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By Tara-Nicholle Nelson | Broker in San Francisco, CA

4 Tricks and Traps Foreclosure Buyers Need to Know

Interest in buying a foreclosed home is on the rise, but so are concerns about the risk involved in the process. In a December survey, Trulia found that 49 percent of Americans were at least somewhat likely to consider buying a foreclosure, up from 45 percent in May 2010.  But the number of US adults who believed there are disadvantages to buying foreclosures had also increased, from 78 percent to 81 percent over the same time frame.  Among those folks who had qualms about purchasing a foreclosure, the top concerns were:
  • that buying a foreclosure might involve hidden costs,
  • that the buying process itself is risky, and
  • that the home might continue to lose value, after escrow closes.
While there certainly are risks that run with buying a foreclosed home, the most risky way to do it is also the least common method: at the foreclosure auction itself. Auction buyers often don't have the opportunity to fully vet the foreclosure to ensure that they are receiving clear title and/or to make sure they're not getting a lemon. With that said, most foreclosures are resold not at the foreclosure auction, but as an REO (short for Real Estate Owned - by the bank), listed by a real estate broker on the Multiple Listing Service and on Trulia!

When you buy an REO in this way, you have lots of opportunities to use some tricks of the trade, so to speak, to avoid some of the traps you may fear.
Here are my Top 4 Tricks and Traps for Foreclosure Buyers:

1.  As-is means as-is, period.  (Most of the time.) Banks have very little interest, inclination or even the logistically necessary resources to execute repairs on your home. Many of these homes are managed by an asset management company in another state, and may not even have a local person besides the agent who can handle large repairs. Generally speaking, bank-owned homes are sold on a very strict "as-is, where-is" basis, which just means that you should expect to take possession of it, if you buy it, in exactly the position and location it is, no matter how defective.  Do not walk into a viewing of a foreclosed home, notice how the plumbing is all ripped out of the wall, and make an offer for it, assuming you'll be able to get the bank to "fix" the issue later.  Usually, if the bank is willing to do any repairs to a foreclosed home, they do so, on the advice of the listing agent, prior to the home being listed.

Out of hundreds of foreclosure transactions I have personally been involved in, I have seen exactly four where the bank did agree to do some level of repairs at a buyer's request.  Every one of those times, the repair was to fix a health-and-safety endangering property defect, like a gas-leak or an electrical fritz. And every one of those times, the property defect was highly non-obvious - not something even a diligent buyer could have detected visually prior to making an offer.  Maybe another few times I've seen a bank agree to a small price reduction due to surprising condition problems.  And dozens of times, I've seen transactions fall apart or buyers take on the property’s repair costs, when they request repair credits, price reductions or actual repairs from the ban seller.

If a foreclosure you're considering has obvious property damage, have your contractor stop by with you or gather whatever information you need to get as comfortable as possible with your offer price, assuming that the bank will not be chipping anything in for repairs, before you make the offer.

2.  The bank speaks no evil.  
When it comes to real estate disclosures, the fact is, the bank speaks not much of anything!  Many states exempt banks and other types of corporate homeowners from making substantive disclosures about the condition of the property.  Even in jurisdictions where the bank is not legally exempt, most banks will simply write across the required disclosures something to the effect that the bank has no knowledge of the property's condition.  (Before you protest with a "that's not fair!!" keep in mind that the bank never lived in the property, so most often truly does have no idea of any important facts or details about its condition or location, the things an average home seller would be required to disclose.)


Even in a normal transaction, it behooves a buyer to be thorough in having the property inspected and meticulous about reviewing the resulting inspection reports.  But buying a foreclosure ups even that ante, as you have no seller disclosures to highlight particular problems you should have looked at, and none of the usual legal recourse you would have if a “regular” seller made incomplete disclosures.  Get a property inspection.  A pest inspection.  A roof inspection.  A sewer line inspection. A pool inspection, if you have a pool and care about its condition.

Yes - all these inspections cost money, but the drama and thousands each of them can save you is well worth it. And read your state’s buyer inspection advisory or similar document (ask your agent), just to make sure you’re aware of all the inspections that are available to you, and work with your agent to determine which ones make sense, and which are not appropriate.


Some insider tips:
  • Vacant foreclosures often have their utilities disconnected.  Work with your agent to make sure the utilities get turned on - even for a single day - so that your property inspector can run the water taps, test the stove and dishwasher, see if the water heater and electrical outlets work, and so forth.
  • If appliances are there, the bank will probably leave them there, even though they may not have technical “legal” ownership of them, so they may not be included in the contract, like in a "normal" home sale.
  • However, the bank will not give you any sort of warranty on appliances, so try to obtain any warranty coverage you want or need elsewhere - from a home warranty company or, potentially, the original manufacturer/retailer.

3.  The contract terms, they are a changin'.
One thing squarely in the wheelhouses of local real estate pros are local market standard practices.  From negotiating practices to which party pays which closing costs, every market is different, and experienced local agents are experts on this information.  If you’re buying a foreclosure, though, the bank will often require you to use it’s own purchase contract, rather than the more commonly used state forms.  Many times, this is done to advise the buyer of the bank’s refusal to make substantive disclosures (see above) and to change some of the normal practices for your area to the bank’s standard practices. 

For instance, if you are buying a home in a contingency state, where you would usually have to sign a document proactively releasing contingencies, the bank’s contract will probably change that, so that your transaction operates on an objection period. In "objection" based transactions, you  have a certain period of time in which you must either speak up about your concerns with the property and/or cancel the deal, or you will automatically be presumed to be moving forward with the deal and your deposit money will be forfeited if you change your mind after that date. 

If you’ve been making offers on non-foreclosures on the standard contract form, or you’ve bought homes before and think you know the drill, please - I implore you - READ every word of the contract you sign when you buy a home from the bank, and ask your broker, agent or attorney to explain anything that doesn’t make sense.


4.  Expect the unexpected.
  When you buy a foreclosure, you might end up working with the bank’s escrow company, instead of a company you or your agent selects.  And the bank's escrow provider might be slow or disorganized.  C’est la vie. The bank might rush you for your deposit money, but take their own sweet time coming up with the necessary signatures on their end to close the deal.  Par for the course.  You might expect that the bank would be desperate for buyers, and instead find out that there are 20 offers on the same REO.  Or, you might be the only offer and still get your aggressively low (but still reasonable) offer rejected, only to have the bank reduce the list price of the home to the same price of your offer!  (They often want to see if exposing it to other buyers at the new, lower list price might generate more interest and higher offers.)  


When you’re buying a foreclosure, expect glitches, expect your calendar to be derailed, expect the bank to be inflexible and possibly even unreasonable.  It’s not overkill to ask your broker or agent to brief you on the common complications they see in REO transactions.  Having realistic expectations may keep you from pulling your hair out.  And if the transaction turns out to run smooth as silk?  You’ll be pleasantly surprised.



P.S. - You should follow Trulia and Tara on Facebook, too!

Comments

By Dave Hackiewicz, Broker,  Thu Jan 13 2011, 04:36
Good information ...thanks
By Donna Perch,  Thu Jan 13 2011, 04:42
Just closed on one like this yesterday! All true!
By Missy Abrams L'Hoste & Team,  Thu Jan 13 2011, 04:48
Excellent advice and information! It seems I am saying the exact same thing weekly. I have one that I just closed, one that I am submitting the offer today, and one I am hopefully ratifying today. One thing I know... They will all be different.... And yet the same! Thanks for writing this!
By Rich Froehlich,  Thu Jan 13 2011, 04:49
Great article. I deal with foreclosures adn tell my buyers the exact same things.
By Mary Peak Mills, Local Expert,  Thu Jan 13 2011, 05:08
Very well written and easy to understand. I say this over and over to buyer's and I an pleased to have something in writing to pass on to them.
By 203k Guy,  Thu Jan 13 2011, 05:09
Great article. I think it would help people to know how an FHA 203k rehab loan can help them make good decisions about the property and get the help of a good Certified 203k Consultant to help them make good deciions about the property condition, select and negotiate with contractors to get the home repairs as needed. The 203k process can be difficult without a good Consultant and Loan Officer who understand the program. Thanks for the article!
By Robert A Graham,  Thu Jan 13 2011, 05:10
I sell HUDs and they did this years ago..
By Barbara O'Connell,  Thu Jan 13 2011, 05:10
Excellent article Tara. I always enjoy reading your very informative pieces. Thanks!
By Nate Gerard,  Thu Jan 13 2011, 05:17
I think we agents tend to accept and understand these points well. However, sometimes we could explain them better to our clients. Thanks for the reminder!

One thing to add: Buy an owner's title insurance policy! With the crazy stuff happening in Massachusetts and other robo-signing problems, no one wants a cloud on title that they have to resolve themselves!
By Linda Vintro,  Thu Jan 13 2011, 05:21
Nate G's reminder re owner's title insurance is VITAL here in MA. Great suggestion, and this article spells out in straightforward language what we tell buyers but they don't often "hear" in their excitement over a good deal. There is no free lunch -- it's one of my favorite sayings over the 34+ years I have been in this business. Risk/Reward, but you have to be someone equipped with the stamina and finances to deal with most of these foreclosure properties. Linda Vintro
By Missy Abrams L'Hoste & Team,  Thu Jan 13 2011, 05:22
Nate, thanks also for the input with the owners title policy! That is SO important to have!
By Stevnray,  Thu Jan 13 2011, 05:30
You forgot to mention: in Florida, they can yank the signed contract and relist it if they want. It happened to me!
By Kevin Cloutier 239.246.6639,  Thu Jan 13 2011, 05:33
Great info!
By Robert Lowe,  Thu Jan 13 2011, 05:36
Can anyone tell me a way to get into REO properties in my area. There has to be a contact person of info. out there. When I ask other local agents how, no one seems to have an answer. Or either they just don't want the competion. Thanks, Rob
By Timothy L Bennett,  Thu Jan 13 2011, 05:38
been in bus 25 plus yrs good web site buy and sell real estate repos here evan laimen understands good job keep it up , tim
By Samantha James-Tharp, PA,  Thu Jan 13 2011, 05:41
Good information, I sell REOs
By Ina Sams,  Thu Jan 13 2011, 05:44
Hi Rob Lowe,

Contact the banks in your area and ask them for their listing agent info. Many of ours are in the surrounding counties MLS. Ask an agent in other MLS's that you are a member of to help you. Also your local court house has a list of foreclosures and of course Trulia is a great way to find those foreclosures. I want all Realtors in my area to sell the foreclosures so we can move on to our other listings. Good Luck, Ina
By Harold Michael Jones,  Thu Jan 13 2011, 05:50
Great information the every buyer should read.
I do want to take issue with the banks failure to provide property disclosures.
Banks claim to have no knowledge of the condition of the property. This is simply untrue. Every REO agent called upon to do a BPO for a property must evaluate the condition of the property to assess its value. The REO agent must inform their client of what works and what doesn't. Obvious visible damage is easy, as are utility related issues that are assessed before the property is winterized. I can't tell you how often REO brokers/agents have told me there is no seller's disclosure and then proceed to disclose what they know about the heating system, roof, appliances etc.
In my opinion, if an REO agent does a thorough BPO , the bank/owner knows a lot more about the property than
the paperwork shows.
This also poses an ethical question for those REO agents. If THEY know the condition of the property they are bound to disclose it. If the bank/owner will not complete a disclosure and their agent has knowledge of the condition, some kind of disclosure should be available in writing from the broker.
I just think the banks can't deny knowing what their agent has told tem, plain and simple.
By Nancy,  Thu Jan 13 2011, 05:54
Hi, I enjoy all the articles and info from all the experts. Here's the situation. Put a bid in for an REO in December. Waited until after the holidays, and they told the agent that they, the Bank would make a decision in three or four days. It will be over a month and they just keep putting the agents off, about no decision yet. What's the deal? I would think, either decline all of us and put it out there again, or accept the highest bid. What do you think? I can't bid on another one, until I've been declined. The listing agent said that they are taking new bids and will contact us soon. What does that mean? You give a bid in December and we get held up until around February? What should I do? Pull mine out???? Thanks, Nancy
By Starlena Meeks, GRI, ABR, CDPE,  Thu Jan 13 2011, 05:55
Excellent blog, I list foreclosures for several banks in Florida and see this everyday. I would add the importance of legal representation for the buyer, especially since title is representing the bank's interest. It is worth every dollar and usually reasonably affordable.
By Dawn Rupersburg,  Thu Jan 13 2011, 05:59
Great Post and all the more reason a buyer should hire an experienced buyer's agent who knows the in's and out's of foreclosures. short sales, and mortgage guidelines.

Dawn Rupersburg
Coral Shores Realty
Ocala Florida
352.553.3369
By Sharon Woosley,  Thu Jan 13 2011, 06:09
I tell my clients to know these three things: "The bank will do no repairs; don't low ball your offer, it is already a bargain; be prepared to act quickly." If you are OK with these conditions, it is possible to have an easy transaction, but NEVER guaranteed!
By R. Erik Windrow,  Thu Jan 13 2011, 06:10
Great article and a good read for all that are thinking of purchasing a foreclosure.
By Mary Devino,  Thu Jan 13 2011, 06:14
Thanks Tara, these are the kind of deals that I am working with in Seattle, a great article.
By Terri Estrada,  Thu Jan 13 2011, 06:15
This information should be shared with all buyers in this market! It could prevent a bit of the frustration. A Good Home Warranty is important. I know of one!!!!
By Jeffery Jasper,  Thu Jan 13 2011, 06:17
Another well written post! Not new to the seasoned agent but worth reading by all.
By Dawn Lane,  Thu Jan 13 2011, 06:19
Great info Tara. Thank you for helping to educate consumers.
I wanted to add a ccomment about "as is" where is... Coming from Las Vegas , unfortunately , I am all too aware of this statement. We are working mostly with foreclosures and short sales. In most cases , if the property is in really poor condition , ( ripped out plumbing and electrical , etc) we will advise a client that their lender will probably not approve the loan and move on .However in some cases , for instance , the HVAC or water heater or something that is a normal functioning system of the home is not working, it will become an appraisal condition . Usually , if it is an appraisal condition , the bank will fix it . Also the homebuyer should always pay for a home inspection . Alot of foreclosures here in Las Vegas have been vacant for a year or more and have had no utilities on , so that presents another problem.
One other thing I would like to add is this. The prices of these homes are already low . Have your Realtor pull the comparables in the neighboorhood before making an offer. Then , depending on whether there are multiple offers and the length of time the property has been on the market , you can decvide what your offer should be. Alot of people think they can really lowball the offer . You can try , but the banks have done their homework , they know what the poperty is worth and are not going to accept a ridiculous offer . Also , if the appraisal comes in lower than the agreed upon price , the banks may ask the buyer to come in with the cash difference. Because the buyers lender will not loan more than the property is appraised at , the buyer would have to come in with the difference. Most buyers can't afford that. Then the transaction is cancelled. The buyer will get his earnest money back most likely , but will lose the inspection and appraisal fees.
All in all, you are right Tara , the banks pretty much absolve themselves of any wrongdoing , now and in the future. Caveat Emptor , Let the buyer beware.
Thanks again Tara
By Karen Gately Herrick,  Thu Jan 13 2011, 06:22
Great article! FNMA operates just like Number 4.
By John Gillespie,  Thu Jan 13 2011, 06:26
Great information.
By Zaza Pasori,  Thu Jan 13 2011, 06:29
Great article,Thank you Tara
By Phil Swis,  Thu Jan 13 2011, 06:36
Great article and an excellent starting point. I do agree with one of the comments that a Florida buyer can have the rug pulled out from under them at the very last minute and the bank then relist it again. It is worth the effort because there are some outstanding buys available. You just must be very very careful!
By John Kavaller,  Thu Jan 13 2011, 06:37
Well done, informative, a service to the buying public. Stay on it Tara--super job.

Johh Kavaller
Sullivan County, NY Catskills
Realtor and Licensed Sales Agent
By Imran Kazmi,  Thu Jan 13 2011, 06:41
This artical is wonderfull .Helps me a lot
By Sarah,  Thu Jan 13 2011, 06:43
Great to know! My husband and I are looking to buy a house in the spring and I am trying to do as much research as I can so we are not going into the home buying process blind. Thanks again!!
By Edward "Bo" Dennis,  Thu Jan 13 2011, 06:53
As a Florida Realtor and an agent involved with 30 closings of auction purchased foreclosed properties I find it important to know STATE regulations and laws that effect the seller (the bank) and the purchaser. Everytime a State requirement is presented to the bank they modify and thank you for pointing out the state regulation.
By Doug Procter,  Thu Jan 13 2011, 06:58
Great article, with the mindset today so many buyers feel that Foreclosures are the only way to go. I make it a point to explain every possible aspect of purchasing a Foreclosed Home before we ever view these properties as well as a very detailed understanding of Short Sales as well. We as Realtors owe it to our clients to make sure sure they are totally prepared before we ever piut them in our vehicles. I have found that in many instances we can locate a property other than a Foreclosure or Short Sale that may fir their needs without the possible problems at the same or very near the same price.
By Elaine Schuster,  Thu Jan 13 2011, 07:04
We're looking to try and buy next month, so this was very timely and helpful. I learned a lot about contracts and inspections, questions I didn't even know I had. Things are certainly different in this market. We have actually bought five houses, so are somewhat experienced.
By John R Cupo,  Thu Jan 13 2011, 07:10
Nice
By Design Realtor,  Thu Jan 13 2011, 07:11
Great Job Tara!! I will add one tid bit as well.....I ALWAYS tell my Clients right up front.....I equate Foreclosures; To giving Birth!! There is a lot of PAIN and ANGUISH; HIGHS and LOWS; a Roller Coaster Ride if you will....BUT, in the end they will have a wonderful Product, at a fantastic price and soon forget all the pain.....Now, the beauty of sharing this right up front with my Clients .....(who always laugh at first when I share this with them!!).....IS!....... I am able to say: "Remember my immortal words regarding Foreclosures.....IT IS EQUATED TO LABOR!!!!!"......that is all it takes...one little reminder and the Clients no longer grumble while they are actually going through the mess/process!! ...Caveat Emptor....I concurr!!
Annie Morse. Realtor, Myrtle Beach, SC
By Margo Lockard,  Thu Jan 13 2011, 07:13
Good information to keep at the forefront of selecting a property to purchase. Remember, each transaction is unique and provides its own set of circumstances.
By Genevieve Roy,  Thu Jan 13 2011, 07:29
I am actually in the middle of a deal like this right now, and it is a nightmare already!
Good advice though, I'm going to share this article with my buyers!
By Maria T,  Thu Jan 13 2011, 07:30
I find all this information incredibly informative. could you please do a write up on short sales? I see this term all the time and I'm not quite clear on that. being from Canada and looking into buying a property in the US it seems there are many differences in the process. could you also explain a little more in regards to the hidden costs, giving some examples?
By Albert,  Thu Jan 13 2011, 07:30
Thank you all!
For taking the time to make us buyers more aware,only through patience it seems can best results be achieved.
Al Batten
By Savannah Boon,  Thu Jan 13 2011, 07:32
I try my best to encourage my buyers looking for the best deal to move away from bank owned/short sales because the risk/headache completely outweighs the 'discount'. Not to mention, you need a conventional loan at the least to close most of these deals.
In a market where ALL HOMES are competing with distressed properties, it's better to make the wise choice. New construction will get you the most benifits/incentives, but if you've got all your closing costs, resale is another great choice. Seller's are stretching as much as possible to close deals. Great article!!!
By Kristine Collis,  Thu Jan 13 2011, 07:33
Very useful, will forward to my REO buyers.
By Linda A Owens,  Thu Jan 13 2011, 07:36
Thank you Tara for bringing light to the hidden emotional, physical and financial costs of foreclosures. Knowing in advance what might occur helps everyone. Thank you again!!

Linda A Owens
Reliant Realty
Nashville, TN
615-300-1994
By Barbara Murphy,  Thu Jan 13 2011, 07:48
Well-written and so true, Tara. I'm in the midst of one of these currently (agent for the cash buyer), and hoping it will go more smoothly than the last (also as agent for the cash buyer), where the bank held us up for an additional two months while they tracked down the proper signatories and documentation to provide my buyers with clear title. We work with a local attorney who handles the title work to make sure our buyers are covered, and a local state-licensed General and Roofing Contractor who gives our buyers accurate understanding of expected costs to renovate or repair properties that are in bad shape.

Barbara Murphy
Broker, GRI, ePRO
Tartan Properties
http://www.TartanPropertiesFL.com
Serving the Greater Pensacola, FL Area including Pensacola, Pace, Milton, Gulf Breeze, Navarre, Pensacola Beach and Perdido Key
By Linda Jandura,  Thu Jan 13 2011, 07:48
Excellent article. A must read for every buyer who thinks that getting a foreclosure is the way to go!
By Shirley DeMerchant,  Thu Jan 13 2011, 07:49
Thanks! Good information.
By Roberta R. Roberts,  Thu Jan 13 2011, 07:52
Refreshing article, Tara. Good, honest, responsible and timely!

Thank you!

Roberta R. Roberts, Broker
310-383-4886
DRE 0117837
Re/MAX Palos Verdes Realty
CA, 90275
By Hal Hovey,  Thu Jan 13 2011, 07:53
Another great article Tara, you are really super at explaining the facts concisely and accurately. I will definitely share this with my clients.
By Herma Young,  Thu Jan 13 2011, 08:10
Thanks for breaking it down for the Buyer. You went over all aspects of the risk of buying a foreclosure. I think a little more interest should be given toward the Title Policy, because if it is not a clear title and they are buying it as investment property, they will have to see about getting the Title clear and in some cases that might not even be possible. Enjoyed this article.

Herma Young
Bryce Daniel Properties
Houston, TX
832-368-3763
By Ruth & Perry Mistry,  Thu Jan 13 2011, 08:19
Great points Tara.

Perry & Ruth
By Clipperskipper,  Thu Jan 13 2011, 08:24
We always have the seller (bank) pay for title insurance, this protects you in case of any liens out there. In many states (Florida) contracts are written "as is" unless the home is brand new, the one thing you won't be offered is the seller's disclosure, so due diligence is important here by performing a thorough home inspection. If possible deal directly with the listing broker and not a buyers agent since when it comes down to highest and best offer, you won't be left out in the cold.
By Rich Lee,  Thu Jan 13 2011, 08:30
Tara,
Thanks. I've been working with clients interested in REO's.
By Peter C. Fyler, CRS,  Thu Jan 13 2011, 08:37
Excellent primer on foreclosure peculiarities and pitfalls.
By Jeri Creson,  Thu Jan 13 2011, 08:44
Great article Tara! Might I add one more trick of the trade... Talk to the neighbors. I've found that, when properly approached...like for example, going to the home with your clients to view on a Saturday afternoon, there are almost always a few neighbors milling about. They are interested in the foreclosure and who their potential neighbor might be. In a friendly way, I have often approached those neighbors, introducing my clients, and myself and expressing interest in "how do you like this neighborhood?". Without exception, I have found somebody who knew the scuttlebut of the situation, and could offer valuable insight - for example: They stopped making payments after the sewer line failed and all that sewage backed up in the house...or they always had an ongoing fight with their rear neighbor about the dogs left barking all night....etc. Many times, it's the opposite - and the neighbors rave about the street, and welcome a newcomer who is interested in being a good neighbor. Either way, it's a great way to learn things that only someone who lives in the neighborhood would know. I like to talk to a few people, because it's always possible the one person you meet is hoping to scare off other offers, or is the neighborhood grouch! : ) Also, I recommend touring the neighborhood, listening for noise, and other unpleasantries at various times and days. It's up to the foreclosure buyer to do a little detective work to replace those disclosures that a normal seller would have been obligated to give you. And your agent can't do this for you. Nuisance, and levels of what is acceptable is a very personal thing.
By Mavu Jaricha,  Thu Jan 13 2011, 08:45
This is so true! Thank you so much for good information.
By Michael Warren ll,  Thu Jan 13 2011, 08:47
So true! ~ no banks the same in their process. Buyers have a hard time understanding this whole scenerio~ articles like this really help get the word! ~ Thanks
By Stephen B. Mcclain,  Thu Jan 13 2011, 09:06
Well said Tara. I do not think this information can be emphasized enough in todays marketplace. Many of the foreclosure sales are legitimate sales some unfortunately are not. Regardless, the truth is buying a REO is a "pain in the rear" even in best case scenarios. Buyers really need to understand this and as I always preach have backup plans/choices.

Stephen B. McClain, Broker/ Owner
Cornerstone New Home Solutions
By Ann Wilkins,  Thu Jan 13 2011, 09:07
I have sold a lot of foreclosures the past three years. Some banks will reduce price if the inspection reports show a major problem, however, others won't budge. I forwarn clients beforehand that they might have to spend money before the transaction can close such as adding a heat source, fixing broken windows etc.. All my foreclosure sales have closed...knock on wood for the future.
By Suzanne Hamilton,  Thu Jan 13 2011, 09:12
I would agree with you about banks - you need to do everything their way. However, I do disagree with you about auctions. With Sheriff's auctions, you are correct, often no clear title, etc. But with other auction companies it can be a very easy and more importantly a fast way to buy. No disclosures - true, but the bank doesn't give that either. More often than not though, the auction companies give clear title and offer absolute transparency about the price and offer game as you know exactly what your competition is. You have to get everything done up front though, inspection, etc. But you can get a good deal and an easy timeframe. I have bought and sold many properties at auction for clients and when you know what you are doing, it can be a very good way to buy a bank foreclosure.
By Daniel Frishman,  Thu Jan 13 2011, 09:19
Excellent advice. I plan to oass it onto my clients. I have done several foreclosure sales as my gray hair will attest.
By Design Realtor,  Thu Jan 13 2011, 09:22
I would like to comment on Clipperskipper's comment regarding using a Listing Agent vs. Buyers' Agent....
I am a Buyers' Agent and I have been EXTREMELY busy since day one of the decline of this market....I am extremely versed in dealing with Bank Distressed properties....I have even been told by a Leading Foreclosure Listing Agent here on the Beach that I was one of the Best if not THE Best Agents she has ever closed a transaction with, knowledge, expertise, professionalism, etc....and the reason I am pointing this out is....I have a 98% of winning bids average!! So, I do not agree with your statement of using the Listing Foreclosure Agent...plus, that is a Dual Agency and they are extremely limited on what they can offer the Client...and their loyalty is to the Seller/Bank...So, I do not see where that is in the Buyer's favor....I Believe it is in the Best interest of the Buyers...to use a Buyers' Agent who has much experience in this market!!
Myrtle Beach Realtor!
By Dianne McNeill,  Thu Jan 13 2011, 09:30
Excellent article for all interested in purchasing a foreclosure. I want to re-blog this great information. Thx.
By Marie De Los Monteros,  Thu Jan 13 2011, 10:07
Good info. It's very accurate about reading the fine print. In 2010 the bank changed their purchase contract a couple of times through the year. I am already expecting for another change and continue to look very closely at the fine print.
By Heros Hagopian,  Thu Jan 13 2011, 10:16
Good article,
5-th thing the buyers should be aware of, REO's are not arms length transactions so the assessor might assess the property value according to their standards...the property taxes may be higher than buyer expects.
By Geneice McCoy,  Thu Jan 13 2011, 10:30
Most of the things mentioned can and sometimes does happen with any real estate transaction. I have listed and sold several REO properties and some of the positive things I have discovered is that the seller's (banks) desire to sell is consistent and they are not emotionally tied to the property at all, which makes the entire process easier. And, oftentimes first opportunity is given to the owner occupant versus investors. This really helps to build communities. Banks are more willing to finance properties in places that have more owner occupants than tenants.
My main concern is always ensuring that buyers are well informed before making any decisions and that they have their own professional inspections completed. A win-win is always possible.
By Masha Shannon,  Thu Jan 13 2011, 10:33
I'm in the process of buying a short-sale, and while it's a different process altogether, reading these articles is really encouraging - as far as not being the only ones facing obstacles and tortoise-driven timelines and discouragement, that is. Thanks, Tara!
By Rhonda the Realtor®,  Thu Jan 13 2011, 10:34
Excellent information. I appreciated your reference the banks procedures. Some are quick to respond. Some are slow. My favorite section is the AS-IS. This means AS-IS. The bank will not clean up, will not make repairs and will not remove garbage. Although the buyer may want them to, it is not a negotiable area as it may be with other "normal" transactions.
By Barb Fandrich,  Thu Jan 13 2011, 10:49
We've bought and sold about a dozen homes in our 38 yrs of married life, but have never had a situation like we are in now. We didn't go looking for a foreclosure--just needed a home with a shop and found the perfect place last Sept.. (Found out later it had been a foreclosure in 2008 and was off the market while the bank/owner had to settle water rights.) Our full-price offer was accepted, we had no contingencies and asked for no repairs. Went to closing Oct. 4, signed everything, and found out Oct. 5th the bank froze all their transactions on foreclosed properties. They continue to give us extensions while we desparately need a home/shop. They will return our deposit if we want out. The owner, PNC bank in Pittsburg, won't comment. Sadly, we are about to give up and look elsewhere.
By June Havekost,  Thu Jan 13 2011, 11:16
Great article for buyers who want to educate themselves. A couple of points: As a buyer, first and foremost, "choose" an active, experienced, full time real estate agent. An experienced agent "knows" the ins and outs of the process and will not be "surprised" by the twists and turns of the process. Next, the experienced agent will know their buyer: FHA needs an almost "perfect" house unless they plan to do an FHA fixer loan, conventional buyer can buy a less perfect house but needs some money. The agent can direct the buyer to houses that will suit their purpose. Next, title insurance is imperative and so is a home warranty, especially when the house has been vacant for any amount of time or abused.
My personal opinion is that most foreclosures are clearly preferable to short sales. Once in contract, the foreclosure is fairly straight forward, as opposed to the never ending, non responsive waiting for an approval from who knows who, that usually takes 3 to 6 months (and the property may be sold out from under the short sale escrow in the mean time! by the foreclosure department! of the very same bank!)
We've all had horrifying experiences but we've learned from those experiences and are smarter for them--t's tough times but the best possible outcome comes from qualified buyers working with experienced, knowledgeable agents. Thank you Tara!

June Havekost
Davis and Davis
Roseville, California
(916) 652-8880
By Dan Derito,  Thu Jan 13 2011, 11:46
Well said, Tara. Most consumers don't understand the differences between REO, Short sales vs. conventional even when it is explained carefully. Many just look at the asking price and want to negotiate from there.
By Timothy M. Garrity,  Thu Jan 13 2011, 12:03
These are excellent tips. Thanks, Dan.

TG
By Rene Bagne,  Thu Jan 13 2011, 12:10
Great information! Exactly what we are dealing with in the Virginia Beach area right now. That is why I did the training and got the SFR certification. However, it seems the rules are changing daily and every closing is "new territory" when it comes to foreclosures.
By Bethina Flores,  Thu Jan 13 2011, 12:27
Can somebody tell me what's the diferens bet. a shortsell and foreclosure?
By Debi Prosek,  Thu Jan 13 2011, 13:08
Excellent info and so very true!
By Brad,  Thu Jan 13 2011, 13:47
Get your own Title exam done also. Banks only search the time they owned it and offer Special Deeds that wont cover any things that was missed. That is part of the "as is" of the agreement.
By Paul Lacourse,  Thu Jan 13 2011, 13:50
I agree with your article. I list foreclosures for Regions Bank in the Destin/ Santa Rosa Beach Fl area. Their contracts and addendums are black and white and they do not deviate from that. They do however have quick responce time as they want the inventiry off the books. I myself have found a great market in foreclosures and short sales helping people in their tim eof need. Help people and it comes back to you.
By Jose,  Thu Jan 13 2011, 14:47
Any advice on insuring a foreclosed home after closing? What could prevent an insurance company from insuring a home that was bought from a bank? Thank you,

Jose'
By Interested Party,  Thu Jan 13 2011, 15:05
Read through all comments...all good! Will take a crack at answering question about difference between short sale and foreclosure: short sale happens when seller owes MORE on property than home is worth another way of saying sellers are over their head on value of property. Foreclosure means property owners have NOT paid their mortgage payments to bank or other financial institution which has loaned them money to purchase home--usually four or more months behind in making principle and interest payments to lender.

MMB 1-13-2011
By Debbie Prendergast,  Thu Jan 13 2011, 19:17
Great Information!
By Linda Lorenzo - (214) 578-3131,  Thu Jan 13 2011, 22:45
Thanks for the great information. I am bookmarking this to send to clients who inquire about buying foreclosures.
By Dee Campbell,  Fri Jan 14 2011, 02:39
Great information, thank you Tara.
By Anna Magura,  Fri Jan 14 2011, 04:51
I will print this one out for my next REO buyer's, I just closed 3 in December, and this is the truth of the matter with foreclosures. Thanks
By Francesca Patrizio,  Fri Jan 14 2011, 05:01
Tara, I wish I had your brain . . . you are great!
By Tean Wong,  Fri Jan 14 2011, 05:51
Always love your blog. Thank you!
By Kelly Ferraz,  Fri Jan 14 2011, 10:02
Thanks for the great info! I will be sure to pass this on to my REO buyers.
By John Crowe,  Fri Jan 14 2011, 13:54
Good stuff. I'd add a couple of items:
1) Make sure, if you are a buyer, that the listing agent has experience with short-sales; an agent with experience will know things rookies will not (ie sending in the monthly bank statements, paystubs, etc of the seller so lender has current info).
2) Buyer should realize up to four players have a say in the decision: seller, lender or servicing agent (ie Bank), investor (Fannie/Freddie, etc), mortgage insurer.

Good luck!
By T,  Fri Jan 14 2011, 14:22
Very hepful and informative. Thank you Tara. Can you , or anyone with actual experience with a broker or appraiser in California, suggest a broker or appraiser in California to do initially a BPO and later likely a full appraisal on a single family home. Of course we will pay for it. The purpose is to demonstate to lender that the fair market value on a single family home they made the loan 4-5 years ago now has a much, much lower value today. My email is : credc5@gmail.com
By Phillip Baird,  Fri Jan 14 2011, 14:50
Excellent post. I recently sold a relocation company owned home and the process was much the same.
By Jason Feinman,  Fri Jan 14 2011, 14:58
I saw that they dropped the list price to my clients offer price and then finally accepted my clients' offer. Really shady stuff.
By Davidm,  Fri Jan 14 2011, 15:17
I always was under the impression that banks didn't allow you to inspect the property first.
By Debt Management,  Sat Jan 15 2011, 06:11
Thank You for your good info. It is very informative.
...............
Debt Management
By Aaron Mtuanwi,  Sat Jan 15 2011, 19:26
The banks are not desperate to sell any more. So don't expect toooo much of a deal than you are getting.
By Rich Thomas - (240) 463-3706,  Sun Jan 16 2011, 07:27
Nice informative article. Well written.
By John Juarez,  Sun Jan 16 2011, 09:51
Excellent article, Tara.
It was sent to me by a client with whom I am working. Her budget makes it likely that most of the properties that we will look at will be distressed properties. REOs and, also, short sales that at controlled by the bank are subject to the “new normal” in transacting real estate sale. You have reinforced and expanded upon conversations that many of us are having with our clients these days. I am going to save this link so that I can share it with others.
By Oliver Henderson Sr.,  Mon Jan 17 2011, 08:44
A buyer in this market cannot be emotional about this type of purchase. After careful explanation of the foreclosure purchase process, I leave the decision to my client. If they cannot handle the emotional roller coaster I recommend that they not to get involved in this process .
By George K Wolfgang,  Mon Jan 17 2011, 08:48
Good article, number three is particularly important. Good job.
By Robert Brubaker,  Mon Jan 17 2011, 12:11
Y our usual: A great blog! Thanks Tara!

! want to Add two thoughts; 1 Forclosures are considered "commodities" to be disposed of . That's it !
Banks take no more interest in the asset than that. For this reason there is
no wisdom in depending on them for anything . That's one reason the

contract needs to be tight. You would'n't buy commodities and depend
on the seller . You don't do that with REO's .Do the research, employ the
professionals needed to have Title,Condition, and Value all in clear sight.
The information obtained will allow one to reduce exposures and
point the way to a deal yielding useful results. ( see next)

2. Foreclosure is only symptomatic of some of other problems many
times jnvolving the commodity a bank is trying to sell. The investment
required to make such a property an Asset is not the purchase price!
It is acquisition cost + Fix -up +fees,costs ,and legal work all totaled.
If this doesn't come out subtantially below market :"cheap " is not
a "deal" !

BOB BRUBAKER HIGHLIGHT REALTY PALM BEACH COUNTY FL.
By Jan Milstead,  Tue Jan 18 2011, 04:49
Thank you !
By Chris,  Tue Jan 18 2011, 08:36
Tara,
Thanks for another great article.
In light of your article, our recent experience of trying to obtain a REO was horrible regardless of preparedness.
First off, when you deal with big name banks, you would expect a higher level of professionalism throughout the endeavor. Such was not the case in our dealings with BofA.
We had identified a REO we were really interested in purchasing.
BofA owned the place and required we prequal with them prior to submitting an offer.
The property needed renovation so we asked the BofA senior Loan officer for information on a purchase loan and home improvement loan. She mentioned the 203k program very lightly. We also fed the info for a prequal letter, which we found out was never sent to our agent.
The internet being a wonderful thing allowed me to research HUD’s 203k program and eventually find a lender and began preparing our offer and loan.
Back to BofA to make the offer and they explained we now need to prequal through their 203k renovation specialist.
All we need is another simple prequal letter right? This time a 203k prequal letter. We already had our chosen lender as BofA didn’t even take their shot at servicing our loan when we initially contacted them interested in the property.
So upon contacting BofA renovation specialist he emailed me the following……
Chris,
The objective around here on a 203K loan is not to simply waste our time with a pre-qualification. Your mortgage lender called me which is odd in the first place. Are you aware of the benefits you receive here on a 203K loan on a Bank of America foreclosure? I sense that you wish to “use us” for a pre-qualletter and that you might potentially have no intention of giving us a legitimate shot at actually handling the loan, however, I could be wrong.
Signed,
BofA Renovation Specialist (17 years in the business)
So we hit an obstacle, but this is America, we should trust we get a fair shot at home ownership, right??
(What is needed to prequal?)
(Why couldn’t the BofA Senior Loan Officer share our info with the BofA renovation specialist? Modern technology and only a few physical miles between branch locations.)

So I send BofA our earning statements “again”!!
They pull our credit report “again”!
But that’s not all…….
The BofA renovation specialist asks for our tax returns, our bank statements, our asset statements and so on.
Are we putting the cart before the horse??
I expressed my concerns for the zeal when all I need is a prequal letter to make an offer.
I was told I would get my letter……..soooooon.
At this point we went back to the BofA Senior Loan Officer and asked for the original prequal letter, as we were told by the listing agent another offer was being prepared.
Time is of the essence now.
The Senior Loan officer explained she was reducing the original amount of our first promised prequal!!
What just happened??
Clock is ticking……
Monday morning, no promised prequal letter from BofA renovation specialist and no promised prequal letter from the BofA senior loan officer.
We tell our agent to inform the listing agent our offer is being prepared.
By noon Monday we get word the other offer was accepted.
At this point we feel we were slow rolled by BofA.
I contacted both the senior loan officer and the renovation specialist and asked for their supervisors’ contact information to express my concerns. I also asked for their procedure for filing a complaint with BofA as I don’t think this is normal business practice.
That was Monday last week and I still do not have the information.
The BofA renovation specialist has not returned my phone calls (2).
At this point I find myself wondering what is the best course of action to take.
In reality, we were not given a fair chance to obtain what could have been the home of our dreams.
Why?
And is there any recourse?
Let me know your thoughts?
By Jackie Funk,  Wed Jan 19 2011, 08:02
Tara - Thanks for another great article. Too bad I didn't think to stop in and say "hi" when I was in SF. Oh, well, we'll be there again in a couple of months.
By Wayne Weaver,  Wed Jan 19 2011, 09:15
Great info, thank you so much for posting.
By Chad Barris,  Wed Jan 19 2011, 11:13
Very well written - Easy to read - overall great article. Thanks for posting ..
By Christie,  Wed Jan 19 2011, 20:43
Great Post...THANKS! I would like to add:

The buyer or their agent should submit a FOIA request to the municipality the property is in to get any available information on permits issued or inspection violations imposed on the property by that municipality.

We bought a foreclosure last year and hired a contractor to do an energy efficiency retrofit and other work. Unfortunately he didn't pull sufficient permits for the scope of work being done. Our Village imposed a Stop Work Order citing several unresolved failed inspections from work done on the property PRIOR to us acquiring it, the most egregious problems being electrical and some plumbing. So far we've had to spend $10K we hadn't budgeted for to satisfy the Village enough to get passing inspections...which are not only desirable for our own health and safety, but will also come in handy when we eventually go to sell.

We still would have bought the house, but having known about and the nature of these failed inspections would have helped us tremendously in our negotiations with the Bank. Plus, we definitely would have approached the rehab project differently to more efficiently incorporate the work required by the Village.

Christie Day-Gee
Oak Park, IL
By Lisa and Goran Forss (Broker),  Thu Jan 20 2011, 17:08
We list and sell bank owned properties and what you say rings true. Good points!
By Helen Oliveri,  Fri Jan 21 2011, 14:14
Great tips to keep in mind before purchasing any foreclosure.
By Carmen Di Biase, GRI,  Sat Jan 22 2011, 07:31
I've been involved in a number of transactions where the bank has either authorized a small amount of work to be done, as a result of a codes and violations search, or given a credit. All were under 1K.

My latest surprise was payment of the "per diem" fee. While it was always in the contracts, no bank had previously enforced it. It cost my buyer client and additional $1800 for delays caused by her mortgage company. Be very careful about the on or about closing dates, the bank may hold your client to them or force your client to pay; both perfectly within their rights as written in the contract.
By John R Beavers,  Tue Jan 25 2011, 06:03
Always expect the unexpected when trying to buy a foreclosure and DO NOT underestimate the stupidity of some asset managers.
By Tim Terpening,  Tue Jan 25 2011, 06:08
Wow! This is great info! I'm going to provide a copy of this to every buyer i work with who is interested in buying a foreclosure property.
By Greg Haraksin,  Tue Jan 25 2011, 06:08
great article.
By Will Rogers,  Tue Jan 25 2011, 06:11
Perfect info from everyone! I am processing a short-sale now and so far so good, but not holding my breath, only holding my client's hand!
By Sharre DaCosta,  Tue Jan 25 2011, 06:16
This is a great article, Tara! Thanks for sharing:). Great tips to keep at arms length when showing foreclosure properties.
By Beth Sand,  Tue Jan 25 2011, 06:21
Excellent article!
By Blake Smereczynsky,  Tue Jan 25 2011, 06:32
The average buyer should beware when buying at auction! The pit falls are too numerous to mention. I would recommend people buy "Bank Owned" so they have the protection of the As/Is contract and inspection rights!

Find Tampa Bay area Bank Owned homes at http://www.floridachoicehomes.com/
By Suzette Gray,  Tue Jan 25 2011, 06:55
Absolutely uncertainty in the process. Tara, thanks for your candid and practical advice. Being prepared and setting expectations at the onset is key to avoid huge disappointment. In perspective however, could be a very good experience and opportunity.
Suzette Gray, Broker - Charlotte NC
By Bruce Lynn,  Tue Jan 25 2011, 07:00
Great info.....right on track. These often cause the buyers heartburn on what they thought was a great deal. In my opinion if you're only getting 10% off retail, the risks and headaches and often the extra expenses and timing just aren't worth it. Especially if you live in the home.

Bruce Lynn, Realtor- Dallas, TX
By Larry Tollen,  Tue Jan 25 2011, 07:00
Excellent information. I regularly help Buyers with foreclosure sales and you have covered all the important information every Buyer should have succinctly. One last thing, in my opinion having been involved with both foreclosure and non foreclosure real estate sales for more than 20 years, Buyers should realize that given all of the above, that the majority of foreclosure sales aren't the bargains they may believe them to be. Most are fair deals given the work that often needs to be done. 10-15%, of the time, the deals are excellent and 10-155 of the time the Buyers fail to account for all the work that is needed.
By Chad Barris,  Tue Jan 25 2011, 07:02
Great Info! Enjoyed the post
By John Crowe,  Tue Jan 25 2011, 07:16
Nice tips. I actually had a bank repair damaged sheetrock in a deal last year. They added a few additional items as well, which was nice for my buyer. The key there was the property had been available for four months. The rule is still to ask - if you don't, you'll never know what the bank was willing to do.
By Kenny Tan,  Tue Jan 25 2011, 07:16
Very informative on purchases of bank-owned properties. Hey, if you want their properties, you take them on their own terms. Banks are not your ordinary sellers! There are certain risks you take in exchange for lower than fair market price (you think) - no different than going to buy properties at trustee's sales. At least you get a chance to view the inside of the house before you decide to make offers.
By Greg Alkema,  Tue Jan 25 2011, 07:17
This report only scratches the surface of the problems with foreclosed properties, especially if MERS was involved and the NOTE was not transferred properly. And, as a result of new information I've obtained (http://www.GregAlkema.com) the last couple of months, I will am refusing to sell foreclosed properties.
By Ruth Zeiss,  Tue Jan 25 2011, 07:19
I was working with a finance company called Quantum Servicing on a multi family short sale in Waterbury, CT. I got a buyer who was willing to pay what the bank wanted, I got the 2nd lien holder on board for a payment of $3000, and I got the seller to pay his water bill. One day, while in the house next door, I looked at my listing to find a family of squirrels had taken up residence under one of the balconies. I notified the finance company and the buyer. I was told by my contact at Quantum that they would allow me to find a trapper to remediate and that I had clear to close. That was the same day Quantum foreclosed on the property. They then waited a month and listed the property for $100 less than my signed contract. A week later they dropped the price to $20,000 less than my contract. The property is still unsold and instead of a short sale, my client and the 2nd lien holder now have a foreclosure on their credit reports. I think Quantum foreclosed because once they owned a foreclosure they didn't need to disclose the squirrels, let alone pay to remediate them. Oh & they stole my lock box by removing the door knob from the front door, leaving a gaping hole in the door.
By Odalys Bekanich, GRI, TRC,  Tue Jan 25 2011, 07:22
Great article! I'd like to add something that I come across most of the year here in the State of Connecticut, Properties that have been "winterized". This is when to prevent frozen pipes, the water is shut off in the property and anti-freeze is poured into the drains. A buyer who wants a complete and thorough home inspection has to have the property "de-winterized" and then " re-winterized" once the inspection is done. This is an added expense for the buyer.
By Laura Giannotta,  Tue Jan 25 2011, 07:23
I'd like to add or interate that the deal could fall apart with a title search. I've had several buyers walk away because the banks are slow to correct and investigate title defects.
By Vicki Woody, Realtor-ABR,  Tue Jan 25 2011, 07:30
Great article Tara...Very helpful and something great to pass on to clients. I also loved all of the great comments from these agents.
By Frank Gleason,  Tue Jan 25 2011, 07:43
Very accurate scenarios. I wish more of the buyers could understand whats involved in the foreclosure purchase proceedings. You are so right about the "Bank".
By Kenny Tan,  Tue Jan 25 2011, 07:51
I will also add a fourth to the 3 concerns that buyers of foreclosed properties may have - good title. Before the Massachusetts Supreme Court came down hard on US Bank and Wells Fargo two and a half weeks, getting bad titles from banks' REO sales was an unthinkable possibility. Well, not anymore, especially if you're in Massachusetts.
By Sonya Leonard - Lake Norman NC,  Tue Jan 25 2011, 08:00
Great information for buyers. I feel like I say the same thing on a daily basis but education is the key to a smooth transaction.
By Yvonne Wilder,  Tue Jan 25 2011, 08:27
Gee, interesting comments, and lots of them! Regarding the failed inspections on prior work permits: your attorney or you should have hired a competent title company and that would have shown up in the municipal portion of the report - at least that's what happens around these parts.
You mentioned that the banks rarely do repairs. I had a deal about 1.5 years ago, a huge old house that had been mostly renovated, but had some issues like the roof and mold from a roof leak that we took into consideration when making our offer. When our licensed inspector reviewed the property, we discovered a water leak that was not evident and should not have been there. The bank had contracted two separate preservation companies and neither winterization was properly done. The bank paid to have the repairs done (several thousand dollars by the time the sheet rock and pipes were all fixed) and, I presume, sued the preservation companies for the cost of repairs. Which is as it should be.
By Rossmery Mosquera,  Tue Jan 25 2011, 08:46
Great article,Thanks for sharing Tara. Great tips...
By Kelly O'neill,  Tue Jan 25 2011, 08:49
Good information for buyers. Just closed one with an out of town Title/Escrow company 3 weeks late. Paying all the closing costs to deal with local companies can save time, money and headaches. Education is the key to a smooth transaction.
By Rob Graham Real Estate,  Tue Jan 25 2011, 09:21
Fair information, yet in my experience I have had little difficulty dealing with banks on REO's. I would much rather an REO then a short sale.
By Rhonda Thompson,  Tue Jan 25 2011, 09:59
True that!
By Brian Halstead,  Tue Jan 25 2011, 10:05
Hi Tara,

Good information well package and presented really love this, Tara speaks no evil, these are all factual and my next buyers will be grateful to have them.

Thanks.
By Lender- Dean Wegner,  Tue Jan 25 2011, 10:20
http://www.lifeafterforeclosurethebook.com Life After Foreclosure is filled with strategies for managing the legal and emotional fallout of a foreclosure or short sale. The life changing event of foreclosure holds a power that, when utilized correctly, will lead to greater financial security and a more empowered life. A must-read for anyone who thought it would never happen to them, this book shows how you’re not alone and that you can thrive again!
By Marvin Von Renchler,  Tue Jan 25 2011, 10:57
I read through this and was sure someone would mention the possibilities of LOSING a property after buying it but no one did. Some states have after auction redemption periods. Also, because of many new laws and lawsuits, a sale can be reveresed well after you have purchased it and even put money into it. I would rather play with rattle snakes than buy at auction in California, especially as a licensee. Anyone want to comment on this?
By Ann Francis,  Tue Jan 25 2011, 11:38
I LOVE the explanation/example about why a bank might lower the price of a house and then turn around and offer it for the same price that they previously rejected. Sneeky, but smart, if I do say so myself.
By Sharon Vest,  Tue Jan 25 2011, 12:01
To repeat, Right On Tara! You explained it so well. I will be sharing this with buyers many times in the future.

I have had buyers or even their agents believe that I was not being truthful when advised that the banks don't have to play by our rules. Our time lines mean nothing but their time lines can be set in stone! My last experience involved a situation where the asset manager was ready to pull the rug out from under a buyer who was having a delay in obtaining his financing, primarily due to the bank's slow response time. Then the issue came up regarding a cloud on title where the bankruptcy filing had not been properly resolved so more delay. Oddly enough I had discovered this issue early on in the listing process and was assured by the asset manager that it would be taken care of right away..... Not!

Something buyers fail to grasp is that even though the bank has "accepted" the offer and sent out their addendum without signatures, they are not committed until the buyer signs and returns this addendum and the REO bank's authorized representative has signed it as well. So another offer can come in which the listing agent is required to present and the bank can accept that offer, it doesn't matter which offer came in first.
By Joni Shiraishi,  Tue Jan 25 2011, 12:17
I agree with this article. I tell my REO buyers to expect counter offers from the bank that are not
fair or reasonable, but if you want the property enough, you just have to bite the bullet and get through
the transaction. I can't stress due dilligence on the buyer's part enough.
By Wayne Pruner,  Tue Jan 25 2011, 14:04
This is good information that all Buyers should be aware of. REO's are not "normal" transactions. Banks do pretty much what they want.
By Nancy S. Hill,  Tue Jan 25 2011, 15:26
Many aspects of your article are true. The banks seem to have no system and sometimes their decisions appear to bear no common sense. However, I have to give them credit as they know nothing about the property, community or local issues in or around the home. They are selling the home with only the information supplied by the REO Broker. Great information and will help many to understand that the complications are real. http://www.BestKingCountyRealEstate.com
By Edwin Miranda, CRS, GRI, SRES,  Tue Jan 25 2011, 15:48
This is great information. I have been selling foreclosures for more than 25 years, each Bank is different. Inspections are very important. I'm in Tulsa, OK if anyone needs some assistance. Thank you again for sharing this information.
By Ulice D. Lance,  Tue Jan 25 2011, 17:00
Very good informative info for Buyers interested in purchasing foreclosed homes. Any creditable knowledge prior to earnest money deposit is great! Ulice D. Lance serving the Columbia South Carolina area.
By Allison Butler,  Tue Jan 25 2011, 18:14
Great article, thanks!!
By Evelyn Gordon,  Tue Jan 25 2011, 18:21
Super super advice. I have had that experience, all of the things you spoke about. Hope potential buyers read this information. Thanks
By Kathie Shandro, ABR, CRS, GRI, SFR,  Tue Jan 25 2011, 18:55
Great advice, Tara. I have found that when Denver real estate REO buyers invest in foreclosures, it is especially important to have a top-notch home inspector on their side. I also advise my REO clients to purchase a million-dollar umbrella on their homeowner's insurance policy, especially if they're entering the fix-n-flip industry. http://www.Denver-HomesForSale.com is a premier resource for Denver REO real estate listings.
By Sandy Obendorfer,  Tue Jan 25 2011, 20:19
Great article- sums up all that I have told my Buyers about foreclosures. (Its very much the same process with Short Sales as well. )

Another important point is that: Unfortunately, few Buyers have the resources to go 20% down (conventional financing) or an all cash deal. So, the very fact that these properties are "as is" makes it difficult for Buyers to get no and low downpayment VA and FHA mortgages. (These types of Gov. backed loans require the sellers perform and pay for any repairs that come up on the buyer's lender's appraisals.)
Although on very rare occasions with the "AS IS"-I've too, had a very few successes with eleventh hour bank approval with payment for a few FHA required repairs.


I've found the best options for low-cost & cash strapped buyer financing, can be: FHA Streamline 203 (K) loans, and/or sticking to those rare properties that seem unlikely to have anything that would need any FHA lender required repairs . (I always insists that the Buyer's inspection contingencies begin after we see the appraisal report (listing the required repairs.) Few banks will accept VA and FHA financing on their foreclosure and short sale properties because of the required repair issues.

Although the shining exception is HUD (properties owned by the FHA) where Buyers get preferential treatment as owner occupants. ( I have seen even thousands $$$ lower bid for a Buyer who's going to live there- win over an investor Buyer who bids much more.) Some HUD bids never open up to investors.)
I've done a few HUD deals, and I'm not an expert, but it seems HUD that has already done the FHA appraisal prior to offering it up for sale, and it lists the required repairs on their website. It takes the guess work out of what's required. And (sometimes) HUD will pay licenced contractors to do FHA the FHA repairs. ( You know I have to say that an FHA or VA appraisal is not a substitute for inspections!)

HUD bids are done online and are a whole other animal for sales contracts, having very strict rules that must be followed to the letter. However, they can be great deals for qualifying buyers to own a foreclosure home.

Cash is King in purchasing foreclosures and Short sales. So along with patience and risk, there is also financing to be taken into account before deciding to buy a foreclosure property as well.
By Wellington Mhaka,  Tue Jan 25 2011, 21:31
thanks for the fully fleshed info
By Tom Inglesby,  Tue Jan 25 2011, 21:34
I will keep the article and pass it along since it is so simple and so I will not forget anything that I usually try and remember. Thanks, Tom Inglesby
By Karen Haas,  Wed Jan 26 2011, 12:52
Couldn't have said better myself! Thanks for sharing
By Chris Lengquist,  Wed Jan 26 2011, 16:04
Foreclosures are a slightly different beast. Great intro to the un-educated.
By Gerard J. Carney,  Thu Jan 27 2011, 08:21
Great Blog, read it well buyers and understatnd what it says, it can save you a lot of financial headaches!
By Molly Thompson,  Thu Jan 27 2011, 11:50
Great Article, many good comments... I've been buying Foreclosures since the early 90's and things are much more process oriented now and different banks have different processes, one size does not fit all. The one issue I have not seen addressed here is WATER... for rural properties with wells or shared wells, it's important for buyer's to understand water quality, quantity and associated maintenance costs. Many small communities in Santa Cruz/Monterey area of central coast CA have shared wells and back due fees that banks ignore. Listing agents may not know or may not share info... talk to the neighbors to get the scoop. http://www.MollyThompsonHomes.com
By Willie Bush,  Thu Jan 27 2011, 19:36
I am glad I read this article. I now realize I am an expert in foreclosures, and did not know this before. I have not closed hundreds of foreclosure properties, but the ones I have done were done with the due diligence you described. I am fortunate to have a background as an architect so when viewing a property I have a keen eye for detail. It is amazing how much "cover up" instead of actual repair I have seen while viewing these properties. I have done many walk thru inspections over my 20 year career as an architect and can detect may problems without the assistance of an inspector and know to steer my clients away from a property when I can determine the cost of the repairs plus purchase price will exceed their ability to pay. I am also a certified BPO professional and understand that process. Inspections are VITAL! Very good article Tara.
By Alexandra Fincher,  Fri Jan 28 2011, 14:17
Great Article, and thank you for your time.
By Natasha Nikolaeva, Realtor,  Sat Jan 29 2011, 18:20
Excellent article Tara- nice to have it in writting to pass to my clients on top of the verbal explanation..As I've been saying all along that the written word on paper will never die :)
What I find to be very helpful is to gain as much knowledge as possible about REO property while waiting for bank's acceptance which might take a week or even longer. It involves some leg work: such as going to the local county, talking to neighbors and if possible bringing your professional inspector to take a quick look at the property. Even if your offer won't get accepted in lieu of multiple offers - it'd still bring you and your Buyers closer as they'll appreciate all the extras and a hard work you've done for them.
Thanks again Tara!
By Amy Mooney,  Sat Jan 29 2011, 18:53
Great article, Tara! A great resource to share with buyers!
By Sean Kimbrough,  Tue Feb 1 2011, 09:17
WOW! What a hot topic, and for good reason given the current buying/selling enviroment.

From an insurance point of view, once the "as-is" contract is accepted and moving forward through the bank approval process, insurance companies are now asking if the property is being purchased as a foreclosure. If "yes", the standard carriers (State Farm, Travelers, Farmers, Allstate) may decline coverage due to "as-is"/delapidated condition. The buyer needs to be forthcoming with their insurance agent in order to place the proper policy on the property without worry of decline. Of course, with increased risk of loss comes a higher premium. Always happy to answer any concerns you might have regarding coverage issues in todays real estate enviroment.
By Teresa Butler,  Tue Feb 1 2011, 09:48
Great article!
By Rose Essy Group,  Thu Feb 3 2011, 17:38
Thank you Tara, Great Article , Great Research, will help buyers and will save them financial troubles. We really do need to hold there hands every step of the way.
Rose Essy, Vail Co
By Mott Kornicki,  Wed Feb 9 2011, 05:28
From the first glance- buying an REO looks like a super deal. Usually it is. Buyers need to have the property inspected! Virtualy Always- Lenders sell "AS-IS", Where Is. Signining a unilateral contract can also be a disadvantage. Have an attorney and experienced agent on your team!

WATERWAY REALTY, REALTORS
By Brek Schutten,  Wed Feb 9 2011, 11:48
Great information. When my wife and I bought our first house (before I was a real estate professional) we got hit with both ends of the Title Insurance. It was a foreclosure and we were not well informed of what title insurance was when our agent handed us a paper that said "Buyer to pay all Title Insurance." This would have been nice to know before we got to the closing table and found out that they were expecting us to pay $1,500 more cash to complete the transaction. I was unhappy enough with this situation that I decided to become a Realtor to help prevent this from happening to others.
By Heather Speed,  Wed Feb 9 2011, 12:55
Great article and as REALTORS, it is our job to keep our clients informed about the process!
By Donough Forde,  Sun Feb 13 2011, 20:28
Good article, you really highlight the necessity of communication with clients.
By Kaira West,  Sun Feb 13 2011, 22:00
Thanks for posting this, Tara. It is true that so many precautions need to be taken when buying a foreclosure, and this article is a really helpful reminder.
By Bill Patterson,  Thu Feb 17 2011, 09:29
Terriffic post!!
By Eric,  Tue Mar 1 2011, 11:30
Great article and helpful to those of us going through the experience. However, I can't believe that this nonsense by the banks is just accepted as their business as usual. Where are the regulatory agencies? This type of behavior is unethical, illegal for other types of businesses, and overall very harmful. Where else can you advertise falsely, mislead customers, and not adhere to industry standard practices and laws? We made a cash offer on a REO, and have waited over a month for the sellers' signed contracts. Disgusting. We will be making a big deal about this, should things not pick up. This is not fair business practice. It is this kind of nonsense that lead to the mortgage problems in the first place. Then the Robo-signings fiasco. Who's minding the store here?

So, the weak response is to say that we can withdraw our offer and buy something else. The problem is, we missed out on other great opportunities, since we were told that our offer had been "accepted". It has been over a month now, that we've been told that our deal is awaiting "Sr. Mgmt. approval". Their on-line offer processor, Offer Submission (a company that claims to expedite REO deals), told us that we could expect sellers' signed contract within days. This is a circus that needs to be investigated and changed. Mindblowing to rational, professional people.
By Terry,  Fri Apr 22 2011, 16:07
ATTN: Paul Lacourse: I recently viewed Regions Bank contract on a house the bank owns in the Sarasota area. Regions requires offers be made on their form. If I'm reading it correctly you would have not have inspections until after the offer on their form. But I don't see that you could withdraw the offer without penalty if problems are found on the "as-is" sale. For example, let's say the pool needs very costly repairs. Can the offer be withdrawn without penalty? Am I missing something here?
By Phill & Theresa Slocum,  Sun May 1 2011, 13:29
Great Information! Thank You.
By Lake Placid Homes,  Sat Jun 18 2011, 02:11
Great article, And this is the great information, I think This is the Great Research, will help buyers and will save them financial troubles. all of the things you spoke about. Hope potential buyers read this information. Thanks for sharing your information.
Adirondack Rentals
By Paul P.,  Thu Dec 29 2011, 11:37
Really well-done article. I am renting fron a newly-bankrupt owner, the home now in foreclosure. If the price is right, I'll do my best to follow your guidance and buy it....
By Arizonabankruptcynow,  Thu Aug 2 2012, 09:54
This was some of the best information that has helped me thus far. Great insight, thanks!


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By toowolfes,  Wed Sep 19 2012, 12:22
Great articles, getting ready to jump in the market. I am in a lease purchase agreement, this home has a lot of mold under the house, a 10' wall in a bedroom with mold between sheetrock and siding. All I found out has been there for over 13 months. I have lived here 13 months. Will I have to purchase this house anyway? Right now not sure of the type of mold. The owner did not tell me until last night that the home had mold before, nor about the cracked rafter we found. Been told I have a good case to get out but I put $5000 toward this and another $200 per month of my rent for 13 months, Would I have a good chance to get my money back also? Henrico, VA
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By Voices Member,  Fri May 31 2013, 13:48
You are always so consistent and clear with your articles, Tara! I love them!

David | http://www.abcwildlife.com/CHIPMUNKS.html
By Voices Member,  Wed Jun 19 2013, 14:33
I am going to avoid these traps like the plague! Thank you, Tara!

David | http://www.moncadawindows.com/en/
By Voices Member,  Fri Jun 21 2013, 12:47
Tricks and traps can be difficult to work around but I am happy that you have detailed every aspect of orienteering the real estate field. Keep up the great work!

David | http://www.gracecommunityschools.com/
By thiagodaluz7,  Tue Dec 3 2013, 13:28
Great article, these guidelines are excellent. I've seen a lot of nice foreclosed homes in Solana Beach, but there's always that suspicion.
Thiago | http://www.avantisandiego.com/search-homes/foreclosures/

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