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So...You're Ready to BUY a FORECLOSURE ?


Stuff to know

 

Touring a bank owned property (REO)

·        Electricity will be turned off – may be accessible from breaker box.

·        Water will be turned off, so be prepared not to use the restrooms.

·        These homes have been sitting empty and not maintained for at least 6 months.  They will not show like a new home and will be in need of repairs – some more than others.

·        The houses are being sold “as is” in their present condition.  The seller will not make any repairs.  The seller will not renegotiate the contract if problems are found during the inspection period and will not make repairs.

·        Seller more than likely will not pay for termite treatment if found.  Termite treatment can run into the thousands of dollars.

·        Pools will be empty and seller will not pay to fill pools for inspection.  Pool repairs could run in the thousands if cracked or bad plumbing.

·        Sellers may require ZERO day inspection on offers, so if interested, conduct inspections prior to writing offer.

·        WHAT YOU SEE IS WHAT YOU GET.

 

Making an offer

·        Multiple offers are extremely common.

·        The property has had at least 2 price opinions AND an appraisal so the seller is VERY knowledgeable about market conditions.

·        Response time typically is 24 to 96 hours – excluding weekends.  Asset managers work normal hours, no weekends, and when they get to it, they get to it.  Nothing can be done to speed the process up that they have to follow.

·        The seller’s name will be left blank on the contract as there is no way to know what is on the legal title at that point.

·        Earnest money needs to be a minimum of 1% or at least $1000.  If a cash offer, 10% down will be required.  The earnest money check needs to have the payee left blank as the title company will not be assigned by the seller until contract acceptance.  A copy of the check will be submitted with the offer, buyer WILL retain the check until contract acceptance and title company can be entered into the payee area.

·        Proof of funds must accompany any cash offer including proof of funds for escrow amount.

·        A signed LSR must accompany any offer with mortgage information.  No offer will be considered without one.

·        A waiver of Seller’s Disclosure (SPDS) and the Loss History (CLUE) report is required as neither will be provided.

·        FHA and VA loans have a very low likelihood of success.  Seller will not make repairs needed to satisfy FHA requirements.

·        They won’t even look at a contingent offer.

·        Don’t expect a response deadline.  When they get back, they get back.  Be prepared for 1-5 working days for a response.

·        Be prepared for a counter, maybe even a verbal request for the highest price that you will pay because of multiple offers.

  

If you get an accepted contract

·        Be prepared for a large number of addendums (like 16) as the banks will require a sign off on everything.  The seller will not sign until after the buyer reviews and signs all of them.  Read them carefully because you will be signing away all normal rights.

            ·        If there is an inspection period, it begins at seller’s signing.

·        Inspections can start as soon as verbal or email response that seller has signed the docs.

·        Water and power will be turned on for inspections, but GAS WILL NOT.  The gas company may or may not agree to turn gas on, but you will have to pay a fee for the 24 hour turn on period.  Typically, it is $50, but if there is a gas leak, you will be responsible for the gas.

·        You can pay to have water hauled to fill the pool for inspection.  Costs will run in the hundreds of dollars.

·        You can do any kind of inspection that you want (structural, mold, etc) but seller usually will make no repairs, regardless of what is found.

·        Signed contracts may take up to 10 working days to come back.  The process is what the process is and nothing can be done to speed it up.

·        Under no circumstances can repairs of any kind, even if for the benefit of the seller to prevent more damage to the property and at the buyer’s expense be made to the property prior to Close of Escrow.

 

Close of Escrow

·        Change the locks immediately as a master key for all the properties is circulating.

·        Bank owned properties (REOs) sometimes have title issues.  While rare, it could take weeks or months to clear.  Be prepared for a potential problem and don’t plan on moving in on closing day.  Have a back-up plan just in case.  Pre-possession is NOT an option under any circumstances!

·        Utilities must be changed over same day as COE.

·        Take lots of pictures at time of contract offer and do walk through before closing. There have been many instances of properties being vandalized (significantly) while the property was pending.  A vacant property is a prime target and it will be really difficult to break a contract and get earnest money back based on what the  addendums may read. 

 

REOs (foreclosures, bank owned) are a whole different way to buy a home.  While prices are great, most normal buyer rights are given up.  The sellers are rigid because they know that they are going to take a bath on the loans and realize that the properties are priced right.  There are inherent risks in buying a foreclosed property as it hasn’t been maintained for a long period of time and the former owner may have been very vindictive.  Just be prepared for the potential of hidden damage, regardless of how well it has been inspected.  What appears to be a great price may be a money pit, with no recourse.  There are many ways to sabotage a home for long term effect.  Buy with your eyes wide open! 

 

 

 

 


 

 

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