Foreclosure vs. Regular Purchase

Posted on Apr 24 - Filed Under Featured, Market Insight, shortsale-foreclosure-reo | Leave a Comment


Buying a Foreclosure vs. Normal Transaction: If you are considering buying a foreclosed property you may be wondering, “How is this different from a normal home purchase?” Some of the main differences are; lack of disclosures, generally there are no presale inspections, longer time frames, and you have to get pre-approved by the seller’s lender even if you are already pre-approved. If you are using FHA financing then there are even more issues that pertain.

Since this is a “bank owned” property, the bank is not obligated to provide a Transfer Disclosure Statement” or any other typical seller disclosures. The agent for the bank must do an “Agent’s Visual Inspection Disclosure” and supply it to the buyers. If the property is a condominium or part of a “Common Interest Development” then HOA documents are required to be provided as well as a Title Insurance Notice and “Flood Insurance for Disaster Relief Assistance”. Also, what I call the “safety” disclosures are required; such as Lead Paint Hazards, Megan’s Law, Material Facts, Meth Lab Clean-Up Order, Smoke Detectors disclosures.

The common practice of providing pre-sale inspections is typically not adhered to in an REO sale. The buyers should acquire their own inspections such as a full home inspection, wood destroying pest inspection, roof, masonry (chimney), and any other pertinent inspections the buyers deem necessary (such as pool/spa, mold, etc.)

You will generally experience delays in receiving answers or signatures from the banks as they have so many properties that they are dealing with. If the seller’s agent is capable and proactive the delays should be minimized.

Many banks require that buyers go through the pre-approval process with them. This is done for a couple of reasons; to be sure that buyers are actually able to complete the transaction, (so the bank does not have to return the property to the market), and it gives them an opportunity for more business, particularly since they have lost so much on the foreclosure. If you are using FHA financing, the process may take even longer as FHA has other requirements.

If you really are considering the purchase of an “REO”/foreclosure home, be forearmed with the proper knowledge and have excellent guidance from your agent. Good luck!