligence on homes purchased in foreclosure auctions can be challenging.

What is the Due Diligence Real Estate Checklist in Arizona?

The standard Arizona Residential Purchase Contract provides a buyer with 10 days after the purchase offer has been accepted to perform their necessary inspections and due diligence on the home. During this time, the buyer can hire professional inspectors and contractors to review everything in the home or property and decide whether they still want to move forward with the purchase. Here are the main items that should be listed on your due diligence real estate checklist in Arizona before you move forward with the purchase of any property:

• Start with Seller Property Disclosure Statement (SPDS)

The state of Arizona requires all property sellers to provide a property disclosure statement to a buyer with all the material facts known about the property. Nondisclosure or outright misrepresentation of material facts on the SPDS could result in legal claims against the Seller. Typically, the SPDS starts with basic details like how long they Sellers have owned and lived in the home and goes into detail about all the key features of the home. They must disclose any known issues with water supply, heating, air conditioning, foundation, roof, plumbing, electrical systems, property drainage, insect issues and more. Obviously, a buyer will want to review any known issues disclosed to them, but it is also key to understand that plenty of issues can be left off the SPDS and will need to be inspected by a professional. As a good rule of thumb, the old adage of “trust, but verify” often applies.

• Perform Your Own Property Inspections

Having a trusted home inspector is a key part of purchasing a home. You always want to have a licensed home inspector perform an overall inspection of the property before moving forward with closing on the home. They will certainly review any listed issues in the SPDS and can alert you to any additional issues. A home inspector can often suggest further review or inspection by a specialist for any areas of concern. It is important to remember that home inspectors perform a visual inspection but they are not necessarily experts on each aspect of the home and that is ok. If a roof or plumbing issue is disclosed or discovered during the inspection, you will want to have a professional in that particular area assess the potential issues before proceeding, as well. If this requires additional time past the 10 days, make sure that the seller is given written notice of the issues and steps being taken. If there is push back on the need for thorough inspection of the property, you might want to consider the need to cancel the purchase contract and find another property.

• Review Necessary Additional Agreements

There are a few additional agreements that will be included with the purchase of most properties in Arizona. First, you want to review your homeowner’s title insurance policy. This is the policy that will help guarantee that your title to the property is free and clear of any competing claims or liens. Second, find out if the property has a homeowners’ association and review any covenants, conditions and restrictions (CC&Rs) that come with owning property in that community. Please note, you cannot opt out of these provision if the HOA is already established.

There are many common CC&Rs that might restrict or hinder how you’d like to use the property. HOA restrictions can vary from parking, to landscaping, to the appearance of the home. You want to be fully aware of all restrictions on the home and the cost of becoming a member of the HOA before proceeding with the purchase of the home to avoid a possible case of buyer’s remorse.

Differences When Buying Property at an Arizona Foreclosure Auction

The major differences between buying a property with a standard purchase contract and buying at a foreclosure auction are the limitations on due diligence that you can perform. Prospective buyers are typically able to view and research homes that will be sold at upcoming foreclosure auctions. This means you can do some limited due diligence. You should be able to check on comparable properties in the area and drive by the property, but you won’t be able to perform a detailed home inspection before the auction. It’s likely you won’t be able to enter the property at all before the foreclosure auction and will have to bid without a complete understanding of the work required on the home. This is certainly why you can find some bargains and why there are risks to any purchase in a foreclosure auction in Arizona.

Risks of Title Issues with Foreclosure Auctions in Arizona

A foreclosure action on the first mortgage will typically clear all subordinate liens, but that’s not always the case. IRS and tax liens are not cleared by a foreclosure and any liens related to building code enforcement will still be enforceable on the new owner. There are risks for a variety of title issues when you buy a property in a foreclosure auction as well. It is not uncommon to find that junior liens and property claims were not mentioned in the foreclosure claim. This will typically result in the new buyer being subject to those liens.

Work with a Real Estate Law Firm Experienced in Foreclosure

Many prospective buyers of foreclosed properties will attempt to handle the process on their own. For beginners or those that lack experience, there is a strong chance that prospective buyers will incur unexpected costs and issues. One of the best ways to get prepared for a foreclosure auction process is to work with an experienced real estate law firm that is well versed in the process and risks. The attorneys at MacQueen & Gottlieb can help you prepare for an upcoming auction, assist with potential due diligence, and guide you through the purchase process. Contact us today at 602-533-2840 to schedule an initial consultation or make an appointment online.