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Banks are not your friend, REO | Bank Owned Foreclosure Pitfalls
Asset managers are overzealous:
- Often make unfair or illegal demands: Asset managers know that we are in a sellers market and take full advantage of that by applying scarcity mentality tactics. In many cases, if a buyer does not comply or agree to whatever the REO manager asks the bank will simply cancel the purchase contract. When this happens the buyer is simply out the cost of an inspection and appraisal if applicable, not to mention their time.
- Force you to sign contracts not in your favor: Many of the bank’s contracts and addenda are written in total favor of them, offering the buyer little to no protection, recourse or rights. As a buyer of REO properties, be sure to fully review all paperwork provided by the banks.
- Use high pressure tactics to get you locked up under contract: The banks know it is difficult for the average person to simply “walk away” from their earnest money deposits and/or monies paid for home inspections and appraisals. Knowing this, the banks often wait until late into the buying process before they spring unreasonable demands on the buyers.
- Short inspection periods mandatory: Banks generally will not accept offers these days that have “extended” inspection periods. In recent months the banks have been counter offering with short (1-3 day) inspection periods. In some cases they simply refuse to allow any inspection period whatsoever.
The Bank is NOT your Friend:
- Under no circumstances will the banks take any measures to protect the buyer. Most buyers fail to read any of the paperwork provided by banks that is required to be signed. These contracts and addenda are written 100% in the favor of the banks…Buyer Beware! Gone are the days when your local bank was your business partner. It is your responsibility to be sure you read and fully understand the REO purchase paperwork.
Foreclosure properties are often NOT a “good deal”:
- REO properties generally sell above the asking price in many markets. This is because the distressed nature of these properties leads buyers to believe a “deal” can be had. The banks know that you think this way and thus often intentionally underprice REO properties to attract more buyers who are searching for the elusive “great deal”.
- REO properties that are on the MLS are the actual “leftovers” after being cherry picked by the government agencies and not for profit organizations. These entities have priority to purchase these long before they hit the open market.
- Former owners often do hidden damage, an example would be filling the sewer lines with concrete or drilling holes in the roof. Homeowners sometimes blame the bank when they fall into financial trouble and feel vindicated by causing damage to the property before they abandon in during the foreclosure process. The banks will do a quickie inspection in most cases however scoping sewer systems is often not part of the inspection process. Be sure to take your time and complete a thorough inspection.
- Hidden Fees in closing documents are commonplace these days. The banks and the vendors that work for them will often pass undisclosed fees on to the buyers in these transactions masked as “admin” or “closing fees”. If you question them, or refuse to pay, the banks will cancel the contract in many cases and refuse to sell to you. There are cases where buyers have lost thousands of dollars when this happens with no recourse against the banks (see above on contract clauses). As a buyer ALWAYS choose your own title company (one that you trust) to facilitate closings.
Closing and Title Issues:
- Exceptions to the title policy happen every day. The banks try to sneak this into the “exceptions” page of the title policy to prevent the buyer from having any recourse or protections in the event there is an issue. I deal with Insured Title Agency because they can close my transactions in any state AND they bring the exceptions to my attention each and every time. Kevin Overstreet can be reached at (813) 855-3585 if you have any questions about title policies.
- Read the entire contract and addenda and be sure you understand it. If these is something you don’t understand, take the time to hire an attorney to explain it to you and inform you of any risks that exist.
- Mistakes are guaranteed: There are almost always mistakes in documentation and foreclosure documents. Title packages are often incorrect as is the math. Buyers often fail to check the math and wind up overpaying or being charged for items that are not their responsibility.
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