Important Information to Know
Before You Buy a Bank Owned Property
Buying a house from a bank doesn’t work like buying a house from a private party. But if you know the differences, a bank owned property can be an excellent opportunity. The following information and FAQ
will help you understand what is involved in buying a bank owned home.
Short Sales vs. REO
REO stands for Real Estate owned, and is another way to refer to a bank owned property. This is property that the bank has taken back through foreclosure. Sometimes a seller who is behind in his payments will attempt to sell his house before it goes into foreclosure. To do this, you must negotiate with the bank to accept less than what is owed on the property, and this is known as a short sale. The information here describes purchasing an REO, not a short sale, which is altogether different.
Exempt From Disclosure
Whenever anyone sells a house in Virginia, they must by law give the buyer a Disclosure Statement. This document describes what is included in the house, what is broken, and other legal and environmental disclosures. The seller has to tell you about any defects he knows about, especially if they are hidden and you might not see them. The seller can be held liable for defects that appear later that were not disclosed when you bought the house.
The exception to this law is a REO property. Banks are exempt from giving you a Disclosure Statement. For this reason it is absolutely imperative that you do a thorough inspection with a licensed and bonded contractor before purchasing any REO.
After the initial offer is made in writing, counter offers are made verbally until agreement is reached. This is a slow process because the bank may be in a different time zone, or the responsible people are tied up in meetings. It may be many days of verbal countering before a final agreement is signed by all parties. During that time, there is the possibility that another offer will come in better than your offer and the bank may accept it. This is especially likely to happen if negotiations stretch over many days or a weekend when more prospective buyers are out looking. The general rule is to try to reach contractual agreement with the least amount of counters. If you are eager to get the property, bring your strongest offer quickly!
A bank may require a higher earnest money deposit than a private party would. Expect to write a check for $500 or more when making an offer on an REO property.
Possible Double Loan Applications
The bank may require that you get pre-approved with their institution within a few days of accepting your offer. They naturally want to cut their losses on the property by making a new loan on it, or at the very least ensure that you are well-qualified for the purchase. You will need to go through the loan application process with them, even if you choose to get the loan somewhere else. While they can ask you to apply with them, no one can tell you where to get a loan. That is your choice entirely.
Bank Chooses Settlement Services
The banks strongly encourage you use the settlement and title company that they choose. They have previously negotiated fees with these companies, and may offer discounts and other assistance to you the buyer. While not required by VA law, it is recommended you use their settlement company if possible. Also, many times the settlement officers are so overloaded with business that the real estate agent has to assist in getting the property closed. For this reason, it is important to choose a REALTOR who is willing to work harder than normal to make sure you get the house you want.
Not The Usual Contract
The bank will likely require their contract be used for final sales transaction, rather than the usual local REIN contract. Generally, they will accept our standard contract and then add their contract “addendum” when agreeable terms have been reached - this is simply the contract written in their own terminology. It is critical that your agent read this form thoroughly to make sure your interests are protected.
Multiple Offer Situations
Often times a foreclosure home is priced so well that several buyers may put offers on the same property. In this case all buyers will be notified by the listing agent and they will be asked to communicate their highest and best offers. Normally there will be a time limit for when these offers must be communicated back to the listing agent. At the time that all offers are received back within the deadline set by the seller they will then be presented to the seller. The seller will then choose which offer he/she deems to be the best overall offer, and will then finalize negotiations with this buyer individually. The bank is under no obligation to give any party “first position” or an opportunity to beat the other offers regardless of how long your offer was in negotiation prior to other offers coming in. This is why it’s important to bring your strongest offer and reach an acceptance in the shortest about of negotiation time.
What does REO mean?
Real Estate Owned.
Are these short-sale, auction or VA owned properties?
NO. These are REO properties—foreclosure has been completed, and the property is now for sale by the bank.
Are any of your properties available for rent/lease/rent-to-own?
NO. At this time, all of the properties in our inventory are strictly for purchase only. The Sellers are not interested in entertaining rental contracts at this time.
How long will it take to get a response from the Seller?
Responses are generally received within 3-5 days or less. However, responses can take anywhere from 3 days up to 3 weeks. Listing agent has no ability to affect Seller’s response time.
Can you push the Seller for a faster response— I’m in a hurry?
Does the Seller have a survey/plat/inspection of the property?
Do you know the —— (fill-in-the-blank-question about the property condition)—-?
NO. Property was acquired by the Seller through foreclosure. Neither the Seller nor the listing Agent has any specific knowledge of the property history or condition.
Can the contract be contingent on a home sale?
Will the Seller allow early possession?
Will the Seller allow estimates or repairs prior to closing?
Yes, sometimes. Include request in contract (or submit addendum request if already in contract).
Can I give you a verbal offer?
NO. The Seller requires Preapproval/POF info & EMD copy. After initial offer, negotiations are verbal (via email) until acceptance when final addenda are issued.
Will the Seller turn on utilities prior to contract so inspections may be conducted?
Yes, in most cases the Seller is willing to accommodate, if not encourage, home inspections to be completed prior to ratified contract. Please contact the Listing Agent if you wish to arrange to conduct any inspections prior to contract. (Please Note water services will NOT be started at vacant properties. Please contact your inspector to insure he/she has a water key with which they may turn on water for inspection purposes.)
Should I write in the contract personal property/fixtures to convey?
NO. As a foreclosure, the Seller has no personal property and cannot guarantee the condition/conveyance of any items present. (However, the property is intended to convey as-is. Unless otherwise stated, any fixtures/appliances present at the property are considered part of the as-is condition.)
Do I have to use the Seller’s closing company?
NO. Virginia law states that Buyers may use the settlement agent of their choice. We do, however, recommend using the same settlement agent as the Seller if you are able. It will expedite the process because the company is familiar with REO transactions, and there may be additional discounts and assistance available.
Listed below are some scenarios for outcome of a short sale and what it means to you and your credit.
a. 1099 for "debt relief" based on the ultimate losses suffered by the lender upon final sale.
b. credit hit of approx. 250 points?
c. possible loss of any high level security clearance d. possible "violation" of Employee contract signed when taking current job. (see employee handbook or contract for details)
all the above, but instead of 1099, a deficiency judgment.
In all cases, the failed Borrower should keep a copy of all correspondence *FOREVER* in case an unscrupulous entity purchases the failed loan paperwork and tries to come after the Borrower several years down the road.....If the Borrower received a 1099 from the f/c lender, it is *totally wrong* for the lender to seek deficiency.
Unless all my training is wrong, It's an "either / or" for the lender. 1099 or deficiency...not both.
Short Sale Sellers should also keep their paperwork indefinitely. **critical**
SOme things to consider--Remember the Chase class action lawsuit where Chase was seeking payment on re-packaged and renumbered default loans which had been *fully discharged* in Federal bankruptcy cases? They harassed the bankrupt clients unceasingly...then held up their later car loans, refinances, new loans, etc. Totally illegal!
The Sharks (lenders) can be shameless....Lie....Cheat....Steal....
***Please note*** that the Mortgage Forgiveness Debt Relief Act of 2007 may full or partially protect owner/occupants from the tax penalty under certain circumstances.
if they were occupants and it was an original loan. Refinances and Equity loans may or may not qualify for that exemption...see your CPA.
"Debt forgiven on second homes, rental property, business property, credit cards or car loans *does not qualify* for the new tax-relief provision. In some cases, however, other kinds of tax relief, based on insolvency, for example, may be available. See Form 982 for details.