Home Buying in Bradenton>Question Details

Rwhite856, Other/Just Looking in Bradenton, FL

What are the "dangers" of buying a foreclosure property? What questions do I need to ask?

Asked by Rwhite856, Bradenton, FL Fri Feb 15, 2013

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Buying REOs does provide for risk to the buyer. While you will probably write your offer on a standard purchase contract form, the banks almost always counter back with their own addendums that change a good portion of the contract terms. They typically do not allow any changes to their counteroffers -- accept their terms or move on to another property. I always recommend to buyers that they should have a real estate attorney look over the bank's terms and make sure they understand those terms before signing. REOs are typically sold "as is." You can have inspections of the property but the bank will not make repairs. You will be required to provide proof of funds up front, when submitting your offer.

You as a buyer should not assume that title to the REO property will be "clean" once the property has passed through foreclosure. While it is true that a foreclosure sale will wipe out subordinate liens and the bulk of any problems caused by former owners of the property, it may not extinguish liens of ad valorem taxes or problems that may have been missed when the previous owner bought the property. Banks typically transfer the properties to buyers through a special warranty deed, which limits their liability. They will give you an insurable title but not necessarily a marketable title - there is a difference. It's in your best interest to have your own real estate attorney review the title work before closing.

As someone has already mentioned, condition of the property is often an issue with REOs. Lack of utilities (AC) and maintenance do eventually take a toll on FL homes. Some banks have asset management companies come in and "freshen" up the properties, usually with paint and floor coverings and appliances. Other's don't. When buying an REO you will get the opportunity to do inspections during the specified time period to determine if you want to go forward with the purchase or cancel. You'll also want to make sure you do a final walk through inspection just before closing to make sure the condition of the property has not changed since your inspections were done, since I have heard instances where appliances and exterior AC units were stolen between the inspection period and the actual closing. It is very difficult to sue a bank after the closing takes place.

There's no rule of thumb on what the bank's bottom line is on price. Just as with any other real-estate purchase, you have to look at the recent sales prices of comparable properties, or "comps." You should look at the comps based on current market conditions and write a competitive offer based on that. Sometimes the bank prices the homes really low, and the home will have multiple offers over list price within hours. Sometimes it's priced too high, and you can make a lower offer. Your agent should be able to provide you with comparable sales before you write up an offer on a REO property.

When you make an offer on a REO, the bank's asset manager, not the listing agent, makes the decision on how the offers are handled. When you make an offer on a bank owned listing, even if you are told your offer is being accepted, it is not binding until both buyer and the bank's representative have both signed and initialed the contract AND all riders and addendums. It sometimes takes days or even weeks for the bank to get a fully signed contract back to the buyer's agent. During that waiting period, other offers can come in. Each bank sets their own policy as to how additional offers will be handled - some banks will consider those additional offers, others do not allow the listing agent to submit offers once one has been "accepted."

My suggestion would be to find an agent that is experienced in dealing with the purchasing of bank owned listings that can help you navigate the process. Some agents, like myself, have gone through the process to earn the designation SFR, which means we are Short Sale and Foreclosure Resource Certified by the National Association of Realtors.

Buying a bank owned listing does involve extra time and attention to details, but it can be rewarding for buyers in the end if you do your homework first.

regards,

Diane Christner, Realtor, GRI, SFR
Realty Executives Solutions
Sarasota, FL
cell: (941) 726-7109
http://www.DianeChristner.com
2 votes Thank Flag Link Fri Feb 15, 2013
I want to thank you for taking the time to reply to my questions so completely. I am considering purchasing a condo property in the Sarasota Florida area but I don't believe REO's will be included as part my search.
RW
Flag Fri Feb 15, 2013
The dangers are too numerous to list, but here's a few highlights:


1) undislcosed liens
2) unpaid bills for electricity, water, taxes, etc. Even if you're not required to pay them yourself, expect to do a lot of paperwork to fix the previous owners problems.
3) maintenance - it hasn't been done. Every appliance will probably need service.
4) unpermitted "improvements", nearly every foreclosure in South Florida was illegally subdivided as folks tried to save their homes. Bad electrical, plumbing, construction, etc. is rampant.
5) potential for chinese drywall. (even if it's not new construction, did the owner renovate?)
6) clouded title.

If you need to ask these questions, you should consider finding a buyer's agent to advise you. Buying a foreclosure is much riskier than a regular sale, and you need to make sure the property is enough of a bargain to be worth that risk.
2 votes Thank Flag Link Fri Feb 15, 2013
Good afternoon Rwhite856,

I've been helping First Time Buyers for 23 years as a mortgage professional and I will tell you what I have always told my clients here in New York: If you are a First Time Buyer, steer clear of foreclosures and short sales.

Foreclosures are someone else's headache. The home probably has not been well-maintained and you're a First Time Buyer adjusting to paying a mortgage. Do you really want to walk in the door to someone else's deferred maintenance that YOU will have to pay for? Also, if you're thinking there are deals to be had in terms of lower prices, mostly those "deals" go to professional investors who can pay cash, negotiate hard with a Lender, and close fast.

There are plenty of motivated Sellers with their homes listed on your local MLS. Go find a good Local Mortgage Banker, get prequalified, then find a great, experienced Realtor, and buy the home you want at the price you're willing to pay.

Trevor Curran
NMLS #40140

*If you thought my answer was helpful, please give me a “Thumbs Up” or “Best Answer.” Thanks!
1 vote Thank Flag Link Thu May 23, 2013
Buying a foreclosed property can differ in many ways than other more standard transactions. All offers are contingent on financing and must be accompanied by a pre-approval letter. Some banks require a pre-approval letter from a certain lender, so be sure to read guidelines before submitting an offer. All cash offers require proof of funds with the letterhead of where the funds are being held and the buyers name listed. Actual account numbers can be blackened out, as long as buyers name is easily visible. Write your offer as seller chooses the title company as they have already started preliminary title work on these properties.

All offers must be written offers, on an As-Is contract only Some banks supply addendums in advance, and if that is the case it will be in the MLS as an attachment and should be signed and dated and submitted along with your offer. In most cases, however, the bank addendums are provided only after buyer and seller come to agreement. At that time, the bank will send their bank addendums/counter offer for buyer's signatures. Please note at this point, the bank has still not signed anything, and most likely will not sign until ALL forms have been signed by the buyer. Your offer is considered a pending contract until it is returned from the bank/seller with their final approval. In the interim, all offers that come in must be presented. When signing and initialing a bank addendum, do not alter it in any way or it will be rejected.

The usual time frame for a response to your offer is 3-5 business days, although sometimes a little sooner and occasionally a bit longer. Allow plenty of time for acceptance, and for closing the deal, 30-45 days in most cases.

If you are requesting seller concessions for buyers closing cots, pre-paids, or repairs, make sure those are requested in the written offer, as adding these things at a later date can be very difficult and most times impossible. If you are writing an offer for an FHA or VA purchase, please make sure the property will meet the standards for this type of financing. The majority of the time, repairs are not permitted prior to closing. Ask the lender if they allow the buyer to escrow their own funds for repairs.

Once you have a fully executed contract, time is of the essence. All inspections must be done in a timely manner according to the contract. Should the buyer not be accepting the conditions, written notice must be obtained prior to end of inspection period along with a signed cancellation and release form. Some banks will make earnest money non-refundable after the end of the inspection period. Read your addendums carefully.

Please note that bank owned properties closings are considered mail-aways, because the title companies that are used to close the transactions are usually located out of our general area. Some will send a mobile notary to the buyers agents office to close the transaction and then all documents are overnighted to the title company, but it is not considered officially closed until all original documents and funds are received.

A lot of foreclosures are going into multiple offer situations. Most buyers think that if they have the highest purchase price, they're going to get the property. Often this is not always the case. One of the big things they look at is the timeframe for the inspection. This is a contingency on the contract and the banks want it satisfied ASAP. Instead of the usual inspection period of 15 days, if you can do it in l0 days or less, the better. Another is the timeframe for closing. If paying cash they usually prefer the closing date to be no more than 2 weeks. A conventional loan can be 30 days and FHA 45. Just make sure you are prepared to close in the specified time or you could be charged $100 per day or more for each day beyond the original closing date. Also a larger deposit generally indicates a more serious buyer in their eyes.

Another point is to not go into another month. For instance, if you can close on the third week of the month it’s usually preferred. They usually don't like to close in the last few days of the month because it might have to be extended into the next month. The banks like to close out their books each month and not have to extend. This is especially true if it is the end of the quarter. Lower offers have been accepted because the closing date was the third week in the month.

Let me know if I can help or answer any other questions for you.

Tammy Hayes, Realtor
Re/Max Palm Realty
tammyhayesre@gmail.com
http://www.tammyhayes.remaxagent.com/
0 votes Thank Flag Link Mon Apr 14, 2014
I am gone to buy a foreclose house for 8,900 is this good or what and what should I look for. When going threw the house before signing papers. This would be my first house
0 votes Thank Flag Link Sun Apr 13, 2014
There are several dangers to be aware of when buying a foreclosure property. One I feel most strongly about is “condition.”
The property is in foreclosure for a reason, the owners didn't make there payments. So it stands to reason that knowing there were lousing the property, they didn’t pay for routine maintenance and repairs.

The best thing you can do in this situation is have a quality home inspection. This is not the time to go with the cheapest company, or as I like to say, “A drive by inspection.” You need a fully accredited, licensed and insured home inspector. This will provide you with a written report that will give you a full understanding of the condition of the property. Then you can see what you are getting into and what items you will need to repair to make the home 100%

If you would like to see an example of a detailed home inspection report, there is one on my website. Click Link below to see.

We see and hear of inspectors who are the “Profits of Doom” Overstating and exaggerating issues. A realtors nightmare. I think they do this for several reasons, ego and to cover there behind. This is not good as you may be scarred away from a good deal because of an overstated or exaggerated problem and the truth is most problems can be fixed, but at what price.

We also hear of inspectors who don't check things thoroughly. This is terrible as you may end up owning the money pit.

1. Have a quality inspection.
2. Get a written report.
3. Talk with the inspector and your realtor about the condition.
4. Negotiate a fair deal, considering the problems.
5. Have all repair work completed by Licensed professionals.
6. Live happily ever after

We offer a free consultation with our clients and there realtor, after the inspection report is completed. With our experience negotiating contracts in the building and development, we are uniquely qualified to help you negotiate a fair deal.

You can reach me for a free consultation at (941) 809-2388 or through my website
Sarasota Home Inspections. http://www.hopehomeinspections.com

Good luck.
0 votes Thank Flag Link Thu May 23, 2013
Ann wrapped it up nicely with her closing statement, "If you need to ask these question......"
It is not difficult to purchase a foreclosed home...(.if you are decisive and competitive) but there are risks. You need to consult with a professional and have a discussion regarding your goals and how the existing real estate market fits with your goals.
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Things you must discuss:
1. How will you PAY.
2. Purpose of purchase
3. Experience
4. Resources available
5. Exit strategies
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Then you talk about making a purchase.

Best of success to you,
Annette Lawrence, Broker/Associate
Reamx Realtec Group
Palm Harbor, FL
727.420.4041
http://RealEstateMadeEZ.us
Movie Tour
http://youtu.be/g1H-_ny-Mnk
0 votes Thank Flag Link Fri Feb 15, 2013
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