Critical Facts To Know Before Buying Bank Owned Property
a house from a bank doesnt work like buying a house from a private
party. But if you know the differences, a bank owned property can be an excellent
opportunity. Heres what Ive learned from representing many buyers
in purchasing bank owned properties.
Good luck and may you find an excellent bargain
thats just right for you!
Short Sales vs. REO
REO stands for Real Estate Owned, and is another way to refer to a bank owned
property. This is property that the bank has taken back through foreclosure.
Sometimes a seller who is behind in his payments will attempt to sell his
house before it goes into foreclosure. To do this, you must negotiate with
the bank to accept less than what is owed on the property, and this is known
as a short sale. This report describes purchasing an REO, not a short sale
which is altogether different.
Exempt From Transfer Disclosure
Whenever anyone sells a house in California, he must by law give the buyer
a Transfer Disclosure Statement (TDS). This document describes what is included
in the house, what is broken, and other legal and environmental disclosures.
The seller has to tell you about any defects he knows about, especially if
they are hidden and you might not see them. The seller can be held liable
for defects that appear later that were not disclosed when you bought the
The exception to this law is an REO. Banks are exempt from giving you a TDS.
For this reason it is absolutely imperative that you do a thorough inspection
with a licensed and bonded contractor before purchasing any REO. You must
be extra diligent in all your inspections, because you have no recourse after
you buy it.
After the initial offer is made in writing, counter offers are made verbally
until agreement is reached. This is a slow process because the bank may be
in a different time zone, or the responsible people are tied up in meetings.
It may be many days of verbal countering before a final agreement is signed
by all parties. During that time, there is a danger that another offer will
come in better than yours and the bank may accept it. This is especially
likely to happen if negotiations go over a weekend. So my advice is: try
to reach agreement with the minimum amount of counters.
A bank will require a higher good faith deposit than a private party would.
Expect to write a check for 3% to 5% of the purchase price when making an
offer on an REO.
Double Loan Applications
The bank will probably require that you get prequalified with their institution
within a few days of accepting your offer. They naturally want to cut their
losses on the property by making a new loan on it. You will need to go through
the loan application process with them, even if you get the loan somewhere
else. While they can ask you to apply with them, no one can tell you where
to get a loan. That is your choice entirely.
Bank Chooses Services
The bank will insist on an escrow and title company that they choose. They
have previously negotiated fees with these companies, so they know what their
expenses will be. You would think that to get the business of these giant
banks, these escrow companies must be really good. But you would be wrong!
They get the business by charging less, and the service is often substandard.
Many times the agents do the job of the escrow officer. For this reason,
its most important to choose a REALTOR who is willing to work harder
than normal to make sure you get the house you want.
Not The Usual Contract
The bank will use their contract, not the standard California Association
of Realtors form. Its critical that your agent read every word of this
contract to make sure your interests are protected. Remember the banks
attorneys who wrote the contract are representing the bank, not you.
Double Check Everything
Ive found that listing agents and escrows for the banks are overloaded
with work. Repairs may get ordered, but there is seldom a follow up to see
that the work was done. Your agent must take it upon himself to double check
everything and assume nothing. When you buy an REO, make sure you select
an agent that represents you and not the bank. Select an agent that has
experience working with banks and is not afraid of some extra work so