Wednesday, March 12, 2008

REO Property FAQ

I got such an overwhelming response to my posting regarding Short Sales, I thought I would follow that up with REO (aka Bank Owned or Foreclosure) FAQ's.

Purchasing REO (aka, bank owned or foreclosure property) property is a unique experience, unlike more traditional real estate transactions where the buyer is purchasing from a new construction builder or an individual seller. Because there are so many REO listings in the greater Sacramento area, often I am asked what a buyer can expect in these types of transactions, and the only thing for certain is you should "expect the unexpected." I have done several of these transactions, and each one has been a totally different experience. I have assembled some of my experiences for your benefit:

1) Many REO's are listed with local real estate agents if they do not sell on the date of the Trustee sale on the courthouse steps. These agents generally will have anywhere from 10 - 150 listings at any point in time. Often times they will employ a team of other agents and assistants to field inquiries and will be very difficult to get in touch with directly.
2) Expect the bank to require a 1% deposit with your offer. While any regular transaction requires a deposit of some kind with your offer to open escrow, banks will require 1%. If you offer a $1,000 deposit on a $250k property, the bank will likely counter that your deposit needs to be $2,500.00.
3) Expect to remove your contingencies with 5-7 days. This is really fast! Most regular transactions have a 17-day timeline for contingency removal...within this time period you will conduct your inspections, appraisal, move toward obtaining your financing etc. Banks ask for a very short investigation period.
4) Expect that there will be no disclosures from the bank with regard to the condition of the property. Obviously the bank has never lived at the property in question, and it is very likely that a bank representative has never visited the property.
5) Expect to take the property "as-is." I have in the past negotiated some major repairs - for example if the electrical panel has been vandalized, it can be negotiated that the bank fix something like. However, minor repairs - for example fixing a leaky faucet - will not be completed by the bank.
6) Expect that the bank will not provide you with any reports. You will be responsible for obtaining things like a pest inspection, roof inspection, home inspection, etc. Very seldom are these provided.
7) Expect that the title and escrow company will be out of town. My experience is that the company will be out of southern California. The escrow folks will have something like 100 escrows going on simultaneously, and you won't get great service or fast response from them.
8) The bank may require that you be pre-qualified for your loan through them. I see this a lot with Wells Fargo and Countrywide REO's where you are required to submit a pre-qualification letter from one of their own reps in order for your offer to be considered. You are not required to actually use them for your loan though.
9) Counter offers from the bank will be delivered verbally. Yep, verbally. Once a verbal agreement has been reached, the bank will generate its own "Addendum" that over-rides your purchase agreement. Read through it carefully.
10) Your fully executed written purchase agreement will arrive 7-10 days after verbal acceptance. Yikes! This can pose issues for your lender, as most of the time they need an executed contract to start your loan process.
11) The bank will charge you a daily penalty fee if you close escrow late. I have seen this be anywhere from $100/day to $400/day.

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