FORECLOSED VERSUS REGULAR SALES – WHAT ARE THE DIFFERENCES?

Buying a foreclosed or bank-owned home (also referred to REO) often works pretty much the same way as a private sale when it comes to the process.  However, there are differences and here are a few points to keep in mind:

Some banks respond to offers very quickly – sometimes within 24 to 48 hours.  Other banks take much longer.  So if you are willing to pursue a bank-owned property with the potential reward of getting a good deal, patience is truly a virtue.  That said, we can often get a fairly quick answer for many homes - I have had responses as quickly as the same day of the offer!



The banks have their own contract that is used and that contract usually cannot be altered in any way.  In a private sale, you would typically have your attorney review the contract and he or she would sometimes insert additional language or an addendum to further protect you beyond the protection that the standard contract offers.  The seller would do likewise and the two attorneys would normally hash out any changes at their levels.  For a bank-owned home, the bank’s standard contract is used.  It's legal and used all the time - they just don't allow your attorney to make any changes.  In that respect, the contract can favor the bank. 

The time-frames are usually a little different. For example, they might want a purchase and sale agreement signed within 48 hours of acceptance of an offer.  This is different from how we normally do it, which is to sign the purchase and sale agreement after the inspection.  Again, as long as the inspection contingency is still in there, it's not usually an issue.  However, unless you are a contractor or someone who is going to tear down or totally rehab the building, we absolutely want you to have the option to have the inspection and to pull out of the deal if the inspection results reveal things that you are unhappy with and that can't be negotiated with the seller.  The bank’s contract often includes language that says that you will give them notice of any unsatisfactory findings in the inspection report and also give them a chance to remedy the problems.  This can work to your benefit.

Bank-owned homes typically have no seller disclosure.  This could be the same for a private sale as well, but usually a seller will fill out a disclosure form so that you can get an idea of the condition of the house before you do an inspection or make an offer.  Of course, you would go through the house anyway to observe the condition of the home for yourself before making an offer, and you would have an inspection done by a professional after making an offer, but it's always nice to have the seller disclosure form at the beginning.  Bank-owned properties typically never have this.  It's a relatively minor point given that you will be going through the house several times and that you will have the house inspected by a professional.  Moreover, there is no requirement in Massachusetts (as this is written in January 2014) for sellers to provide a disclosure anyway, so many "regular" sales go forward without this either.

Bank-owned properties are usually sold "as is." What this generally means is that if you do the home inspection and there are significant issues that you would typically ask the seller to either correct or give you credit for, the seller of a bank-owned property will not usually entertain any request to repair items or to give a credit for you to fix them.  This would seem contradictory to those contracts that state that the buyer is to give the seller a chance to fix anything found to be deficient in the inspection.  And it is!  A better interpretation of “as is” might be:  Buyer Beware and Conduct Your Own Due Diligence!”

One last point is that if you do not close on the agreed-upon date, the bank can charge you a per diem fee for every day that extends beyond the originally agreed-upon closing date. $100 per day is not unusual.  I have been lucky enough to never seen a bank actually assess this fee in my experience - but they could and they do!  To read about reasons why closing dates get extended, please see my blog article on that topic. 

There might be other differences, so check with your agent and attorney whenever contemplating an offer for a bank-owned property.