For part 1 - Buying a Bank Owned home

For part 2 - Buying a Bank Owned home

 Writing an offer on a foreclosed property - Remember the REO process is much different than a typical sale.  The seller will tell you how the offer will go.  Some terms may be deleted from a usual offer and some terms may be added.  Make sure to ask your agent to get the bank's addendum(s) for you to read prior to submitting your offer if it is available

If the listing is relatively new to the market, it is very possible that the bank will not deviate much from its asking price. You will have greater negotiating power if you make offers on homes that have been on the market for longer than 30 days.

Start the loan process prior to making an offer.  Get a preapproval from your lender to be submitted with the offer.  Most banks will require this to look at your offer and this will protect your earnest money deposit.  This also will avoid surprises and will save you from paying a per diem penalty for not closing on time.

Make sure you give your agent a deposit check made payable to ________________Title Company.  THE LISTING AGENT MUST SUBMIT THE OFFER OR OFFER WORKSHEET ALONG WITH A COPY OF YOUR EARNEST MONEY DEPOSIT AND LOAN APPROVAL LETTER.

 How soon will the seller respond?  Unfortunately, neither the selling agent (your agent) or the

 listing agent have any control over the bank's decision making process.  On most occasions the bank will respond in the first 48 hours.  However, there are some banks that will take 3 - 5 days.  Please try to be patient.  You will not get a response over the weekend or holidays either.  All offers submitted over the weekend will be presented the following business day. 

Since offers are submitted to the bank either online or on an offer worksheet, your agent will receive any counter either by an unsigned counter offer, via an offer worksheet or verbally from the listing agent.  If there are multiple offers, the bank will generally counter all offers with "highest and best" offer.  This means come back with your best offer as the bank will choose one at this point.  The bank will likely not counter after this.  Please read the counter offer carefully with your agent and make sure you understand all terms.

Time Frames?  Generally you will have 30 to 45 days after mutual acceptance of the contract to close the transaction.  Make sure to read the bank addendum carefully as it will spell out time frames that may supersede the original contract your agent wrote.  Inspection times and appraisal times are often shortened in the bank's addendum.  There is often a per diem late fee assessed for late closings.  The bank will not suffer delays due to your not performing in a timely manner.

Can you do inspections?  You will likely be asked to buy the home "as is."  The seller will not generally pay for any of these inspections. Many owners of homes that go into foreclosure have been struggling financially, which usually means that the house has not received needed repairs or general maintenance for a while. Some homeowners who lose their property to a lender frequently damage the property. So be prepared to do renovations and repairs. Hire a professional home inspector to give you a written estimate of the cost to repair the property.  However, just like any other sale you have the right to do home, pest, roof, pool, spa and other inspections within the time frame of the purchase agreement and addendums.

In your offer, most contracts call for a time period to back out of the transaction should you find problems with the home. Make sure you have enough time to back out of the transaction if you need to and not jeopardize your deposit.

Can you back out if you find something wrong?  Just like other real estate transactions you do have the right to back out if you find something wrong with the home if you do so within your contractual time.  Make sure that you know what that time frame is. 

These homes are being sold "As Is", which means that the seller does not expect to do any repairs, regardless of what is found on your home inspection.  If the bank has rehabbed the home, their scope of work has already been determined and cannot be changed.  Generally, only issues that your Lender requires will be addressed after the acceptance of your contract. 

Termite inspections and clearances can become an issue between you, the buyer and the bank.  Some banks will pay for a termite inspection "upfront"; others will not pay for one at all and it is a cost you will have to bear as a buyer.  Generally you can estimate this cost to be about $100.  Your lender may have a stipulation that a termite inspection must be ordered and Section 1 items must be corrected prior to close of escrow. Make sure to talk to both your Realtor and your Lender about this matter prior to writing an offer.  You could be responsible for correcting these Section 1 items yourself. 

Will you receive disclosures from the bank?  Remember, we said that buying from an institution or a bank is different.  The bank has never seen the house.  They really do not know it's history except for the mortgage side of it.  You will get a Natural Hazards Disclosure, smoke, lead paint, water heater and a Transfer Disclosure Statement with only agent remarks on it and HomeOwners Association documents, if applicable.  The seller will only sign anything that is  legally required of them; the banks are exempt from most disclosures.  The listing agent and your agent are still required to give you disclosures but most will be given to you without the bank's signature.

Important items to keep in mind:

The REO Process is much different than a typical sale.                         

Investigate...Investigate...Investigate

Start your loan process prior to making an offer.

Most banks WILL NOT accept an offer contingent on the sale of another home.

Banks work on the "net price" to the bank.  They evaluate every offer based on a "net price".

Once your agent receives a counter offer, respond quickly as another offer may come in and be accepted during this time.

Make sure you adhere to your contingency periods. 

Make sure you close on time.  Many banks have "per diem" penalties for not doing so.

Be sure to work with a Realtor who is experienced in Bank REO's.

Check out:

Elk Grove is on Sale!

And watch for our next Foreclosure home Bus Tour coming, Saturday March 29th, 2008.  Call (916) 405-5765 for details or go to http://www.modeanddurham.com/

The Mode & DurhaM Team in Elk Grove, CA