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What To Know When Buying A Foreclosure

by The Gary Nelson Group

There are many intricacies when purchasing a home that has been foreclosed upon and up for sale by the lender. These properties are known as REO’s,  which means “Real Estate Owned” or Bank Owned. REO’s can be both a very good deal and a potential nightmare.

Most lenders have the home appraised prior to putting the home up for sale and typically price the home below market value in hopes of attracting buyers quickly.  So while you can get a home for below market value there are trade-offs.  Here are some things to keep in mind:

The bank will not inform you of any known defects in the home. As a matter of fact you will likely get no information at all and will have to waive your rights to all disclosures.  All bank owned properties are sold “AS-IS, Where is”, meaning they will not make any repairs to mechanical items as in a normal transaction.  Therefore, Home Inspections for bank owned properties are imperative. I recommend using a licensed home inspector AND a team of a contractor, roofer, plumber, electrician, etc.  The bank cannot take away your right to inspections.  In this case they are imperative.

The bank may not supply or agree to sign paperwork required by law.  Some banks refuse to fill out or supply forms that are required under state law. Most of the banks operate on a national level and are not familiar with state to state customs. From subdivision disclosures to rural property forms, some banking institutions think that some of the forms are liabilities and will not supply them, even if required to do so.

The buyer will assume all repairs and defects once the transaction is closed. So knowing what you are getting into is very important.  A lot of the homes have sat vacant for long time periods of time and have had deferred maintenance and some will have damage as a result. If an item comes up on the home inspection be sure and investigate it further.

Thermal imagining may be a way to further investigate behind walls and under flooring.  Home Inspectors are not allowed to cut into walls or pull up flooring during the inspection. No “destructive testing” is allowed. So to insure that the property is in the condition you expect, a home inspector that does thermal imaging can investigate water leaks inside walls.  

Be sure and check into the chain of title on the property.  You can check with the title company to make sure the bank has proper ownership of the home.  Sometimes Foreclosure Deeds and Deeds in Lieu of Foreclosure (where the previous owner just turned the house back to the bank) do not get recorded properly. This can cause major delays in closing the sale.

Check to see if monies are owed to a utility company. In Arizona, municipalities cannot charge for services that were ordered by the previous owner or tenant. However, cooperative or private utilities such as rural water companies, can and sometimes do charge the new owner for what services that the previous owner or tenant received!

Check to see if past homeowner association dues are owed.  As with utilities, it is always better to be safe than to be sorry.  The purchase contract addresses liens and dues by homeowner associations, but at times past fees and transfer fees don’t show up for months.  Also, some home owners associations address past fees on a case by case basis, meaning they will waive fees for some individuals, but not for others.  Check the bank addendum thoroughly regarding HOA past dues.

Some Deeds are not as guaranteed as others.  Do your homework and check into how the Bank/Owner will Deed the property to you. Quit claim deeds and Special Warranty Deeds are not as protective as a Warranty Deed.  So the title policy insurance that they provide you could be insufficient if there are claims later. You may choose to pay the difference to the title company, to absolutely insure clear title.

Patience will be needed. Delays and repairs may be encountered during the purchase process, thereby delaying the close of escrow.  Counting on a foreclosed home to close escrow by a certain date may be a mistake.  If there are delays, it is typically the fault of the bank that owns the property and the Buyer may be waiting for weeks or sometimes months for documentation, signatures or clear title.

A REALTOR can be especially helpful in guiding you through these details. Buyer representation is very important in the purchase of a bank owned home and can save you a lot of time and heartache. During the process you are required to sign lengthy bank addendums that can negate some of the protections built into the state purchase contract and assign fees to buyers that are typically seller fees. A REALTOR that is experienced in foreclosures can save you much of the frustration and heartache.

 

Buying a foreclosure can be a steal but know what you are giving up for the fantastic price!


Gary Nelson is a lifelong resident of Flagstaff, Arizona and is the Delegated Associate Broker at Realty Executives of Flagstaff.  Find your own part of Flagstaff at www.GaryNelsonGroup.com.

Gary Nelson Wins REALTOR Vision Award

by The Gary Nelson Group

At their annual Leadership Conference on October 7th, 2014, the Arizona Association of Realtors awarded the 2014 Vision Award to Gary Nelson of Realty Executives of Flagstaff.  Gary was presented the award from Evan Fuchs, the 2014 President of the Arizona Association of Realtors. 

From the Arizona Association of Realtors:

“The Tyler Strout Vision Award recognizes an Arizona REALTOR® who best exemplifies the AAR vision: REALTOR®… the best prepared real estate practitioner with the highest standards. Participation in association activities is not a significant criterion for this honor. This recognition emphasizes quality service to the ultimate association customer: the buying and selling public. Members do not apply for this award. To be considered, members are recommended to the president of AAR for consideration, and honorees are selected annually by AAR leadership.”

HISTORY

In 2005, the award was given to Ty Strout, RCE, CAE, CEO of the Arizona Association of REALTORS® in recognition of his vision, leadership and integrity in leading the Arizona Association of REALTORS®. In honor of his commitment to the association’s vision, the name of the award was changed to the Tyler Strout Vision Award.

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Contact Information

The Gary Nelson Group
Realty Executives of Flagsaff
15 E. Cherry Ave. Suite 101
Flagstaff AZ 86001
Direct: 928-225-3510
Office: 928-773-9300
Fax: 928-774-1102


 

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