If I sell my home and it doesn't meet certain codes and standards I will be liable even after the sale. Why aren't banks subject to the?

Asked by Joe, 95350 Tue Jan 17, 2012

same rules? It appears that bank are exempt from liabilities regarding codes and livability issues on the sale of REO property. Does the buyer have recourse to the bank for selling substandard housing? What are the rules the bank must operate under. What are the rules for a homeowner? How and why are these rules different?

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Irina Karan, Agent, Aventura, FL
Thu Jul 25, 2013
Great question Joe!

The simple truth is banks do this because buyers let them.

When making an offer, the buyer signs an addendum that basically protects the bank/seller, and waives many of the buyers' rights. You don't have to buy a foreclosure - it is a choice, and it is a free market. In many cases, a regular motivated seller will sell for less than a bank.

Hope this helps,

Irina Karan
Beachfront Realty, Inc.
IrinaKaran@gmail.com
0 votes
Rocky G.H. H…, Agent, Ripon, CA
Tue Aug 7, 2012
Hi Joe,

It's easier than that...

If you want or somebody wants the home as it is, than they can buy it. If you need or a buyer needs financing for the home, then it's subject to bank approval.

An experienced Realtor will know the constraints and guide you accordingly.

I hope this helps,

Rocky

Rocky G.H. Hawrysz
Prudential California Realty
(209) 444-6610 Direct
(209) 433-2000 Fax
rocky@prucalifornia.com
http://www.TeamHawrysz.com
License No. 01468373
0 votes
Irina Karan, Agent, Aventura, FL
Fri Mar 23, 2012
Great question!

The rules are only different if the buyers of the foreclosed property (REO) agree to the sellers' waiver of their right to a recourse (right to sue). While the original offer protects the buyers rights to a certain extend, after the offer is accepted by the bank, the buyer of an REO property will receive an addendum which he may decide to sign or not to sign. The banks explain this like this: the bank has never been residing in the property and never been doing anything in the house - hence, they don't sign the Seller's disclosure, and instead make the buyer aware of the situation.

If the buyer signs such an addendum, and the bank was upfront about their lack of knowledge on the property, the bank and agents are usually not liable, but the new owner will be (to the municipality they are in and potentially to their future buyer, unless all issues brought to code). As long as the buyers decision to buy is consciencious, both sides are fine (better read the addendum when buying a foreclosure!). Usually, the addendum is so "airtight" that recourse is highly unlikely.

If the buyer finds this situation with the bank unacceptable, the buyer is free to cancel the transaction and move on to purchasing another property.

Yes, things are different for the homeowners...
The homeowner must disclose all work done on the house via Sellers Disclosures, as well as all "material facts" that could effect the value of the property. It's best to provide permits and warrantees, if any, as well as elevation certificate and a survey. The owner sometimes has to bring the issues up to code (probably the best way would be before selling - by inviting the building inspector for a courtesy inspection (if applicable in your city/town)). Or, if the house is sold "as is", an attorney can prepare a contract where the buyer would be taking the responsibility for all the future fines/code/permits issues. However, the deal would have to be outrageously great for the buyer,
as some fines will be huge (triple size), and some liens might have interest growing every day.

With many properties on the market available for sale, such buyer would be very rare.
I say, it is truly best to prepare the house for sale in a way that such issues don't come up,
and the home inspection won't be reducing your bottom line (fixing small leaks, regrouting the tile, fixing a leaky toilet can amount to the price the buyer may not want to pay). However, if this is not an option, fixing these issues yourself after the inspection would be much cheaper for you (instead of reducing already agreed upon price).

Hope this helps!

Irina Karan
Beachfront Realty, Inc.
305-904-2355
IrinaKaran@gmail.com
0 votes
Karen Gustaf…, Agent, Modesto, CA
Fri Mar 23, 2012
The key to selling a home is the the Seller Disclose, Disclose, Disclose everything that they know about the property. If the buyer signs the disclosures and you, as a seller, have been upfront in your disclosures then you don't need to worry. The banks have never lived in the property so their ability to disclose pertinent facts about the property is limited.
0 votes
, ,
Thu Jan 19, 2012
Different sellers are held to different levels of responsibility, not only are banks excempt but anyone who may not have knowledge about problems such as an estate sale. Rentals are also held to a lower standard.
0 votes
Matthew Bart…, Agent, Glendora, CA
Wed Jan 18, 2012
Hi Joe,

You should know that I'm not Attorney, nor am I offering legal advice. However, as a Seller you're not required in California to know the various codes with regards to your home. Nor are you responsible to bring your home up to code for the purpose of selling the home. That being said, you're responsible to disclose any known material fact to the prospective Buyer's in the sale of your home. This includes any code issues that are known to you. Your failure to disclose known material facts is where you will put yourself in hot water after the sale. You should also know that while banks do not have to complete the same disclosure documentation as yourself when selling a home. All banks still must disclose known material facts regarding the homes they sell. In the event you still find yourself having questions, I recommend that you speak with an Attorney who specializes in real estate law. Good luck to you!

Matt
0 votes
Lee Stegall, , 92109
Tue Jan 17, 2012
This is a simple question with a simple answer. Banks don't own the house. They don't live there and they don't make contracts for improvements or whatever activities are going there. The fee title owner or leasehold owner has full use and enjoyment of the property. When title is transferred there is a warrant of title that is given, and this is just that everything you know that you have done to the home or not done, or code violations that you know needs to be known before close of escrow. A bank has no idea of what code violations there are until there is something recorded of record, or the title report shows them, only after taking the property back in foreclosure.

If a bank is given knowledge of code violations, they usually take care of it. I have seen REO properties have additions totally taken away and removed that were in violation, which in turn actually hurt the value of the home.

The banks are not exempt, but it may seem that way. They just don't have advance notice for years like the previous owner may have, and usually only weeks before making decisions.

I hope this answered your question. I've been a Realtor and now more active in Title....32 years. I've seen both sides of this situation.

Lee Stegall
Web Reference:  http://www.sopactitle.com
0 votes
Annette Law…, Agent, Palm Harbor, FL
Tue Jan 17, 2012
The banks have attorneys. Lots and lots of attorneys. The bank puts them to work to create the 19 page addendum Rocky referred to that exempts them from all responsibility and the buyer agrees to hold the bank harmless of any subsequent issues. All the bank agrees to deliver is a clear title.

Now, if you have an attorney, you may find you have other options. These options will come with benefits and consequences. Therefore, you must consult with the legal professional in your area.

Joe, do you think a better process would be for all homes to be sold in exactly the same manner as bank owned property? Meaning the buyer of any home must be able to verify everything at the buyers expense.
Web Reference:  http://www.MyDunedin.com
0 votes
Rocky G.H. H…, Agent, Ripon, CA
Tue Jan 17, 2012
Ultimately it's important that you as a seller disclose all the information. This is for your protection and since the potential buyer knows about the issues before completing the purchase, there shouldn't be any recourse. On a REO/Bank owned home, the bank officials have never lived there and therefore according to the State of California are exempt from the typical seller disclosures. The rules are ultimately the same, its just with REO/Bank Owned they cover these issues with language contained in the Bank Addenda. This language protects them from litigation (read the fine print). It is always separate from the Purchase Agreement and must be signed to gain the banks acceptance. As a buyer when purchasing an REO/Bank Owned home, if falls on you to investigate all the possible issues. Some agents make sure to perform their due diligence on behalf of their buyers and provide guidance and some do not. This is why it's important for buyers to work with a qualified and professional Real Estate Agent.

I hope this helps,

Rocky

Rocky G.H. Hawrysz
Prudential California Realty
(209) 444-6610 Direct
(209) 433-2000 Fax
rocky@prucalifornia.com
http://www.TeamHawrysz.com
License No. 01468373
0 votes
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