On an REO Is it legal for a bank to refuse to consider an FHA/VA loan because they don't like the strict

Asked by Glenn, Yucaipa, CA Tue Jul 1, 2008

guidelines even if it nets them the best price. Isn't that a form of discrimination?

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Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Wed Jul 2, 2008

As Tonje pointed out, sellers may choose the offer they want to accept. My understanding is that the only criteria they cannot use in making this choice is discrimination against protected classes. However, they can choose an all cash offer of $100,000 over a 100% financing offer of $200,000 if they like, and that is not discrimination, that is choice. (For legal questions about discrimination you should contact an attorney.)

Perhaps if you understood the reasoning behind banks shying away from FHA/VA loans, you would see why some properties would not even qualify for this type of financing. FHA appraisers must not only give an opinion of value on the property, they must also inspect to insure there are no health or safety issues. Any items they spell out as health and safety issues must be corrected before the loan will fund. So if the heating system is not working, that is a health and safety issue and must be repaired. If there is peeling paint on a pre-1978 home, this might uncover lead based paint and is a health and safety issue and must be repaired. (If you would like to speak with an FHA approved appraiser about the home you like, contact me off line through my profile. I can provide you with a referral or two.)

This is a total 'Catch 22'. The bank won't make the repairs and you should not make the repairs. Imagine going into a home you want to purchase and installing a new forced air heating system in responses to a needed repair spelled out in the appraisal. Then for some reason, you don't end up buying the home. You have now INVESTED THOUSANDS OF DOLLARS in SOMEONE ELSES HOME. You probably wouldn't do it for your neighbor, why would you do it for a total stranger. So if the bank suspects that there might be health and safety issues that would require repairs, and they are selling the house AS-IS, the loan will never fund and they are back looking for a new buyer.

Hope that helps you understand the bank's position. Please know that not all banks take this attitude, especially if the home is in reasonably good shape. I have had FHA loan offers accepted on REOs and closed, with very happy clients. It is a case by case basis, so don't give up. Keep looking for your new home and Dare to Dream.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
3 votes
Keith, Home Buyer, United States
Wed Oct 1, 2008
If you ask me the financial institution, seller, or real person had just spit in the face of every service member now serving or having served in protecting our great nation. The service member has pride in the United States therefore have served or is serving his country. Not many benefits associated with service but the greatest benefit is freedom for all. You can thank a service member for our great country to still be able to speak and keep English as its primary language. As for this not being a form of discrimination, I beg to differ. Thank a service member as you go home after a long day at work and kick back in your easy chair.
2 votes
Tonje Kearney, Agent, Scottsdale, AZ
Wed Jul 2, 2008
A seller, bank or real person, has a right to choose which offer, if any to accept. So yes, it is legal and it is not discrimination.
Web Reference:  http://www.TeamKearney.com
1 vote
Ron Thomas, Agent, Fresno, CA
Fri Jan 20, 2012
here we go again, with 4 year old questions!!!
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Fri Jan 20, 2012
Hi Glenn:

The answer is Absolutely.

State of California an "owner" can be picky with any offer.

FHA/VA loans have property conditions that need to be addressed by the seller or the buyer.
If the seller feels buyer cannot perform then no deal.

Good luck.

0 votes
Shaimartin77, Home Buyer, Yucaipa, CA
Fri Jan 20, 2012
I would agree with you Keith... My husband has served in the military and now we're looking for a house with a VA loan already approved and ready to go... The 2 house we adored and placed bids on was turned down. we had the highest offer on both houses and 1 of the 2 didn't need any work done to it. But we were still placed on the back burner simply because, quoting the Realtor " VA has to many stipulations." I'm glad VA does a good inspection because they want their soldiers and families in a stable home. This doesn't say much for the Realtors who's only job is to rob steal and F**k over hard working American who make it possible for them to be able to wake up in the morning, get into a nice car and not to have to worry about " When will terrorist attack my lil cozy neighborhood?" It's sad and pathetic!
0 votes
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