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Foreclosed or Lender Owned properties are homes where the bank is now the owner and has selected a broker to list the home on the MLS. The listing agreement is between the bank and the real estate broker. The following points outline some of the risks involved in purchasing a Lender Owned property:
The “bank” has never occupied the home, and therefore cannot provide the typical disclosures to the buyer that an owner-occupied listing would provide. Lender Owned properties are listed “As-Is” and the bank will usually not guarantee warranted items or make any needed repairs. The buyer assumes all of the risk pertaining to the condition of the home. Many Lender Owned properties are vacant with the utilities turned off. In this situation the buyer is limited in his or her ability to thoroughly investigate the property during the tour of the home. Banks may authorize the listing agent to turn on utilities during the short inspection period. Many Lender Owned properties “counter” all offers with one-sided, non-state approved corporate contracts (addenda) that often supersede the state commissioner-approved purchase agreements, thus nullifying the buyer protections built into the approved contracts. If the buyer is getting an FHA loan, and in the case of many conventional loans, a home and termite inspection will be required as non-refundable expenses to the buyer. In many Lender Owned “counter” offers the inspection period is reduced significantly, and if problems are found that prevent the obtaining of a loan and cause the buyer to cancel the offer, the buyer cannot recoup the costs of the inspections. Typically in these transactions, the bank will dictate the escrow company that must be used. Many agents report very poor quality communications and service with these escrow companies. This raises concerns about closing the transaction on time.