I just closed a bank owned sale in a little over two weeks and my clients fought the process every step of the way, which lead to a big breakdown in everything. So, should you be thinking about buying a bank owned property, I thought I'd break down the major steps, in hopes that you can avoid problems.
- My clients usually like to look at a lot of properties before they're really ready to make an offer. I bet the average is at least 18 properties. Look at enough properties to be comfortable knowing you're getting a good deal and the right property for you.
- If you find a really good deal, usually other people have too. The listing agents I've worked with have all been fair about telling me if they've got action on a property. It is very common to be in a multiple offer situation competing with other buyers. When that happens, cash can be king, but only if the cash offers and the financed offers are not that far apart -- unless there are issues with the property. If the property is in poor condition, it may not qualify for a loan with out some fixing. A financed buyer may have to be prepared to improve the property before they own it, and without getting permission from the bank.
- So now you are selected as the buyer. You recieve the bank's Addendum which functions as a counter offer, and effectively changes all the terms and conditions of the sale into the Bank's favor. It will typically shorten inspection periods and automatically waive contingencies after the inspection periods, determine who will handle escrow and title and 5-15 pages of other items. If you've ever read one of these addendums it's downright intimidating. But, this is part of the price you pay for getting a good deal. Theoretically, the bank is selling you a property for a price under market, so they are effectively crediting you for the lack of disclosures, the poor condition of the roof or lack of floor covering or whatever. They want a minimum of fuss and they want things to close quickly. So, once this addendum is signed and returned to the listing agent you've pretty much got a deal. Now is the time for you to really perform though.
- In my experience, time periods do not start until the bank delivers a fully executed contract, which may take a little time. I try to make sure that my clients use the time from recieving the addendum to get their financing started, their home inspection scheduled and perhaps done and any other things they feel they need. Once the fully executed contract arrives, monies, often in the form of wires or cashier's checks will need to be sent to escrow, escrow instructions filled out, prelims and NHD's acknowledged, and all Seller's disclosures signed. If you are getting a loan, now the activity shifts to you jumping through all those hoops. Usually, sales are as is, so even if repairs are needed the Seller won't do them. If a lender is involved, you may have to handle them and then sign loan docs.
- Escrow calls for funding once all the paperwork is complete and upon acknowledging that they have the money, authorizes title to record.
- You are now the owner and all accounts are settled.
Here are some things that will make the process easier on you:
Have access to a computer, printer and fax machine or scanner. Several of my clients have been technologically challenged, and I'm finding a lot of people don't have fax machines at home. Usually they have access to a fax machine at work, but sometimes that's a problem too. If you don't have easy access to one, consider going to the local thrift store or yard sale and picking one up. Faxing from the office supply store might take a bigger bite from your wallet than you expected. Come next month, electronic signatures are an included benefit from CAR, but this last bank owned deal I just closed wouldn't accept electronic signatures.
Commit to sign and return all paperwork as soon as possible. My recommendation is same day if possible. In my experience, escrows processing bank owned properties have no problem accepting scanned or faxed documents.
If you are using cash, and it must be converted into liquid form, start that process as soon as you get your addendum.
Make sure you are clear from the start as to how you want to hold title. If there will be multiple owners they should all be on the purchase contract if they all want to be on title from the day of recording. If they can't all be on the purchase agreement, say because a loan will be used and one buyer will hamper the process, then that buyer can be "quit claimed" onto the property. This is an easy "fix" to holding title, however that buyer may not be covered by title insurance down the road.
Per diem charges of $50-$150 a day for not closing on time are common in Bank Owned properties. It's a way of holding a buyer to their committment. Sometimes, especially with loans, things out of a buyer's control happen and sellers will waive per diems, but multiple requests might be denied, so if your agent must ask, encourage them to ask for enough time to really be able to close.
Communication through this process is vital. When you discover that you need something or you have a concern, let your agent know. Waiting till the last minute will always increase everyone's stress exponentially.
I love working with buyers to buy Bank Owned properties. It usually offers my client a great deal and improves the neighborhood. If you've been thinking about it, I hope this information helps you.
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