After a series of winter-like storms rolling through our corner of the world, the latest in a stream of “hidden costs” associated with the purchase of bank owned foreclosure sale transactions came to my attention. Working with a lot of first time buyers who often work very hard to come up with their required cash contributions to purchase their first home, I’ve learned to be diligent in watching their costs so they know going in to their first home purchase exactly what to expect. In the past couple of years, as bank owned foreclosure sales became more prevalent in our area, there are several issues that have come up (I won’t talk about the obvious “as is” provisions the banks have on their REO transactions since they have not occupied the properties) here are some that have come to light:

• On Fannie Mae owned homes, a provision of the Fannie Mae Purchase Addendum to their accepted contracts is that the buyer pay certain escrow/title charges that are "usual and customary SELLER charges". These charges equate to about $700, which can be quite a burden for the unprepared buyer who finds this on their Estimated Closing Statement vs. their initial Good Faith Estimate of closing costs.

• REO agents for bank owned foreclosure homes will “winterize” a property per the bank’s request. Often times, a buyer’s inspector shows up to do the whole house inspection, only to find they cannot do their job and need to come back. Because this has become more prevalent, these inspectors are charging for their time as well as their expertise. This just happened on one transaction where the whole house inspector had to come back after the Fannie Mae REO had been “de-winterized”, and the buyer was told they will be charged the $150 to “de-winterize” and “winterize” again. This process took place before the appraiser was scheduled in to do their inspection, and guess what? Another $150 AND the $50 re-inspect fee the appraiser will charge, even after the appraiser asked the real estate broker if all utilities were on at the subject property so they could do their job. $350 of unnecessary, undisclosed charges to the buyer.

• A first time buyer was interested in purchasing a home that backed to a creek, one that was dry and overgrown at the time the buyer decided to make an offer on this bank-owned foreclosure home. Although the need for flood insurance was not listed on the MLS listing for this property, the buyer’s very diligent real estate broker knew that the property was located in a flood hazard area. As it turned out, a very expensive flood hazard area, as the flood insurance premium for this property would add $1,200 per year to the buyer’s costs.

Caveat emptor is Latin for "Let the buyer beware."

Buyers - choose your professional representation CAREFULLY!!!!!

See you at the closing table!