The general process of buying a Lender-Owned property is very different from a consumer-owner sale. Patience is necessary on the part of the selling agent, as well as the buyer. The following is a collection of frequently asked questions by buyer agents and their clients.

FAQ on purchasing a bank owned property.

How long after presenting an offer can we expect an answer?

A REO-seller’s working hours are typically 9-5 Mon-Fri.  They don't work weekends or holidays. The normal turn around time for a response is 2 to 3 business days. There is generally an assumption that an offer is still valid despite expiration of response time unless the buyer agent informs the listing agent otherwise. If it takes longer to get a response, it is because the lender-seller is taking longer to respond; the listing agent will typically give an answer as soon as it is received. Continuing to call and ask if the listing agent has heard anything does not cause the lender to respond any faster or make the listing agent respond sooner. Many listing agents have specific instructions included in the MLS listing to advise cooperating agents of how the process will flow with the specific lender.  Extra patience is needed for this process!

What can I do to put my client in the best position to purchase the foreclosed property?

Write a strong, clean purchase contract. Avoid unnecessary contingencies. Most important is to provide (at time of initial offer) a very strong pre-approval letter stating that credit has been verified and income has also been verified and all buyer funds have been verified. Earnest money will be required by all REO sellers. $1,000.00 is a good amount to use. To a seller, the strong pre-approval letter is very important. Many times foreclosed properties receive multiple offers.  The offer with fewer, or no contingencies, as well as the financial strength of the buyer, often sways the seller’s decision as to whom to sell the property.  Some REO sellers require that the buyer apply for financing with a particular lender prior to considering an offer.

How and where do we deliver an offer and do we write it on a standard contract?

Offers should be written as you would write any other offer, unless other instructions are provided in the MLS listing.  Offers should be delivered as instructed in the MLS listing.

Will I receive a response to my offer?

You may not always receive a response to your offer.  Some listing agents will include in their instructions that the lender will not respond to offers they have not selected to work with and that they will only contact the agent submitting the prevailing contract.  If a lender does provide a response, it may be just an e mail stating that the offer was rejected.  The listing agent should forward any response received to the buyer’s agent. In some cases it can take up to 10 days to receive a counter offer or rejection of the said offer. It is not the seller’s duty or the listing agent’s to discuss why the offer was rejected. Keep in mind that all seller’s behave differently as to how they will respond.

When will we receive the sellers addendum and all other signed documents.

Generally once the seller & buyer have agreed on contract terms, the sellers addendum will by generated by the seller.  Once this is received, it will need to be signed by the buyer. The seller will sign the contract, sellers addendum, Agency Disclosure and any other documents necessary to complete the transaction.  The seller will only sign the documents after the buyer has signed all documents.

How will negotiations be conducted?

After receiving the initial written offer, most negotiations will be done by email or verbal. It is understood that this is not the normal real estate process, but due to the volume of contracts generally negotiated by the listing agent and the time constraints of the lender-seller, it is the most efficient way to conduct business. No contract is considered accepted until you receive a written copy signed by all parties. It would not be advised to order inspections or appraisals until the buyer has written acceptance of the full purchase contract including all addendums. In some cases, the seller is not required to provide an Ohio Residential Property Disclosure Form for the property. The seller will sign a lead based disclosure form.

The seller will provide an Addendum that the buyer is required to sign.  It is important for the buyer and the buyer’s agent to read every word in the seller’s addendum.  Most seller addendums provide little protection for the buyer.  The seller's addendum should disclose that they are a corporate seller and have not lived in the property and many other important terms for the purchase of the property.  All seller addendums are worded differently.  Ask questions and make sure you and your client fully understand what he is signing.  Some conditions often found in seller addendums are:  buyer is purchasing the property in “as is condition”, financial penalties imposed upon the buyer daily for delayed closing, deed restrictions for future sales or refinancing, etc.  Some addendums also state that the seller has the right to sell to another party up until the closing occurs.  Most REO lenders will not allow changes to the addendum.  Some REO sellers may make it the buyers responsibility to pay for the re-keying of the locks for the property.  Most will have language stating that if the seller can not provide a deed, the seller may declare the contract null & void and return the earnest money to the buyer.  The buyer could be out certain expenses, such as appraisal fees, inspection fees, etc. and would not be reimbursed for these items.

Will I be notified In the case of multiple offers?

That is totally up to the seller. Some lenders have a policy of immediately stopping negotiations with the current buyer and disclosing multiple offers in writing or verbally and asking for best and final within 24 hours. Some handle that situation on a case by case basis and might accept any offer at any time regardless of order received. It is common for these types of properties to enter into multiple offers at some point.

Would it help to provide a list of repairs needed and photos?

This is absolutely a waste of time, The lender should already have photos and be aware of the condition of the property.  However, taking photos may be a good practice for the buyer, so they have an accurate account of the property’s condition at the time they wrote the offer.  This may also be helpful for comparison purposes, during the walk through prior to closing, to verify that the property is in the same condition as it was at the time of the offer.

Can the buyer have inspections?

The seller will not stop buyers from doing inspections, as long as it was included as part of the purchase agreement. Many times a seller will pick the purchase contract without inspections contingencies as the contract to negotiate with. Buyer must understand these properties are sold AS IS and should be prepared that these properties will have considerable deferred maintenance.

Will the utilities be on?

This varies with the different lenders we represent. If the property is winterized there may be a charge to the buyer to re-winterize the property. If the buyer expects utilities on, they should address that in their offer and the seller will respond accordingly. Utilities will be scheduled for FINAL READS and turned off for the date of closing. If the buyer wishes to have utilities switched to their name, they will need to contact the appropriate utility company to arrange prior to closing date. This is very important in the winter months to ensure the property is protected from pipes freezing.

Since the property is vacant, can the buyer have access to the property before closing?

The buyer can NEVER have access without their agent present before closing. If the buyers agent wants to gain access to the property, it should be scheduled through the listing agent.

Can a buyer do repairs themselves or pay to have them done before closing?

Buyers can rarely do the repairs themselves. In isolated cases, and with the written approval of the seller, they might be able to hire a contractor to do some work. If this would occur, prior to gaining permission, the contractor would need to provide proof of financial responsibility (insurance coverage) in an amount acceptable to the seller.

When does the buyer get possession of the property?

A high percentage of REO-owned closings will close in escrow due to the fact that there maybe an out of town corporate seller. Possession takes place at funding and disbursement. To be clear, that is when the title company determines that it has the funds and needed paper work from buyer and seller and the transaction is deemed closed. In most cases that takes place within 24-72 hours after closing. That is also the time that the commission checks will be sent to agents.

When does the buyer get the keys to the property?

Keys will not be given to the buyer until a fully executed and fully funded closing has occurred. If the seller does not attend the closing, keys will not be distributed at the buyers closing. Keys will be distributed upon written permission (e-mail) by the seller.  Many REO sellers will not release keys until they receive proof that all documents are signed and the check to the seller has been sent by the closing agent via overnight courier.

Does the seller offer financing?

Some REO-sellers offer financing, however, most properties need to be financed by a third party.

Will they pay buyer's closing cost?

Some REO-sellers will consider paying closing costs and participate in down payment assistant programs, if the net to the seller makes sense. As a guide 3% is the maximum allowed by the seller, this may vary by seller.

Will they consider FHA offers and participate In down payment assistance programs? As is true of any seller they will consider FHA or VA offers only if the property qualifies and does not require the seller to repair the property. Some REO-sellers will not consider FHA or VA offers under any circumstances.

How motivated is the seller and what is the lowest price they will accept?

Make an offer.  The listing agent cannot discuss the seller's level of motivation. As is true of all sellers, the list price is an asking price.

What is the mortgage on the property?

This amount has nothing to do with what the seller will accept for the property. By the time the property becomes bank owned the mortgage is wiped out and bears little affect on the outcome of the final sale.

Does it matter how much they paid at the sheriff sale?

The amount paid at the sheriff is only the amount that was paid for the lender to secure their interest in the property. Most of the time the lenders are owed a great deal more than the property sale amount of record. What the bank pays at the sheriff sale has little to do with what the property is worth. Just like any seller the bank will evaluate their property by ordering appraisals and or broker price opinion and they try to sell their property for what they believe it's worth on the open market.

Can we write a back up offer?

Most lender-sellers will not sign a back up offer.  It stays in the file until the primary offer defaults.  All offers must be presented to the seller.

Would the seller consider a contingency on the buyer's home selling?

Generally speaking, no.  REO-sellers do not want to consider a contingency on the sale and closing offer. Most will not even consider a contingency on the closing of the buyer's home even if ifs already under contract. Please keep in mind that a seller wants a closing date and a firm deal without contingencies.

Is the Title clear at closing?

About one out of three transactions will experience a delay due to a title issue, and most lender-sellers open title with their designated title companies and those companies work on making sure that any issues are getting resolved. A lot of the delays have to do with Sheriff deeds being recorded etc.

How fast can we close?

If title is clear and buyers are ready to close, it should only take 2-4 days to turn around closing paperwork.  However, title issues, inspections, and other factors can prolong the closing time.

Does the title search protect me?

Seek a legal opinion on this topic. In most cases, a title search will uncover most issues if they exist or they are of record.  However, you should always discuss this issue with your attorney.

Do I need to get title insurance?

Title insurance is highly recommended.

How about city and county liens?

It is recommend that the buyer to contact the city, township and county to see if there are violations, liens or any other problems that the seller is not aware of. The seller can only disclose what is known.  Water & sewer bill status should be verified by checking with the provider of the service.  Delinquent water & sewer bills can stay with the property, and could later be added to the property taxes, if they are not paid in full.  This is also true for HOA fees and communities with a pool.  Some H.O.A.’s may charge for a lost pool key before giving out another one to the new owner.

What if vandalism or theft occurs before a negotiated contract is closed? Since these properties are vacant the possibility exists for vandalism or theft to take place. Due to this concern, it is STRONGLY suggested that the buyer's agent schedule a walk thru prior to closing. The seller has detailed photos of the property at many different times during the foreclosure process. If vandalism or theft has occurred prior to closing, it will be the buyer agents responsibility to advise the listing agent of this change in condition ASAP and prior to the closing. If the change in condition is reported to the listing agent, he/she must contact the seller and submit all documentation and photos that you have supplied. It will be the sellers decision as to how to proceed with the closing.

Will the seller consider a land contract, lease purchase or rent the property?

Most likely they are not, they are not interested in being a landlord.

What should I watch out for in the Seller Addendum?

Seller Addendum may include disclosure of deed restrictions, fees for re-keying locks, buyer requirement to pay transfer tax, use of seller’s title agency, etc.  Be sure to read the entire addendum as it will supersede the language in the purchase agreement.

Buying a bank owned property is different experience.  Hopefully, these questions and answers shed some light on the process. A buyer can always have their own legal representation, title agency (Seller’s and Buyer’s title companies must coordinate the closing).  Be sure to read the entire addendum as it will supersede the language in the purchase agreement.  Hopefully this will help you and your client understand REO property sales.

Note:  The information in this article is not applicable to all lender-owned properties or all situations.  It is general information that is meant to serve as guidance for handling lender-owned transactions.  You will need to discuss specific situations with the listing agent to determine how the transaction is to be handled.

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 1/21/08