Best advice is to seek the assistance of a Realtor with REO experience & they can guide you.
The bank doesn't "know" anything about the property. They just made a credit decision. They have limited disclosure requirements and the oness is on the buyer.
That being said - you need a rockin agent to help you with the process!
Also, remember on bank property that the bank has their own contracts which skew everything to their favor. Make sure to know what you are agreeing to before you sign.
Lastly, REOs are sold "as-is". You as the buyer are expected to do all the due diligence you need to be comfortable with the asset you are purchasing - otherwise it could easily turn into a liability!
Rebekah Owen, MBA
So the question of unpermitted construction is an issue in any kind of sale. If the bank owns the property they will not disclose if there is any unpermitted work unless they know about it, which they generally do not. Many cities have therir permit histories on line and you can just go to the city's web site and check for permits. If they are not online a trip to the city will be needed.
The problem with unpermitted construction is that if the city comes to your house to inspect something, say you are putting on a new roof, or remodeling your kitchen, and they see unpermitted construction they can make you tear it out, or some cities will allow you to have the work inspected and permitted after the fact, if it was done correctly and is within city guidelines for setbacks etc. If you have a whole room that was added on without a permit and the city says tear it down, you have to tear it down.
Sellers need to disclose if they know of work done without permits, but banks do not, so it is up to you. Personally I think buying a house with unpermtited square footage is a bad idea, whether it is forclosed or or a normal sale.
If you want to learn a litle more about foreclosures and short sales you cna go to my web site http://www.marcymoyer.com and click on the link Distressed Property Sales.
If you buy a home, you assume responsibility for the future of the home. Additions without permits are very common in foreclosed homes particularly in distressed areas like 95122, 95111, 95127. Also you see a lot of garage conversions to provide housing (without permits). There is a foreclosed home right now on Dawn Drive in Sunnyvale 94087 where there is an entire extra home on the property built without permits. Banks do not like to make loans on unpermitted areas. One or two small rooms may be overlooked but extreme additions without permits can get red-tagged and change the investment value of the home.
I'm in the same camp of bringing a licensed contractor to check out a foreclosure prior to writing an offer. I have also had clients have inspections prior to submitting the deposit check, but after the offer is verbally accepted. There is usually a window of 4-6 business days after you find out the offer is going to be accepted but before you have it in writing. Within that window, you probably have not submitted your deposit check. That's a good time to get some inspections done.
Unless you know what you are doing, I would suggest avoiding foreclosure sales. In the current market there are enough well priced homes with full seller disclosures that are safer investments.
Intero Real Estate
With a "Foreclosure" sale the terms are normally "AS IS" with the buyer being responsible for determining what is fair, safe, and legal(buyer beware).
We know of buyers that have been accompalied by a licensed building inspector during the showing, in an effort to protect their interests. We like the ideal of doing an inspection prior to an offer. It presents a much safer feeling when dealing with so many unknowns.