Critical Facts You Need to Know Before Buying Bank-Owned Property

Buying a house from a bank is very different from buying a house from a private party.  Buying bank-owned property can be an excellent investment opportunity if you know the differences between it and privately owned real estate.  Here are a few hints I’ve learned when representing customers purchasing bank-owned property.

Short Sales verse Real Estate Owned (REO):
Bank-owned property, or REO, is property that the bank has reposed through foreclosure.  When a property owner is endanger of losing their house due to foreclosure, often times they will attempt to sell their house before the bank takes it.  To do this, you must either negotiate with the bank to accept less than what is still owed on the property, known as a short sale, which is entirely different from a REO.  I will be discussing REOs in this report.

Exempt from Transfer Disclosure:
By law, South Carolina requires a “Seller’s Disclosure Statement” or “Transfer Disclosure” whenever someone sells a house.  This document describes what is included in the transaction, things that are broken, as well as any legal and environmental disclosures such as lead paint.  This requires the seller to tell you about any defects in the property, especially if they are hidden defects known as “latent defects.”  If done honestly and completely, the seller cannot be held liable for defects that appear after the fact, that were not disclosed when you purchased the house. 

REOs or Bank-owned property is the exception to this law.  Because banks are not required to provide a Seller’s Disclosure Statement, it is absolutely crucial that you have a thorough home inspection completed on the home by a qualified licensed inspector before purchasing the property.  You have no recourse after you buy it; therefore, you must be extra meticulous with your inspection.

Counter Offers:
After an initial offer is made in writing any counter offers are made verbally until an agreement is reached.  This is potentially a slow process when dealing with banks because it usually involved several people and their busy office schedules.  It could be days before a final agreement is reached, especially if the bank is in a different time zone.  In the mean time a better offer may come in that the bank accepts.  The best advice is to make a serious offer from the start and try to reach an agreement with the least amount of counter offers necessary. 

Higher Deposits:
Banks normally require a higher good faith deposit except when writing a check for 3-5% of the purchase price of a REO.

Double Loan Applications:
The bank will try to minimize their losses on the property and will therefore probably require you to get prequalified for a loan through them.  You will need to go through the loan prequalification application process within a few days of accepting your offer; however, you may choose to go with any lender for the actual loan.  Ultimately they cannot require that you use them for your loan.  This along with your closing attorney is ALWAYS entirely your choice.

Other Services:
Besides the lender and closing attorney, the bank has the ability to choose other services such as an escrow and title insurance company.  The bank usually goes with a company they’ve used in the past, which typically means the company who charges the least for their standard service.  For this reason, it is extremely important that you choose a Realtor who will work harder than normal to protect your interests and make sure you get the house you want!

Different Contract:
The bank will use their own contract instead of the typical South Carolina Association of Realtors contract making it critical that you read and understand every word!  The bank’s lawyers wrote this contract to protect their interests, not yours.  

Double Checking:
Your agent must take it upon himself to double check everything and assume nothing.  With the listing agent and escrows for the banks usually being overloaded with work, important things could fall through the cracks and negatively affect you or the transaction.  Make sure you have a Realtor experienced with REOs and not afraid of some extra work so you stay protected.

Back to Tips for Buyers

Thank you for visiting the site!  Please don't hesitate to call or email if you ever have any questions!  We look forward to hearing from you.