What are some of the pitfalls of purchasing a bank owned home?

Asked by Serious Buyer, Kensington, MD Sun Feb 21, 2010

I have heard it can be a great deal. Is there a dark side?

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Carolyn Thom…, Agent, Rockville, MD
Sun Feb 21, 2010
Purchasing a bank owned home has numerous pitfalls. You can submit your offer. The bank will often accept your offer, but ask you to sign their addendum. *** Read this carefully, as the banks addendum often negates many of the terms and conditions of the offer you submitted. The addendum limits their liability and you may be responsible for unpaid taxes or other liens.

Many addenda state that you agree to pay for half the legal fees, should the bank decide to litigate. There is no cap as to what these legal fees may be.

Investors often purchase foreclosed homes, because they are accustomed to the potential pitfalls and weigh the risks.
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Donna Kerr, Agent, Silver Spring, MD
Sat Dec 28, 2013
It's basically the bank's way or no way, however, you may be able to purchase at a price significantly below market value for a standard sale. It really is a case of buyer beware. The best advice I can give is to hire a good home inspector so that you know exactly what you are getting into. My experience is that they love their forms and addenda, but usually work with you in doing the right thing.
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Vladimir Kats, Agent, Baltimore, MD
Sun Feb 21, 2010
Also pls make sure that the title co preparing the paperwork knows and understands the foreclosure process. Title defects are abound these days and unless the title attorney is familiar with them, you might have a big issue down the road. Banks and trustees are overwhelmed these days and it is very easy to miss the right form or a signature. For them it might not mean much but for the future owner of the home whho is going to upgrade it and/or put "sweat equity" into it, it's a big issue. Title insurance will most likely kick in but it's not a fun event. Most of the homes that my clients buy are REOs (it just works out that way) and I've had some properties where in the middle of the buying process, they had to go back to foreclosure auctions because the paperwork was not correct and the title attorney caught it.
Once in a while, the bank will give the buyer an incredible incentive to use their title company. The last time it happend to my client the incentive was close to 2k on 160k home - a good chunk of change. What we did was to go with the seller's title co but made sure that one of my attorney's reviewed the paperwork. Mistakes with titlework, of course, were found but corrected before settlement.
Once again, please make sure that your title attorney is diligent and knowledgeable about bank owned homes.
There are plently of positives when buying REOs as well and I can go on for another 3 paragraphs about those :) Best of luck!
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Colin Campbe…, , Carneys Point Township, NJ
Sun Feb 21, 2010
Biggest pitfalls - time taken to know if you are getting the home-lack of disclosures from seller and legal liability against them in the future.
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Serious Buyer, Home Buyer, Kensington, MD
Sun Feb 21, 2010
Thank you both for your prompt responses and helpful information. True about looking for foreclosed properties first. Many people seem to either look for them or avoid them.
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Bruce Lemieux, Agent, Gaithersburg, MD
Sun Feb 21, 2010
Carolyn gives great advice. Two other comments. #1 working with a bank to get a contract ratified can be a trying process. Unlike a regular resale, these guys work on their own schedule. And, listing agents for bank-owned properties are often poor about providing updates and feedback (not all, but many).

#2 - Homes are truly "as-is". Home inspections are always super-important, but even more so with bank properties. Make sure you know what you get.

One more comment. I often see buyers start their search looking for a bank-owned property with the assumption that these are the best deals. I think that's a big mistake. Look at everything that's available in your in your price range and areas of interest. I've helped buyers get their best deals from motivated homeowners who have a lot of equity in their homes. Buyers can miss great deals when they restrict their shopping to bank/distressed properties.

Good luck.
Web Reference:  http://mocorealestate.com/
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