Ask Erin: When I buy a bank owned REO property, what disclosures will I receive?

When purchasing a bank-owned REO property in California, you as the buyer should be aware that you will received limited disclosures from the bank / asset manager seller.

You should ask your agent to provide you with an REO Advisory, which is a standard California Association of Realtors form (Form REO) that details what the seller is and is not required to give to you. Lyon Real Estate agents are actually required to use this form when listing or selling bank owned property. Language straight from that form reads -

"Disclosures: Seller is NOT EXEMPT from common law and statutory duties concerning fraud and deceit, even though the specific TDS form is not required to be completed. Seller remains obligated to disclose material facts affecting the value and desirability of the property."

The bank has never occupied the home, and it is very likely a representative from the bank has never set foot on the property. However, if the property has been on the market for 6 months, and has been burglarized twice, the selling agent or bank / asset manager is still obligated to disclose that.

In an REO transaction, the seller is required to provide you with an Hazard Zone Disclosure, Smoke Detector and Water Heater Statement of Compliance, Lead-Based Paint Disclosure, Megan's Law Disclosure, and Tax Withholding (FIRTPA).

Other forms, such as the Transfer Disclosure Statement, Seller Property Questionnaire, Supplemental Statutory and Contractual Disclosure, etc. are probably required by your agent's firm as a formality to complete the file on his/her end, however the bank itself is not required to provide you with one.

I have done several of these transactions over the last 18 months, and I usually end up having my buyer clients sign blank disclosures. I write exempt and draw a line diagonally through the form...the bank seller and listing agent will likely not sign these forms. Because there is such little disclosure, make sure to do thorough inspections and investigation.