Buyer Beware When Purchasing a Foreclosure

Buyers Beware of Bank Owned Properties and Foreclosures

Purchasing a bank owned property is NOT for the faint of heart!

Bank owned transactions don't always go smoothly. The bank dictates the proceedings and they work on their own schedule. In today's market, they are very busy.

The real estate agents cannot control the response time to an offer, signing of amendments etc. When dealing with foreclosures, know that they may take longer to get to the closing table.

Some of these bank owned properties are listed below their current value. If you think it is a great deal - so do a lot of other buyers that are looking at the properties. The properties that are undervalued are receiving MULTIPLE offers - expect it. Some of the sellers are waiting 7 to 10 days BEFORE they will review the offers that they receive. AGAIN - The real estate agents have NO control over when the seller responds. If there are multiple offers, most of the sellers will contact ALL of the buyers and ask for their "highest and best offer" And YES, they do actually have multiple offers and are not just playing a negotiation game with you. Once they have all of the buyer's "highest and best" they will then choose the contract with the best price and terms. The sellers will not issue a written rejection or counter offer to the buyer. You will receive the paperwork, once all verbal negotiation has taken place and your offer is accepted. There will be bank addendums that follow the acceptance of your contract. You can not make any changes to these addendums - the bank will not accept that.

The bank is going to look at ALL the terms of the contract, NOT just price. If you are getting a FHA loan with 96.5% financing, your offer is not going to look as good as the buyer offering cash. If you are asking for $4000 in seller paid closing costs, that is the same as asking the seller to come down in price $4000. The sellers will reserve the right to accept any offer of their choice, regardless of the order in which they were received.

Some of the bank owned properties ARE selling for over list price. Determine what comparable properties are selling for and what the repairs are going to cost and make your offer based on this information.

The bank owned properties are selling "as is" with no repairs, warranties or inspections provided by the seller. You will be responsible to pay for and order all municipal inspections and occupancy permits. They will not provide any inspections which may be required by your lender. The seller will not make any further repairs or improvements.

Some of the bank owned properties have a lot of repairs that will need to be made after closing. It is wise to know what these repairs are going to cost, so you can determine what the actual "cost" of acquiring the property will be.

You can make your offer contingent on having any inspections you deem necessary, within a certain time frame, after acceptance of your contract. You can reserve the right to terminate the contract within that time period, if you discover issues that are not acceptable to you. The seller will not make further repairs or improvements, you are buying the property AS IS. The beginning of buyer's inspection period varies depending on the bank. These time frames will be determined by the contract or the bank's addendums.

No tax, zoning, compliance information, utility services, septic or water or code enforcement will be given to the buyer from the seller. Buyer should verify this information independently. There will be no seller's disclosure.

There is a penalty for closing delays not caused by the seller. This varies from $25/day to $200 per day or more and will be part of the seller's addendums.

You must have a pre-approval letter if you are getting a loan. If your offer is a cash offer, you must supply proof of adequate funds to close on this property. NO EXCEPTIONS. Some of the sellers are going to require that you get a pre-approval from their preferred lender as well. A large percentage of the bank owned properties are not going to accept FHA financing because of the possibility that the FHA appraiser will predicate repairs that need to be made in order to proceed with the loan.

The required earnest money on bank owned properties will mostly likely be a minimum of $1000 or a percentage of the sale price. Most of the sellers will require that the earnest money be delivered and held by their title company within one or two days of acceptance. Closing at the Seller's title company typically, will cover the buyer's title insurance. This is not true with Fannie Mae properties.

IT IS IMPORTANT TO READ AND UNDERSTAND THE SELLER'S ADDENDUMS. These addendums change the terms of your offer.

There are some great values in the bank owned properties but you need to be patient, when going through the process of making the offer and closing on the property. It is not for everyone. It can be a stressful and frustrating process - only you can determine if it is worth the trouble.