Foreclosures/Bank Owned Properties

 In the process of searching for your new home, you are likely to come across some properties that are bank-owned. Interest in buying a foreclosed home is on the rise, but so are concerns about the risk involved with such a purchase.  

1. Banks do the research to price correctly. Bank asset managers and the professionals who work with them have a clear understanding of value and have an obligation to achieve a price within a close proximity to the list price.
2. Foreclosures are exempt from providing a NC Residential Property Disclosure. This put the responsibility on the buyer to find out all information about the property. This means not only the property condition, but HOA dues and requirements, assessments, utilities, etc. Assume that you will not receive any information from the seller or their agent. 
3. As-is means as-is. This is probably the most important and least understood aspect of foreclosures. Generally speaking, bank-owned properties are sold on a very strict “as-is” basis and you should expect to take possession of it in exactly the condition you find it in. They really do know what they are selling and have many photos and reports.  Even an environmental issue may not be addressed. They will never do a repair allowance.  If the property you are considering has obvious damage, you may want to have a contractor/repairman give you estimates on repairs prior to making an offer.
4. Vacant foreclosures often have the utilities disconnected. Breakers are sometimes still flipped in the off position. Be advised that your realtor or home inspector will not turn the power on.  There is liability involved and we cannot be responsible for the consequences. Utilities will not be turned on prior to an accepted offer.  There is generally a charge to de-winterize ($100) and re-winterize ($200+) depending on the number of bathrooms.
5. Earnest money is expected to be presented with the offer, 10% minimum in most cases, with a minimum of $500.
6. A pre-qualification letter or proof of funds with a cash offer is required. Buyers getting a mortgage loan may be required to be pre-approved with the selling bank as well.
7. FHA Loan requirements pertaining to the condition of the property are stricter than a conventional loan. The appraiser may require that repairs be done that the seller will not agree to do. If your loan will be FHA, you may want to explore the 203K option with your lender and prepare for that. The 203K loan allows for additional funds for repairs (to be done after closing) to be included in the loan amount.
8. Seller addendums signed by the buyer. The seller’s addendum will be attached to the offer and will prevail over the NC offer. This addendum will not be altered in any way. It is very important to read the complete addendum and understand what you are signing.
9. If the deed is to be made to an LLC or Corporation – attach articles of incorporation. The buyer must sign his legal name as he/she is known with his/her title next to the signature.
10. Have all necessary home inspections. This is always important but especially with a foreclosure because there are no normal disclosures or usual legal recourse. This is an investment that is necessary to know the condition of the home you are purchasing.
11. Deed type. In many cases the seller will only give a special warranty deed. A general warranty deed is a promise to the buyer that the seller will warranty any prior problems with title, not just during the seller's ownership, but back along the chain of ownership. A special warranty deed, on the other hand, limits the seller's warranty to title problems that come up while the seller owned the property, but gives no warranty for problems prior to that point. Your attorney can advise you on the implications of the change in deed type.
12. Contingencies such as the sale of your current home are usually not accepted.
13. Appraisals Foreclosures tend to appraise lower than other properties with similar features, because neglect or vandalism may have contributed to damage. Vacant properties become targets for theft of piping, heating systems, etc.
14. Closing attorney. You may be required to use the closing attorney that the seller chooses.
15. Expect the unexpected. Expect glitches, expect your calendar to be derailed, expect the bank to be inflexible, unresponsive and even unreasonable.  The bank may rush you for your deposit money, and then take their own time in coming up with the necessary signatures on their end to close the deal. Having realistic expectations may keep you from experiencing undue stress in the purchase of your home. And if the transaction is smooth you will be pleasantly surprised!