Q: My husband and I are in the process of buying a foreclosure property, as is. The property is not in bad shape, but it is missing the air-conditioning units and a few other items. The bank did sell us the property at a low price, but I am afraid of the hidden things that I don’t see. Can I make them give me a disclosure statement? Do they even have one?
A: You’ve clearly stumbled across one fundamental truth of buying an REO: You’re not buying from a person! You’re buying from an organization — an institution — a corporation. This has numerous, different implications at every point of the buying process. The decision-makers have totally different motivations and guidelines than individual sellers do.
Mindset Management
Picture yourself as David vs. the Bank’s Goliath. Go into your deal understanding that all the contracts will be written up as favorably toward your opponent as possible without being declared unconscionable. Kick off your escrow with the understanding that the bank’s own boilerplate counteroffer and addenda will be bulletproof in changing all of your state’s standard real estate practices to go against your interests and protect the bank, and making sure that you could never successfully sue the bank should a surprise problem later arise with the property. And walk in with your eyes wide open to the fact that your escrow might be bumpy.
But also go in knowing it could very well be worth it to get (a) your dream home (or at least your pre-dream-home home), (b) a great price, or (c) a house at all on today’s market — depending on your price range, and where you’re at geographically, you might find that many or most of the homes for sale in your market are REOs so, as my Mom used to tell me about my little brother, you might just as well learn to live with them!
Don’t let all this deter you from buying an REO. Instead, let it inform your perspective and your action plan. Instead of relying on the bank to give you as much information as possible, like you would expect from an individual seller, rely on yourself and your team of inspectors to obtain all the information possible to uncover before you remove your contingencies or waive your objections.
Need-to-Knows
One more need-to-know about doing the deal with the bank — the bank never lived there! And, for that matter, the bank’s break-up, so to speak, with the folks who did live there (the former owners) was very likely, shall we say, less than warm-and-fuzzy. So the bank has absolutely no information whatsoever about the condition or history of the property. Many states totally exempt banks from making substantive disclosures about the properties they own and sell. Any forms you can get from the bank or their listing agent are likely to be liberally sprinkled with "N/A" or "Unknown" in every blank that calls for the information you care about. …CONTINUED
Any and everything you need to know about the property you need to gather yourself, from your own personal observation and investigation or from your inspectors and contractors. Beyond that, you can minimize the financial exposure you face from surprise issues by obtaining — and maintaining — a home warranty plan on the property for the entire time you own it.
Action Plan
1. Get inspections — at least pest, property and roof. Then read the reports. Then follow up; if any further inspections are recommended, get them, attend them and read those reports, too.
2. If there’s work you’ll need to have completed to be comfortable owning or living in the property, obtain contractor repair bids for those projects before your contingency period is up.
3. If you wonder whether an addition is legal or not — go investigate your city’s building-permit process. If you wonder what the neighbors are like, go knock on their doors and drive through the neighborhood at different times of day. If you want to know what the district’s crime rates are, call the police department and ask. The theme here is — if there’s any information that’s important to you, then it’s important that you go get it!
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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