Mafia Banks

By
Real Estate Agent with Realty Executives

I'm not sure what your market is like, but my market here in SW Riverside County/Inland Empire is primarily short sales taking up about 80% of the listings.  Another 10% are bank owned properties with the rest being "standard" sales many of which are corporate flips from trustee's sales. 

With that being said, the competition for buyers to be able to land a bank owned property are slim.  We are seeing 20+ offers on good properties.  The pecking order starts with cash offers (and there are a LOT of cash buyers in our market right now) then conventional, then FHA and VA buyers.  Many agents are still leary of getting into a short sale even though that is a majority of our market.

So when a client is able to open the escrow on the bank owned property it seems it is cause for celebration.  Well, maybe not. Wait a minute. 

Unfortunately we agents know, the name of the game is its my way or the highway with the bank, hurry up and wait for the bank, and pay up or shut up with the bank.  Its a bit like wheeling and dealing with the mafia in my opinion. 

Its my way or the highway: Bank owned assets are sold with little regard to our state laws and forms.  Every bank owned property that is sold has their own "addendum" that basically superscedes any other contract and voids many of the terms that is generally accepted.  One of the terms that is generally changed is the amount of time a buyer has to do inspections which is shortened from 17days to 10 days or less.  Sometimes a bank refuses to pay for items that are reasonable and customary in our market such as termite or appraisal repairs.  Another issue is that the bank expects their escrow company to be used in order to get an offer accepted. We as agents know that many times the escrow company that gets the bank's business bid may not be the ideal company with which to work. Just because they are cheaper for the bank (the seller) does not mean they are efficient and have time to help you with your file.   

Hurry up and wait: So you send the offer in, the listing agent tells you the bank is responding to you offer. You get their addendum signed and back to the agent, and finally the property goes into pending when the you get the addendum signed by the asset manager.  You open escrow, the buyer sends their funds in, and ..... guess what? You can't close. Why? Because the bank is taking their time approving the final HUD 1 estimate of proceeds from the sale.   

Pay up or shut up:  In our current lending climate we have many FHA and VA buyers.  This also translates into having many last minute conditions and verifications by the lending underwriters.  What many buyers may not be aware of is that an extension of time may end up costing them.  In the bank's addendum, a per diem is agreed to be paid if an extension is needed.  Sometimes a bank's closing asset manager may balk at an extension even if it isn't the buyer's fault.  Its important to clarify the reason for the need for the extension and keep your fingers crossed that there will not be any additional charges. 

Purchasing a bank owned listing may seem like an opportunity for many buyers in our market.  Its important to know that a bank owned transaction is not like a typical arm's length transaction with a real person for a seller.  Make sure you have an agent who knows the rules and will explain them to you during your transaction.  Otherwise you could find yourself taking a long walk on a short bank plank with some cement shoes on.  Look out! 

Posted by

Susan Manning

Comments (9)

Malcolm Johnston
Century 21 Lanthorn Real Estate LTD., Trenton, Ontario - Trenton, ON
Trenton Real Estate

You are right Susan. Dealing with banks can be difficult because they are not really motivated sellers. The system is out of whack because it was never designed for them to be in control of so many properties.

Feb 11, 2010 05:44 AM
Terry McCarley
Coastal Real Estate - Cape Coral FL - Cape Coral, FL
REALTOR, SRES, CDPE - Cape Coral, FL

Your market is much like ours (short sales and foreclosures) but different than our market (inspection time and termite inspections) here in Cape Coral, FL.  Here we usually have have 7 to 10 days for inspections and the buyer pays for any inspections they want done including termite.  We do have the same problem with the required bank addendums and the bank choosing the title company.  I have had several closings where the title company was out of the area and everyone of them have turned into nightmares.  What really bothers me is our contract states the closing will take place in the county where the property is located but of course the bank addendum overrides that and we are forced to deal whomever the bank tells us we will deal with.  The only way we have found to get around this is to have the buyer pay for the title insurance - here whoever is paying the title insurance gets to pick the closing agent but normally the seller pays for the title insurance so it is really not fair to the buyer to pay it just so we can close local.  And of course the bank takes their sweet time on everything but expect us to jump thru hoops when it comes time to close.  I just keep hoping the banks will wake up and stop all the nonsense so this market can totally recover.

Feb 11, 2010 05:52 AM
Susan Manning
Realty Executives - Temecula, CA

Malcolm, I think essentially the banks are motivated to sell.  Its just that their systems are arcaic diosaurs. Its a shame that our government had to save their failing business to continue organization models that just don't work. 

Terry, you're right.  Its all about jumping through hoops for the bank only to have them turn around and make a buyer wait to close escrow......as a matter of fact I have a buyer who's funds were in yesterday, we should have closed today but the asset manager hasn't appoved the final HUD.  Recorder is closed tomorrow AND Monday for the furlows and holidays.  Not a cute situation for my frustrated buyer who was ready to move this week. 

Feb 11, 2010 06:43 AM
Joyce (manager), Guaranteed Flat Rates No Junk Fees, Serving all of Southern Ca
Arrowhead Escrow - Riverside, CA

The bank does not always choose the "cheapest" escrow company. BofA for example usually closes with LandSafe T&E and their fees are way above what we charge. They use them because of BofA inheritied LandSafe when they purchased Countrywide.

Asset Managers are not much better either. They have their preferences as well, like NRT who subcontracts FDIC properties from Prescient in Florida.

Next there is the Government. HUD Homes! For the last 15 years we have held the HUD Closing Agent contract for either all of Southern CA or Riverside and San Bernardino Counties depending on the year. We closed over 30,000 of these transactions. Now this year HUD assigned the contract to a company in Laguna Niguel, CA when 95% of all HUD Homes are in the Inland Empire region. Buyers of HUD homes usually are not well-to-do and now they have to drive over 75 miles each way to close escrow!

Usually the price and service most REO property buyers/sellers are getting from Escrow vendors is not quality at all. The price is high and the service is bad.

 

Arrowhead Escrow

Feb 11, 2010 07:10 AM
Susan Manning
Realty Executives - Temecula, CA

Arrowhead, thank you for an escrow's perspective.  Its tough to group all escrows into one category, I concede that point.  Just as it is unfair to group all real estate agents into another group, it really does just depend. 

The point of my blog is that there are a lot of pitfalls a buyer can get into that maybe they are not aware of when they open escrow on a bank listing. Thanks for your comments.

Feb 11, 2010 07:29 AM
Sharon Filbig
Prudential California Realty - Escondido, CA
San Diego County Real Estate

It's like trying to jam into a crowded elevator.  Not a pleasant situation.  The alternatives are there, but they aren't easy either.  The banks do certainly have the power.

Feb 11, 2010 09:03 AM
Nick Exarhos
National Realty Centers - Livonia, MI

Only 10% bank owned?

Feb 11, 2010 12:58 PM
Susan Manning
Realty Executives - Temecula, CA

Nick, as of right now, yes only 10%. Check back in with me in a few months and I think that number is going to be higher. But its part of the reason why we as agents are frustrated. 

Feb 15, 2010 04:21 PM
Sidney Kutchuk
Property Management & Sales at REALTY WORKS TEMECULA, CA 92590 (951) 217-6745 - Temecula, CA
Property Management & Sales Experts 951-217-6745

And our buyers are frustrated.

Feb 17, 2010 03:03 AM