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          Home Foreclosures

          Buying a Foreclosure and How Banks Kill Deals

          Chuck Marunde by Chuck Marunde
          September 7, 2019
          Reading Time: 5 mins read
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          Buying a foreclosure can be a very frustrating experience. Today I tell a true story about how a bank killed a sale on a full price offer. The banks that sell their foreclosed homes don’t have the real estate expertise to negotiate and draft sales contracts, and the 3rd party companies they hire do not either. So you will often see unbelievably ridiculous and inappropriate language, which they try to force you to agree to–all totally unnecessary.

          Buying a Foreclosure

          Buying a Foreclosure: Ridiculous Addendums

          I had buyers in the process of buying a foreclosure, and the selling bank came back with such an onerous addendum, my buyers walked. I don’t blame my buyers at all. Buying a foreclosure is not for the faint of heart.

          Here is the language that came back from a bank. The language clearly was not drafted by an attorney, and it clearly was not drafted by someone who understands real estate negotiating or real estate contracts. Who knows who drafted it! It might have been a bank employee or maybe the bank’s Realtor. I’m not expecting all my readers to be able to analyze the following ridiculous addendum, but almost none of this language was appropriate. I’ve added brief comments in red letters. While this may be more than you need to know, I wanted you to know what you may experience if you are buying a foreclosure. Here is the language with my comments in red.

          Property is being sold subject to CFR 206.125. [No one knows what code of federal regulation that is, so why would they include it and not explain it? This clause is totally unnecessary.] It is understood between Buyer(s) and Seller that this is a lender owned property and it is being sold in “where-is” [Of course it is where it is. Every home usually is.], “as-is” condition at the time of closing [Of course it is at the time of closing.] with no Seller representations or warranties, expressed or implied by the Seller [Redundant. They already said they are selling “as-is,” which means without representations or warranties.] or the local listing agent [Unnecessary, because the local listing agent is not the seller.]. Purchase cannot be contingent upon the sale of any property. [It wasn’t. The offer never included a contingent clause like that. It’s ridiculous to make a counteroffer on language that was never in the offer.] The Seller will not contribute closing costs and/or credits. [The offer did not ask them to.] Seller will not pay for home warranty. [The offer did not ask them to.] Seller will not make any repairs. [The offer did not ask them to, and this is redundant with the seller using the clause “as-is.”] Broker compensation: Seller will not allow any additional fees. [The offer did not ask them to.] Earnest money may NOT be held by selling firm. [The offer did not say it would be. EM was to be held by the escrow company. Again, you don’t make a counteroffer on a clause that never was in the original offer.] Within 48 hours of executed contract, the earnest money deposit must be at the closing company. [State law already provides that EM must be deposited within 3 business days, so it is highly irregular to include a 2-day clause like this.] Seller does not agree to interpleader action, mediation or arbitration. [This is inappropriate to include in a counteroffer.] Seller will not maintain property septic systems, property systems, appliances, pools and spas. [Again this is redundant, because they already used the clause “as-is.”] Seller will not keep any system operational until the date of close, such as, security or alarm systems; garage door openers; pools and spas. [There was no security system, and no pool or spa.] Seller makes no warranties that survive closing. [That’s inappropriate, especially because they already said they are selling “as-is.”] Title will be conveyed via Special Warranty Deed. Seller will not pay for any inspections or surveys. [The offer did not ask them to.] Seller will not provide keys to mailboxes; codes for security and/or alarm systems; or garage door opener. [There is no security system or alarm system, and you don’t need language in a counteroffer to say you don’t have a key.] Buyer may elect to participate in a 1031 exchange; however, Seller will not execute any documents nor pay any associated costs. [The offer did not include a 1031.] Seller will not allow any additional fees. [What? The offer did not ask the seller to pay “additional fees”.] Seller will not pay for utilities to be turned on for inspections. However, if any existing utilities are to be turned on for inspection, the listing or Selling Agent may turn them on at the Buyer’s expense and must be turned off when inspection is completed. If utilities are to be turned on, a fully executed Utilities Activation Form is required prior to activation. Seller will not have water, gas or electricity operational. If HUD requires the Seller to complete an updated appraisal and that appraisal values the property at a higher amount than the fully executed contract price, the buyer and/or seller reserves the right to terminate the contract and return the full escrow deposit to the buyer. [This last sentence is really offensive. The bank is saying that if the buyer’s lender’s appraiser comes in higher than the selling price the bank agrees upon, which was full price at the listing price in the offer, the bank can terminate the deal. That is unheard of and is so over the top, it makes you wonder who in the world drafted such ridiculous language. It’s as though they are trying to kill an offer made at full price.]

          In addition to all this language on an addendum, the bank also countered on another page, saying that they would not account for the appliances that were currently in the house and that they were selling with the house. In other words, if someone stole them before closing, the bank would not be responsible, and if the bank took them out themselves prior to closing, they would not account for them. Unbelievable! Buying a foreclosure should not be like this.

          Buying a Foreclosure

          This entire addendum could have been accomplished with one sentence, “Property is being sold “as-is,” and seller will execute a Special Warranty Deed.” Every other sentence was unnecessary or totally inappropriate, and so offensive to the buyer, that it killed the deal, even though the offer was a full price offer.

          Buying a foreclosure can be a pain, mostly because of the ridiculousness involved in dealing with a bank or the bank’s Realtor. You might decide to make an offer on a foreclosure, but if you do, be prepared to be frustrated big time.

          Last Updated on September 7, 2019 by Chuck Marunde

          Tags: Foreclosures
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          Chuck Marunde

          Chuck Marunde

          Chuck grew up in remote Alaska, graduated from the University of Alaska with a degree in Economics and Teacher Certification, and after teaching high school for two years, went to law school at Gonzaga University in Spokane, Washington. He served four years as a Captain and JAG in the USAF at Nellis AFB in Las Vegas. After practicing real estate law for 20 years in Washington, Chuck founded iRealty Virtual Brokers covering Sequim and the beautiful Olympic Peninsula. He is the author of 2,200 real estate articles and a dozen real estate books, and he produced over 100 real estate videos. Chuck combined his love for real estate and technology to create a massive Internet presence, and his articles and videos and books have been viewed by millions. Chuck is a well recognized real estate expert and his counsel is sought by other brokers and practicing attorneys around the country. Buyers from New York to Hawaii and from Florida to Alaska seek him out to retain him as their buyer's agent, and home owners around the State of Washington seek him out because of his new Flat Fee Listing Service. 

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