PLEASE NOTE: This section deals with FAQs regarding the purchase of foreclosed or bank-owned properties. Nothing contained in this section should be considered legal advice. The information is for general information purposes only. For information on specific properties or situations, please consult a professional.
What is a "bank owned" property?
Properties that have been foreclosed on can be called Foreclosures, Bank-Owned, or REO (Real Estate Owned). These properties are generally owned by lenders, mortgage insurers, or investors. They are usually sold As-Is, meaning that the seller will not make repairs to the properties. Also, the seller usually does not have first-hand knowledge of any problems with the property because they have never lived there.
Will the seller pay closing costs? Will they pay for repairs?
It is possible that the seller MAY pay closing costs or give a credit for repairs. That is entirely up to the seller. Any such items that you are requesting should be written in to the offer. The sellers of foreclosure properties usually do not pay for inspections. But again, you could ask for it when making an offer.
What do sellers require in order to buy a foreclosed property?
Normally, the seller will require either a letter of pre-approval stating that you can get a loan for the property, or proof of funds if you are paying cash. Also, an earnest money deposit is usually required. The amount of deposit varies by seller.
Should you deduct any necessary repairs from the list price when making an offer?
This is a common mistake that people make when looking at foreclosed properties. The short answer is No. The owner of the property is usually aware of the condition of the property. Before listing, the seller will often have several valuation opinions done on the property. So they have a reasonable idea of what obvious repairs are needed, and what the market value of the property should be. The seller will have taken the obvious repairs needed in to account when pricing the property. This would be a good place to note that there may be issues with the properties that are not visible or obvious. Home inspections are ALWAYS a good investment.
What does it mean when properties are sold “AS IS”?
Bank owned properties are sold AS IS. This means that the bank doesn’t know if the appliances, mechanicals, etc are in working order. The seller does not provide any warranties or guarantees that the water, sewer/septic, appliances, heating or AC, etc are in working order. It is always a good idea to have a home inspection done.
How does the offer process work?
There are a number of ways that banks will sell properties. One is an auction. These are usually on-line auctions and most have buyer premiums added to the offer price. Buyers should read all information on the auction sites carefully before making a bid. The usual method for placing an offer is thru a real estate agent. Buyers can contact the listing agent, or any real estate agent of their choice to view and make an offer on the property. There will be additional paperwork after an offer is accepted. Buyers should be aware that there are often multiple offers for the same property. The seller is free to choose any offer that they like; it does not necessarily have to be the highest offer. The seller will almost always require a letter of credit approval from your bank (or a proof of funds if cash offer), as well as an earnest money deposit. It is becoming more common for the seller to require that a title company of their choice hold the earnest money. This should be discussed with your agent at the time the offer is submitted.
How long will it take to close the sale?
When negotiating an offer, the buyer and seller will agree on a closing date for the transaction. Buyers of bank owned properties should be aware that this closing date may have to be extended for various reasons. Buyers should not give notice to landlords that they will be out by the closing date on the original offer/contract. It is common for these dates to be extended due to seller needing additional time to file or collect documents. If the contract does not close due to a fault of the buyer, the seller will usually charge a per diem of up to $100 per day. No, the seller will not pay the buyer per diem if the seller or seller’s title company is not ready to close on schedule.
Why do some sellers require that the buyer get a pre-approval thru a specific mortgage company?
Some bank sellers require that any buyer who is obtaining financing for the purchase be pre-approved thru a lender of their choice. This does NOT mean that the buyer has to use that lender for financing. It is understandable that buyers may not want to do this. This is the seller’s requirement, not the real estate agents.
What other things do I need to know?
The seller has never lived in the property. In most cases, they have never even seen the property. The seller does not have the information that a typical owner would have. They don’t know where the lot lines are, how much the utilities are, how old the roof is, or the condition of the well or septic system. This is the reason that these properties are sold AS IS. The buyer should have any inspections done that they feel are necessary to make an informed decision on the condition and value of the property.
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