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Frequently Asked Questions (FAQ) About Foreclosed Properties

I have started this Frequently Asked Questions or FAQ about foreclosed properties for the benefit of visitors who may be looking for answers to questions that have already been asked in the past.

Note: This FAQ is currently being updated and will be moved to a dedicated FAQ page.

This is a work in progress and I shall regularly update this FAQ with new questions and answers from the comments section and from readers’ e-mails.


Frequently asked questions about foreclosed properties

In buying a foreclosed property, who pays for CGT, DST etc?

ANSWER: Normally the seller is the one who shoulders CGT and DST is for the account of the buyer, but they can actually pass the cost of CGT to the buyer if they agree on such terms as part of the purchase. Nevertheless, the seller is the one who files the tax return. Please see my post about CGT for more details.

Multiple housing loan are not allowed by banks right?

ANSWER: If from the same bank, I don’t think they would allow it, just like Pag-IBIG. However, if you applied for a loan with another bank, I believe they would allow it, provided your monthly amortization is below 40% your net disposable income.

Do all bank foreclosed properties undergo auctioning?

ANSWER: Not all foreclosed properties undergo auctions, some banks just make the listings of their foreclosed properties or bank acquired assets available to the public and then interested parties can submit their offers, which will be up for evaluation.

Please expound the clause “as is, where is” for foreclosed properties?

ANSWER: “as is, where is” generally means the buyer agrees to purchase the property at its present physical condition including but not limited to any problems or legal issues the property maybe involved in. Best practice is for the buyer to thoroughly inspect the property and check for any lis pendens, annotations, etc., on the TCT plus trace-back plus any arrears on taxes, dues, etc. that maybe for the account of the buyer. It would be highly recommended to check the auction guidelines as well on how the term “as is, where is” is defined by the bank conducting the auction.

What are the typical requirements to join an auction as a bidder?

ANSWER: Aside from the show money or manager’s check, the winning bidder must submit all requirements as stated in the conditions of sale. You may refer to the Conditions of Sale for the recent UCPB auction for example here.

You mentioned that foreclosed properties are can also be sold through a negotiated sale and are “negotiable”, is it for cash payments only or for financing as well?

ANSWER: Yes, these are negotiable even for financing. Actually most banks prefer financing because they can earn more due to the interest, provided you get the loan from them.

Are all properties listed by banks foreclosed?

ANSWER: Bank listings usually only include foreclosed properties as they are not really in the real estate business. Sometimes however, you will also see some bank acquired assets for sale which they got as payment through a dacion en pago or payment in kind, as a result of foreclosure proceedings.

How many percent can I “haggle” para di naman masabi ng bank na “kung gusto mo sayo na lang”

ANSWER: Before, my target was to submit offers 40% below the “after repair value” but I learned recently from a mentor that it should be at least 50%. However, you should also try to indicate valid reasons why you came up with that offer so the banks will know you are serious. If your offer is not accepted, you can always work your way up and submit another offer.

If a property is being sold with min bid price (ex RCBC Dream buy list), are they for sale through sealed biddings or through public auction?

ANSWER: For this particular listing, interested parties just have to submit their offers which shall be evaluated by the bank. Though they indicate a minimum bid price in the listing, you can still submit offers below the minimum bid price because prices are negotiable, and this is according to the RCBC Bank officers themselves, for this particular listing.

Can I ask the bank for the copy of the title?

ANSWER: Yes, just need to ask for a copy and they should give you a photocopy which you can use to check/verify at the registry or deeds by getting a certified true copy.

Whenever you win the bid, but decided not to buy anymore, what will happen?

ANSWER: If one has already won the bidding and decides to back-out, the bank will forfeit his/her Php25,000 show money.

What are your initial thoughts (without having seen the site) of large auctioned vacant lots at relatively low prices? Are these necessarily good deals? If otherwise, what are your foreseen problems/condition of this property? For instance, a 2,000 sqm property in Antipolo auctioned at about 2M, will this ever catch your interest? Thanks in advance

ANSWER: A couple of months ago, I met a fellow investor from Antipolo who has advised me to start investing there because there is still a lot of room for growth, as compared to Marikina where I am currently based. Though I disagree with him because I believe Marikina still has a lot of room for growth, both of us do agree that properties with improvements or structures like houses and apartments, etc. in Marikina and Antipolo are great investments and we shy away from land only. This is because land cannot be made profitable immediately, you can’t rent it out, you will have to develop it(have provisions for water, electricity, sewage, etc) if you want to sell it, or you may need to subdivide it to be attractive to buyers, or you may have to find a developer to partner with. Though it is promising, whatever strategy you may choose to apply, it would take months or years before you get any returns on your investment. Our family is in a similar situation like this right now in Caloocan. In contrast, if you wisely bought a property with improvements or with structures like a house or an apartment in a fairly good condition, you can rent it out immediately, or you can introduce improvements like painting, a little renovation/updating and you can sell it for significant profit. In summary, if you buy land, your money will be tied up for a long time, while with properties that have improvements, you can get your returns in a short amount of time.

I am just curious what happens to the unsold properties in the auction? Does the bank reschedule them for another auction or can buyers make an offer to the bank at the starting bid price?

ANSWER: For Unionbank, they usually set another auction for the unsold properties about a month later. For auctions conducted by CBRE, they usually come out with post auction listings where “best offers” are considered, which means interested parties can submit offers below the minimum bid price. For RCBC, they usually schedule another auction and take off 5% from the minimum bid price(MBP) for unsold properties.

What are Friction Costs?

ANSWER: The implicit and explicit costs associated with market transactions, these costs include commissions, tax implications, time value of money, etc.

Is BFS only for real estate agents or do they sell to individuals who wish to purchase a property?

ANSWER: Yes, they also sell directly to individuals. I would suggest you give them a call. Just like most banks, they probably take a long time to respond to e-mails.

Tanong ko lang po kung pwede pang mag habol yung dating may ari yung property pag fully paid na po ng buyer. And pano rin po pag dipa fully paid yung property pwede pa rin po basila mag habol?

ANSWER: If tapos na yung redemption period, wala nang habol yung dating may ari. If I’m not mistaken with the legal terms, the redemption period is one year after the execution of the foreclosure. Kahit hindi pa fully paid ang new owner, basta nag lapse na yung one year na redemption period, wala na ring habol ang previous owner. Usually, banks only sell foreclosed properties whose redemption periods have already lapsed. Although they usually inform interested parties if the redemption period has lapsed or not, it would be better to double check, just to be sure.

Do you accept apprenticeship?

ANSWER: Honestly, we have no time to mentor apprentices on a one-on-one basis at the moment.  However, I do “virtual mentoring” inside the members area.

Given the obvious necessity that research and studying the basics are prerequisites before going into this field, can someone with practically no real estate selling experience(except stubborn will and persistence) dive right into it? Of course having considered the pointers mentioned above, but is it possible to just start from nothing and work your way through? Or do I have to attend seminars or take exams first?

ANSWER: Personally, I feel you don’t need to become a licensed broker to become an investor, I just chose that path kasi nasanay nako mag pa certify, sa I.T. kasi ganun. However, attending seminars is recommended to educate yourself with the basics, much like when you attend a driving school to learn to drive. Just like in driving, the key is practice. Try to start with small deals as your practice.

What does it mean when you say “refinancing the house” – as if you invested no money at all?

ANSWER: Refinancing means you apply for a new loan to replace your existing loan, usually from another bank with better terms and after completing 3 years of payment.

I would just like to know the taxes required when purchasing foreclosed property

ANSWER: With regards to taxes, the seller(the bank) usually pays the capital gains tax (CGT) OR creditable withholding tax (CWT) depending on the bank. There are also banks that pass this on to the buyer so it would be better to confirm with the bank that has the property you are looking at. Documentary Stamps Tax (DST), transfer tax, and other taxes applicable(depending on the location of the property) are usually for the account of the buyer.

Which is better and faster, to join bidding or to submit a letter of intent (for banks with no bidding required)?

ANSWER: in a nutshell, submitting offers through a letter of intent is better because you can negotiate for the price, terms, etc., depending on the bank. In contrast, in public auctions you are obligated to follow the bid terms and all bids start at the minimum bid price (you can’t go lower), and if there are other bidders for the same property, the price can increase significantly. However, with public auctions, the whole transaction is faster. I continue looking at public auctions because I still find bargains, in fact, my most recent acquisition was through a public auction.

I would just want to ask if banks auction the same remaining properties they did in their previous auctions? I just thought how could you have inspected beforehand what they were about to auction off?

ANSWER: Unionbank and RCBC, I have observed they keep on listing properties that were not sold in previous auctions in upcoming auctions. For auctions conducted by CBRE however, they don’t include unsold properties anymore in upcoming auctions. As for inspecting the property before the auction, I just have to set an appointment with the bank officer in charge of the particular property I am interested in and they can accompany me.

Is it safe to say that as a rule, one shouldn’t get deals where stubborn illegal tenants are involved?

ANSWER:Yes, properties with illegal occupants should be avoided at least when you are just beginning to invest in real estate. Having a property with such a problem as you first deal would not be good as it could drain your resources and energy. All of my mentors have given me this sound advice which I follow as well.

Should it be the responsibility of the bank to move(eject) out the tenants?

ANSWER: For most banks, ejection of tenants would be the responsibility of the buyer. It is highly recommended to verify with the bank.

What’s TCT or CCT?

ANSWER: TCT and CCT stand for Transfer of Certificate of Title and Condominium Certificate of Title respectively. They are the legal documents that establish ownership of real estate. For more definitions of real estate acronyms I highle recommend you read my post about real estate acronyms every new real estate investor should know.

When submitting an offer, as an example of say, 40% below minimum bid price, what’s are possible valid reasons or scenarios that I have to give?

ANSWER: Possible reasons for asking for a discount are repair costs, you can even use a quotation from a contractor as reference, and you can also mention that repairs would take some time to finish before the property can be RFO and become an income generating property.

Am I required to state what my plans are for the property? Like live on the property or rent it out or tear down and build it up again?

ANSWER: I prefer to be frank with my intentions so I can bargain with banks. If I say I’m an investor, they would understand why I’m asking for a discount as I also need to make money.

You mentioned that the CGT is for the account of the seller which in this case is the bank right? Or does it apply to the buyer also?

ANSWER: CGT can also be for the account of the buyer, it’s really up to the seller to pass it on to the buyer as long as the buyer agrees, although normally, it’s for the account of the seller. Sometimes a seller will only shoulder the CGT based on the selling price and the CGT for the excess amount or difference between selling price and fair market value shall be shouldered by the buyer.

I would like to ask if buying a foreclosed property from a bank includes paying a 12%VAT?

ANSWER: Residential lots valued below PHP1,919,500.00 are VAT exempt while residential House and lots valued below PHP3,199,200.00 are also VAT exempt. Please refer to this post for more details: Threshold for VAT exemptions to be increased effective January 1, 2012

If the property is just land and for personal use, how would you know if you’re not offering too much or too little?

ANSWER: You can estimate the value of a property by checking the going rate for similar properties in the area. Even if it’s for personal use, I still think you should offer below the selling price by a least 40%, malay mo tanggapin nung bank. If not, okay lang, negotiate lang then submit ng bagong offer. Pag tinanggap agad offer mo, it means masyado kang generous.

Is the VAT already included in their asking price unless they indicate that VAT is excluded?

ANSWER: As far as I know VAT is excluded in the asking price so I suggest that you ask for a computation for taxes from the bank officer so that there will be no surprises.

Will the bank accept an offer say less than 20%,30%,40% percent from the minimum bid value? nalilito lang po ako kasi di ba minemention naman nila kung how much is the minimum bid value, right?

ANSWER: For listings that are not for public auction, while there is a minimum bid price, prices are still negotiable for most banks. The bank would still evaluate bids below the minimum bid price. What is important is that you should submit an offer as they just might accept it. If not, you can always negotiate further.

Any advice you can share in dealing with homeowner/ seller (not banks) regarding haggling the price. And, where do we start our figure to counter offer, liked you I set mine @ 2M but most of the time the asking is over and don’t want to exceed my magic #.

ANSWER: For homeowner sellers, you could first try to determine if they are highly motivated to sell. You could do this by asking why they are selling and how fast they need to sell. If they say reasons like “we are leaving the country and they need to sell in 1 month, etc…” then you could say they are highly motivated and ask if that’s their last price. By the way, I suggest you always let the seller be the first to say his/her price/terms. Also, just like what almost all books I have read on real estate suggests, the last thing you can ask would be “If I can pay in cash, how much would be the lowest you are willing to accept?”. From their answer you’d know their last price. If the price is right, and in case you don’t have enough cash, then you need to get investors to finance the deal or find other means, etc. Actually this is one topic to be discussed in a future post, please watch out for it.

Do all townhouses have CCT instead of TCT?

ANSWER: Since it is quite common nowadays for townhouse projects to be converted to condominium projects, most townhouses have CCT’s

Who owns the land if the townhouse title is a CCT?

ANSWER: As for the land, if I’m not mistaken, the land is held by the condominium corporation, which unit owners become part of, hence unit owners do become co-owners of the land.

If a townhouse only has CCT, how is the buyer protected from the owner of the land? Like what if the owner decides to put up another structure to replace the townhouse you bought?

ANSWER: Since condominium owners have the right of absolute ownership of their unit, an act like putting another structure to replace the townhouse would be in direct violation of his absolute ownership. RA 4726, otherwise known as the Condominium Act, provides adequate protection for condo unit owners and you can read more by going here.

How long will it take for an ordinary asset that is idle be considered as a capital asset and will be subjected to CGT?

ANSWER: according to RR7-2003 of the BIR, ordinary assets are automatically converted into capital assets upon showing of proof that the same have not been used in business for more than two (2) years prior to the consummation of the taxable transactions.

Hi Jay, just asking about the logistics, is this the time you go tripping, Just before the auction? How do you go about it if you’re interested on a certain property? Do you go on your own to do an ocular or do you ask someone from the bank to accompany you?

ANSWER: For me, I would get as much info from the bank through a series of questions over the phone where I ask about the monthly dues, the taxes I would be paying if I bought that property, the projected rentals, condition of the property if repairs are needed, etc. then I compute my projected ROI. If it looks good, then I schedule a tripping with someone from the bank. It would be better to do this as soon as possible so that if it really looks okay, you can get a contractor to come with you and verify that there are no hidden problems, same with checking the title of the property, before the auction.

Do banks accommodate inquiries that include, say, 5 or more properties over the phone?

ANSWER: Yes, they would be happy to accommodate inquiries for several properties, they would welcome that, just have your questions ready.

Do I still have to bring show money even if I have no intention (yet) in bidding? I figured I wanted to sit in first to see how things go.

ANSWER: As for the show money, you don’t really need to bring any if you are with someone who is bidding.If you are alone however, you would need to bring your show money. Otherwise, you won’t be allowed to attend the auction.

What is CWT?

ANSWER: CWT is stands for Creditable Withholding Tax. Read more about it here.

Can a buyer buy directly from the banks foreclosed property directly without having to bid for it? like if your an OFW?

ANSWER: It really depends on the bank, for UCPB’s last auction, they entertained knockout bids where buyers added 5% on top of the minimum bid price, for RCBC, I haven’t checked yet if they will entertain offers before the auction. For Unionbank, they won’t, I already tried.

What does it mean when the description says “w/ improvement”?

ANSWER: “w/improvement” means there is a structure on the land which could be a house, apartment, building, etc. You’d be surprised when some ads only indicate “w/improvement” but when you ask the bank, it turns out to be a multi-door apartment, etc.

I would like to know if the foreclosed properties that are listed in an auction or from banks are based on current value or the fair market value of the said property, or are the listed prices are more cheaper compared with the current value of the property when assessed?

ANSWER: The minimum bid prices are mostly based on current appraised value taking into consideration the current condition of the properties. In my opinion, a lot of these are definitely cheaper compared to the “After Repair Value” or ARV of the properties. A conservative way of establishing the ARV would be to get the current market value of very similar properties in the same location that are in Ready For Occupancy or RFO condition.

I recently read the Think Rich Pinoy book and the Think Rick Quick, one thing that I don’t really understand, how can you sell an apartment retail on a Rent to Own basis given you only have one title for the entire property? Also once they get to own the property after 15 years, the capital gains taxes and other taxes aren’t included in the cost?

ANSWER:The property is subdivided and each unit will have their own individual title. As for capital gains tax, CGT will definitely be paid but the subject on subdividing of properties and payment of CGT and other taxes were not discussed in Think Rich Pinoy and Think Rich Quick to keep it simple. If these were discussed, the books could have ended up many times thicker and a lot of readers would have been intimidated and even discouraged. I’m quite sure taxes are considered in the deals described in the books.

Got a question?

Got a question about foreclosures and real estate investing that was not listed here? Just leave a question by leaving a comment on any of my blog posts and I’ll answer it as soon as possible, I promise! By the way, due to the large volume of questions I get through comments and e-mail, I may have to split the FAQ to cover specific topics.

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About Jay Castillo
People encounter problems and make mistakes when buying foreclosed properties, and Jay wants to help people avoid those problems/ mistakes. Jay encountered a lot of those, which is why he started this blog in 2008 to serve as a guide where he shares lessons learned, and how to overcome challenges you may encounter when investing foreclosed properties in the Philippines … [Read more]
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