FORECLOSURE BUYERS INFORMATION
Lender Owner Purchase Benefits
Lender owned properties have gone through the foreclosure process and are now owned outright by the mortgage holder who repossessed the home. One big benefit to lender owner properties is closing timelines are known. Furthermore, title work has been initiated by the bank after the foreclosure process to eliminate any junior liens from title. Therefore, there is only one bank to approve the price and that bank is the one selling it. Usually lender owned properties have more buyers interested in them. Therefore, that caused more competition and often times there are multiple offers.
Lender Owned Purchase Agreements:
1) Closing Dates
REO properties have much more strict guidelines on closing dates. The usual closing timeline is 30 days or less. Many banks will not accept closing dates beyond 45 days. If a closing date is missed, there may be a daily per diem rate charged to the buyer until the property closes. These rates can sometimes be hundreds of dollars per day.
Inspections are important on bank owned properties are very important as the bank does not have the history of the property and therefore has nothing to disclose to the buyer. The buyer’s inspection is usually just for informational purposes of the buyer. Rarely will a bank negotiate down on price due to an inspection issue, unless the problem is a hidden defect not known to the bank. Banks usually require a professional inspection be completed and the report given to them if the buyer is trying to cancel the offer based from the inspection results. The usual timeline for inspection windows on bank owned property is a 10 day window.
3) As-Is Condition
All bank owned properties are sold as-is. The buyer will normally sign an addendum to that effect. Any repairs the bank is intending to make are usually done prior to the home being listing on the MLS. If repairs are needed, the buyer may have the ability to escrow for repairs and have them done post-closing. However, this is determined by the buyer’s mortgage company so they should check with their loan officer.
4) Association Documents and Resale Disclosure Certificates
The buyer can expect to receive official association documents and the resale disclosure certificate after the offer has been signed by all parties. You can expect to receive them within 5 days of the offer being executed by all parties to the transaction. The buyer still has the MN statutory period of 10 days to review these documents. However, the buyer can reduce that to 3 days in the interest in time.
5) Lender Owned Addendums/Purchase Agreements
Many times offers are made on lender owner properties on standard State of MN forms. After accepting the offer, the bank will prepare additional addendums that are specific for the bank selling the property. These include as-is addendums, property non-disclosure addendums, arbitration addendums, and other forms the bank’s legal department has determined are required. These forms are usually not amendable and are required part of the purchase agreement as they are written. Don’t be surprised to see an additional 10-20 pages of documentation come from the bank a few days after the initial offer is verbally accepted.
6) FHA/Lender Repairs
As stated earlier, lender owned properties are usually sold as-is. If a buyer is purchasing a property on FHA financing, make sure the MLS listing states FHA is accepted. Many times banks may not make the expected FHA repairs. The buyer usually does not have the option of making these repairs themselves due to liability issues. Therefore, lender owned properties not qualifying for FHA will show Conventional or Cash only offer accepted on the MLS. Escrow for repairs may be an option, but this will be an escrow of buyers money to make the repairs needed, not the sellers.
7) Other considerations
One consideration when purchasing a lender owner property, many times the buyer will be competing against other buyers, including cash buyers. Cash buyers can close quicker, do not need an appraisal, and can purchase the property in any condition. If the buyer is using financing, he may need to bid higher than a cash buyer to offset the cash buyer’s advantages. A second consideration when purchasing a lender owned property is the appliances are never included in the sale of the property. That is not to say the appliances are going to be removed from the property prior to closing. It just means the bank is selling the real estate, not the personal property such as the appliances. The bank also does not have to warrant they are operational at the time of closing by not including them in the sale. That reason alone makes a home inspection necessary on lender owned property, to make sure the appliances are in operational condition.
-Chris Dennis, Realtor
Chris has represented two different national lending institutions as a listing agent for their REO properties throughout the Twin Cities metro area. Chris has successfully closed numerous bank owned property transactions for both investor and owner occupant buyers.