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Buying a Commercial Property Foreclosure

Like any residential foreclosure, commercial foreclosures are the legal process by which a commercial property is sold in satisfaction of a debt. This occurs when the borrower, or property holder, fails on their loan payment. The lender, in many cases a bank but sometimes a private entity, forecloses on the home by closing the borrower’s rights on the particular property, taking possession of it, and reselling it to recover any debt. In essence, the only difference between a commercial foreclosure and a residential foreclosure is the borrower involved. In one case it’s a homeowner. In another it’s a business.

Those involved with the process will attest that there are defined differences between the two, however, most notably the state-by-state body of rules that determine how the banks and lenders can actually go about recovering their lent money. Commercial leases operate under a state of play best described as “first in time, first in right,” meaning that if the mortgage on the property was recorded before the lease was signed, the lease gets wiped out. This allows the lender to do what they’d like with the property – sell it, lease it to the current occupants, or lease it to a new business.

The Buying Process

A bank can do whatever it likes with a commercial foreclosure. It can put it up for auction, sell it, or lease it; once the property has been foreclosed on it goes into the possession of the bank or lender, and they are entitled to do whatever they please to make up for the lost debt.

In that respect there is somewhat of a difference between a residential foreclosure and a commercial foreclosure, because with a residential foreclosure the lender is always trying to resell the house. With a commercial foreclosure the situation is a little foggier.

Know Your Market

Commercial foreclosures aren’t always the most well publicized properties, so make sure that you’re doing all the investigative work that you can do. Talk to foreclosure agents, county offices and look through the foreclosure listings. You will most certainly need to do some digging in order to find a commercial foreclosure that is right for you, but they do exist.

Understand the Monetary Benefits

Just like residential foreclosures, you should be able to find commercial foreclosures at nearly half off the actual market value of the property, making it an asset creation for someone looking to resell. It’s important to remember, however, that foreclosure sales happen “as is,” meaning that you make the purchase on the property in its current state. You are responsible for all renovations and improvements.

That said, there are a number of ways in which someone buying a commercial foreclosure can benefit beyond the standard reselling. Renting is one way, and it’s a good way of receiving a steady income to help pay off a mortgage.

Recognize the Long Term Returns

If you’re willing to take on the project of renovating and expanding the commercial property after purchasing it at a foreclosure price, you could make a great deal off the investment. In addition to the markup you could apply to the improved property, you could stand to make a very solid return off the fact that you purchased the property at a foreclosure price.

Take Solace in the Legal Benefits

While some may think that purchasing a commercial foreclosure is a sketchy operation, it’s actually quite official and safe. Commercial foreclosure sales are genuine, run through banks and the government, and should actually be a pretty easy transaction. Banks take care of all the paperwork during the mortgage filing, so it shouldn’t be much of a hassle. Chances of a fraudulent transaction are highly unlikely.  

 

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