This is not legal advice. For legal advice, consult an attorney, not a blog.
It appears that the number of foreclosures in the area will continue at a high rate into the foreseeable future. Thus, there will be more and more bank-owned homes for buyers to consider. But from the perspective of an average buyer, is that a good idea?
In my experience, and from my perspective as a lawyer, the answer is an emphatic, “No!” Banks tend to be far more concerned with protecting themselves without regard for actually selling the property. Their required addendums — no changes allowed! — severely restrict the buyer’s remedies if the deal blows up, or if the house is a complete lemon, or even if the buyer’s financing fails. Banks tend to be remarkably inflexible in regards to negotiations. Indeed, they often refuse to sign ANYTHING until it has been signed by the buyer, even when it is their own addendum! Thus, negotiations are difficult, and the resulting contract is weighted heavily in the seller’s favor. Banks impose unreasonable requirements, such as mandating a photocopy of a cashier’s check of the earnest money, rather than just a personal check. As a result of the required contractual terms and the bank’s inflexibility, if the deal gets squirrely the buyer runs a very real risk of losing her earnest money.
Is this true of all banks, in all transactions? Almost certainly not. It has been, however, my experience to date. Are some banks more reasonable than others in this regard? Very probably, but I’ve only come across the difficult ones.
In fact, if you’re thinking of making an offer on a property managed and sold via First American REO Servicing — well, proceed at your own peril. Based on my experience, as well as the experience of others, First American is remarkably difficult to deal with and its actions can be, quite simply, irrational.
I recently assisted a client in attempting to purchase a house from a bank where First American was acting for the seller. I could author a dozen posts about this very unpleasant experience, but who has that kind of time? Instead, I will simply give two examples. When I received the bank addendum, the box for “cash sale” was checked, as was the box for “buyer financing.” Clearly this was an error, as these two boxes were inconsistent. The listing agent agreed that this appeared to be an error. I was concerned about this ambiguity in the contract (like any other competent attorney). I assumed it would be an easy fix. I was, needless to say, wrong. The bank flat-out refused to correct this error and demanded that the contract proceed with these mutually inconsistent terms.
Once under contract, my FHA buyer proceeded to seek financing. Unfortunately, a previous buyer about four months earlier had also sought FHA financing, so an appraisal had been performed. Per FHA rules, another appraisal cannot be obtained within six months of the first. We received essentially no information about this prior buyer or lender, and nobody was able to find this prior appraisal. Eventually, we had to seek a new FHA file number for the property, which would in turn allow for a new appraisal. Of course, all of this took time and naturally required an extension of the closing date. Did the bank agree to a short extension? Of course not. Huh? Ready, willing, and able buyer (who had invested significant time and money into the property) who had a good faith reason for seeking an extension — but the bank did not budge. The deal collapsed as a result, and my client’s earnest money is now hotly contested.
One would think that banks would be anxious to sell these assets. One would think that they would work cooperatively with buyers. One would think that banks would act reasonably and rationally. One would be wrong. In my experience, banks — or at least the individuals sitting at desks in distant states who are responsible for these files — are unreasonable and, in at least one instance, may even be irrational. Proceed with an offer at your peril.