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Undisclosed & unpermitted structures in an REO sale can create problems

I recently had undisclosed and unpermitted structures become an issue with two of my recent transactions. With REO (bank owned foreclosure) properties the seller (the bank) is very reluctant to disclose anything about the property. They refuse to sign any transfer disclosure or other statewide disclosures that are required in traditional sales. If the buyer later discovers there are unpermitted structures on the property, what can they do? One of my buyers recently canceled an escrow because they found unpermitted modifications in the garage. They believed this could cause a problem with the city in the future when they try to sell the property. How likely is that to happen in Fullerton, CA? Another house I sold in Buena Park, CA had an open permit on a covered patio that seemed to be up to code, but it was never signed off. My clients, as new home owners, were not able to get additional permits to upgrade some electrical work they wanted to do until this issue was resolved. I confirmed with the title insurance company that they would be able to cover this. Has anyone else encountered issues regarding undisclosed & unpermitted structures with REO properties? What to do?

Thanks in advance for your responses.

For current Orange County real estate info: www.homerealtymanual.com

Posted by Aaron Kelly - North Orange County Realtor on 06/22/2008 09:08 PM

Comments (3)

undisclosed, unpermitted, reo, fullerton, buena park

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3 Comments on Undisclosed & unpermitted structures in an REO sale can create problems

JUN

2008

Hey Aaron! I would think that they would be required to disclose what they know about the property. I would assume that maybe they did not know? I would always urge your buyers to find out about permits themselves. You can go to the city of Fullerton at their website and almost all recent permits are online there. Just google city of fullerton and you should get there. It is a very useful site. Good luck!

SEP

2008

Message:
RE 101 - Sellers are required to disclose any work done with or without required building permits. So open permits are required to be disclosed. If extensive costs are incurred in obtaining building inspections and/or final approvals for the non or open - permitted, undisclosed work you can take the seller to court... If the previous owner has insurance, it may cover the fees. Or if your buyer has a good insurance company their policy may cover the cost of damages and then subrogate.

If it's a bank owned forclosure/sale I highly doubt the courts would allow a buyer to go after the bank for non disclosure issues. Only case law will tell. Definitely Caveat Emptor in that situation. Help your buyers out and pull the records from county before they remove contingencies and make sure they have the proper inspections. But please consult a local real estate attorney for details.

MAY

We are losing our home. Bank has refused to work with us because of a bankruptcy (due to our son's extensive medical bills). They took bailout money for a second chance, but do not believe we deserve the same. No problem. We are thinking of sending the bank a certified letter with things we think need to be disclosed to the new owner such as: no permit for the patio cover we built; home is currently in lawsuit against builders; we believe the salt cell for pool is on its last legs; there could be a leak from our spa (built in) as the water level is low.

This is a great house with great neighbors and I hope someone with children will live here and enjoy the group of kids on the street and the pool; however, I do believe they should know that there are a few problems with the house and they should be protected even if the sale is from a bank.

Any thoughts?

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