What are the constraints for a buyer purchasing a Bank-owned property (not short sale or auction), compared to buying a regular property?

Asked by Rewrite28, Oakland, CA Sun Mar 3, 2013

My understanding is that the properties would be as-is, but can the buyer ask for termite reports?

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, ,
Tue Mar 5, 2013
Actually all things are negotiable.

Be sure you ask for a termite inspection and repairs up front if it is at all possible that your lender will require these repairs. In other words unless you are paying cash or getting a hard money loan.

These lenders are a real pain, they want to hold you to the letter of the contract, while expecting to not have to live up to anything on the contract themselves.

As far as other repairs, the problem is that the realtor many times has to pay for those up front with no assurance that they will get their money back anytime soon. If the listing expires it becomes very difficult for t he realtor to get his money back and can be thousands of dollars.

So many realtors deep six the offers. This has been a major factor in suppressing property values over the last few years. If there are cash offers with no repair requests the other offers seem to get lost.

There are special loan programs with FNMA to address this.
1 vote
opondomusa, , 10020
Sat Mar 23, 2013
The major constraints in point form are
-Banked owned homes are sold in as is condition
-Banked owned homes have little or no seller disclosure
-Buying a bank owned might take longer than buying a regular home
-When bank accepts an offer it mostly generates an addendum to the contract that tends to favor the bank by altering what was there initially.

Considering these facts, I would prefer buying a regular property unless you have a good Realtor who can help you cover all the loop holes.
Web Reference:  http://www.realtypin.com
0 votes
Mike Stone, Agent, Windsor, CA
Tue Mar 5, 2013
The primary difference is that on a bank owned property they typically shorten the inspection contingency period from the standard 17 days to either 7 or 10 days...usually 10 days. Also they are exempt from certain disclosures since they have never lived in the property, and may not be aware of certain defects. A good home inspector should find most all of the problems you might be concerned with, but there is always the possibility that since the house may have been vacant for some time nobody is aware of certain things such as seasonal items (roof leaks, plumbing drain leaks are only active when in use, etc.) Of course the same conditions can exist on a traditional sale too but it is more likely the seller is aware of them since the house is being lived in.

In short, some bank owned houses are in better condition than traditional sales, and vice-versa so I always say don't be concerned too much with who the seller is (bank, short sale, traditional, flip) but look at each property individually and on it's own merits, as they are all unique.
0 votes
CJ Holmes, Agent, Santa Rosa, CA
Mon Mar 4, 2013
WOW. Every agent/broker so far has missed one of the MAIN ISSUES that might occur when purchasing a bank owned foreclosure: CLOUDED TITLE.

PLEASE be aware of the incredible risk when agreeing to use a bank escrow/closing company. I never allow my buyers to do this anymore. Title reports are now computerized, and it's very easy for an escrow officer to simply delete a clouded title issue on the report (and lie to the buyer). Items like: the bank foreclosed on the wrong party, or the wrong lender foreclosed, or the wrong lienholder foreclosed...

This actually happened to one of my buyers several years ago. We had no way of knowing the title report was a lie. Then, when the buyer tried to resell the home, First American pulled a title report and voila! there was a nasty wrong lien-holder foreclosed item that showed up, clouding the title. At that time, the only thing we could do was transfer the escrow to the title company that had initially insured the policy so the transaction could complete. Thankfully, that escrow company was still in business....

However, that property title will be clouded forever. The lien-holders are now out of business, and what happens if/when the title insurer bites the dust? That i don't know. I do know that we NEVER USE A BANK ESCROW COMPANY. Not on your life. cj cjholmes@cjholmes.com
Web Reference:  http://www.cjholmes.com
0 votes
, ,
Mon Mar 4, 2013
Many times the bank that is selling the property will insist you at least apply for a loan with them. It is highly illegal but they do it anyway. The other issue is that you buy these houses as is where is. In New York that is how you buy any house, in CA not the case. That is why it is so hard to buy a bank owned property with an FHA or VA loan.
0 votes
Russ Ravary, Agent, Commerce Township, MI
Sun Mar 3, 2013
The main differences in buying a bank owned property is that you are going to be signing a bank purchase agreement or addendum agreeing not to sue them for anything. The other main difference is that the bank will usually do no repairs even if you find something wrong. You usually have to decide to buy it or walk away from it if there is an inspection problem
0 votes
Terry Bell, Agent, Santa Rosa, CA
Sun Mar 3, 2013
Every transaction has good and bad points, and as you can see by the long list of good information by professional realtors, there are many issues to consider. The most important thing is for you to find an agent to work with you to explain not only the good and bad issues of a particular house, but how to balance the issues of other homes on the market. At any given time, there may be several bank owned properties, short-sales, regular sales and a variety of major fixers that would need special financing. Having an experienced agent to help you analyze the virtues and possible pitfalls is more than anyone can put into one paragraph, so my recommendation is to start to find that perfect agent to work with (who gets paid by the seller !), and line up a team with a lender and inspectors to help you reach your goal of home ownership!
0 votes
Ruth and Per…, Agent, Los Gatos, CA
Sun Mar 3, 2013
Hello Rewrite

Thanks for your question.

On a REO Property, your agent is going to write up the
Contract called the CAR REO Contract. When that contract is recd
By the bank, they will issue their Contract.

The contract will include Inspection contingencies, unless you write an
Offer with No contingencies. A Bank is not in the business of providing any
reports, they have no issue reviewing the Reports done and Paid by you.

However, in this market, it is fair to say, that if Homes are in short supply and prices are
Rising the Bank is not going to reduce the Offered Price.

Sometimes it is better to have the inspection done before the Offer, and go in with
Your eyes Open prior to making the offer.

In a REO property the Bank feels that you are anyway getting a Good Deal, and they
Have lost enough money, lending to the previous owner in the first place. You have an
Asset manager somewhere in another State, who is likely disposing off 25-100 homes a month.

If the asset manger is a lawyer, then they are tougher.

Also keep in mind that a lot depends on other competing offers, if the other offer is all Cash, or
Slightly lower than yours with no contingencies then the Bank will go with a sure deal.

Trust you know your Market Trends.

Good luck.
Web Reference:  http://www.ruthandperry.com
0 votes
Cindy Davis, Agent, San Diego, CA
Sun Mar 3, 2013
The buyer can technically ask for whatever you want...but generally, the bank will do what it wants to do (or not do). In my experience, there is no termite work offered or very limited termite work offered.

The process of buying a foreclosure from the MLS vs a traditional property is quite similar. The main differences are that with a foreclosure, there is no back and forth counter offer process. Also, the bank will add addendums to the contract that are stacked in their favor.

With banks, you pretty much have to jump through their hoops if you want their property.

Good luck.
0 votes
Donald Mituz…, Agent, Chappaqua, NY
Sun Mar 3, 2013
How right you are 'Skip', getting the offer accepted is frequently the hard part. Many times on foreclosures there are multiple bids and some may be all cash without contingencies and a quick close. Hard to compete with if you are getting a mortgage. The other problem with "as is" is getting a mortgage on a home that may have had work done or expansions without proper permits and certificates of occupancy if applicable.

0 votes
Walter 'Skip'…, Agent, Brea, CA
Sun Mar 3, 2013
The biggest challenge is getting your offer accepted. Given equally qualified buyers and price, the offer with the highest down payment, shortest escrow and contigency periods and least requests (i.e termite clearance) will normally get the deal. As others have mentioned, if your offer is accepted you will receive a bank addendum which supercedes the purchase contract. Make sure you and your agent read and understand the addendum. Finally, you will receive very little in the way of disclosures from the bank.
Good luck,
0 votes
Jen Birmingh…, Agent, Petaluma, CA
Sun Mar 3, 2013
When buying a bank-owned home, one of the major benefits of purchasing from the bank, as opposed to buying at auction, is that you can go through the usual escrow process. This includes an inspection contingency period in wich to fully investigate the property via home inspection, pest inspection and any other investigation the buyer wishes. Granted, this timeframe is usually shortened by the bank during negotiations to between 7-10 days, but it is still in place. This, along with the usual title search and subsequent purchase of title insurance, makes it very similar to a regular or short sale purchase.

At the beginning of the bank-owned negotiation process, there is an addendum to the contract, prepared by the bank, which emphasizes throughout, that the buyer is purchasing "as is". This fact does not negate the buyers right to request repairs/credits or back out for any reason prior to the end of their inspection period, without penalty. I do warn my buyers ahead of time, however, that due to this fact, it can be a lot more difficult to negotiate concessions from a bank at that point but in some cases where extreme issues were discovered, banks have agreed to repairs or credits.

This addendum will also usually contain language which will change, among many things in the standard purchase agreement, how the physical contingency is removed. Most selling banks will make that contingency removal "passive". This means that by the end of an inspection timeframe, if the buyer has not communicated any concerns with the physical state of the property, in writing, their contingency (and right to request repairs/credits) will automatically expire at the end of the inspection period. In a regular purchase, this contingency removal is, by default, always done in writing, notifying the seller that "this contingency is hereby removed". One of the many benefits of working with an agent is having somebody to keep track of those important "action" dates and let you know what is required and when.

I hope this has helped to answer your question.
0 votes
Dave Roberts, Agent, Healdsburg, CA
Sun Mar 3, 2013
The biggest constraint is time. As Larry Tollen said below, most REO property owners (usually banks) ask for a ten day due diligence period as opposed to a more standard 17 days. That still leaves plenty of time for inspections, but you can't dawdle at all.
0 votes
My NC Homes…, Agent, Chapel Hill, NC
Sun Mar 3, 2013
Banks typically do no inspections and this will be clearly stated in the addendums a buyer will receive and have to sign as part of their offer.

The constraints are time (you will typically only receive 10 days in which to do all your inspections and either move forward or terminate the contract and you may be required to pay to have the utilities restored for inspections if they have been turned off) and you need to believe (though occasionally there's some flexibility) that AS-IS means AS-IS

Buyers considering foreclosures should read the link below, I've been helping buyers purchase foreclosures for many years and honestly they rarely are getting the deal they think they are. Thier not getting bad deals per se, simply fair deals with increased risk and aggravation and little upside to show for it.

The advice I give all my buyers is personally I think it makes more sense to buy from a normal seller, where the risk is less and let them know that in the 35 years I've been buying, selling, repairing and flipping homes I personally have never once bought a foreclosure and I'm in the business. Hope this helps you as you consider making a purchase.
0 votes
Thanks so much. Good advice.
Flag Sun Mar 3, 2013
Josh Barnett, Agent, Chandler, OK
Sun Mar 3, 2013
Typically the property will be as is and typically the bank will not have a termite report. Every transaction is different, make sure you have a good Realtor and you will be "A" OK.
0 votes
Thanks :-)
Flag Sun Mar 3, 2013
Scott Miller, Agent, Boca Raton, FL
Sun Mar 3, 2013
Mostly it's the same, but you may have to wait longer. If a normal sale would take 30-45 days, or less if it's a cash sale, shorties can take from a month to a year, depending on how fast/slow the bank moves. Things are moving faster now b/c there's lots less inventory, but you never know once it's in the bank's hands.

Get a thorough inspection.

Another constraint is the arm's length transaction affidavit. You may not be related nor sell this property back to the original owner(s).


Scott Miller
Realty Associates
Boca Raton, Miami Beach, FL
0 votes
Donald Mituz…, Agent, Chappaqua, NY
Sun Mar 3, 2013
The buyer can ask for reports or do their own termite inspection as well as any other type of inspections. Problem is, if you find something the bank probably won't do much about it. The exception may be an active termite problem which they may treat, but not repair any damage. One of the biggest problems with bank owned properties is there may be issues that preclude you from getting a conventional mortgage or sometimes a mortgage at all. Best deals seem to go to cash buyers.

Don Mituzas
Licensed Associate Broker
Douglas Elliman Real Estate
0 votes
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