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Second of two parts: Realtors offer buying guide for foreclosed property

Editor’s note: This is the second of a two-part article provided by the Pismo Coast Association of Realtors to assist prospective buyers of foreclosed — real estate owned, or REO — properties held by banks or servicing companies and properties offered as “short sales.”

Part 1 consisted of eight frequently asked questions that included how to submit an offer, help with closing costs, response times to offers, bank counteroffers, signatures, verbal agreements and the selection of title and escrow companies.

Part 2 consists of another 11 frequently asked questions.

QUESTION: What are the usual time frames for closing escrow?

ANSWER: Generally, the buyer will have 30 to 45 days from mutual acceptance to close the transaction.

The proposed closing date on the original offer could be overly optimistic because of the often protracted negotiation and acceptance process with the involved REO departments.

The institution’s asset manager knows that unless the buyer’s offer is cash, a closing time of, say, a week and a half is unrealistic.

Far from working against the buyer, asset managers know that appraisals, inspections and the loan process take time to be completed properly.

They will assume that a buyer has taken the time prior to make an offer to become preapproved for a loan and that trivial delays beyond the usual 30- to 45-day closing period will be unlikely.

Read the Bank Addendum carefully — a per-diem late fee may be assessed for tardy closings. The bank will not suffer delays because of less-than-timely performance on the part of the purchaser’s lender.

Buyers should begin their inspections upon being alerted that their offer is accepted.

Q: Can the buyer do inspections?

A: As with any other sale, the buyer has the right to fully inspect the property within the frame of paragraph 14.B of the California Association of Realtors purchase agreement. The seller will not order or pay for any inspections.

Q: How is an inspection scheduled?

A: t is absolutely essential that a buyer give notice three business days ahead of scheduling an inspection. Some utilities — such as electricity — will likely be on prior to a buyer making an offer; others — like natural gas and propane — will not.

The listing agent has no control over the work schedules of the local utility companies. As such, the listing agent will not be responsible for reinspections and associated fees.

It is not a bad idea to visit the property a day prior to the inspection to check if systems are on and working. The buyer will be responsible for dewinterizing a property for inspection and then rewinterizing the property after inspection.

Q: Can the buyer cancel if something wrong is found?

A: The buyer has the right to cancel the contract and get a refund on the deposit if the cancellation is made within the contractual time frame — unless specifically noted otherwise.

Q:Will the bank pay for necessary repairs?

A: Buyers should be notified that the home is being sold “as is.” As a rule, only issues that are lender-required will be addressed, and those must be requested at the time an offer is made.

REO asset managers are very familiar with what constitutes a lender-required repair and will not approve cosmetic, dated or “wear-and-tear”-related issues.

A “not to exceed” amount must be contained in the initial offer if the bank is to pay for any repairs. An attempt at renegotiation after the home inspection will more than likely cause the bank to cancel the transaction.

If the bank is, or will be, rehabilitating the home, its scope of work has already been determined and cannot be changed.

Q: Will the bank pay for a pest control (termite) inspection?

A: It’s more than likely that a termite report on the property is already available.

Q: What if there are Section 1 items on the inspection report?

A: A buyer’s lender may have a stipulation that Section 1 items must be corrected prior to close of escrow. Be aware that the buyer will, more than likely, be responsible for correcting those, not the bank.

If the bank is to pay for those costs, a “not-to-exceed” amount must be requested in the offer.

(Section 1 conditions are those that are “active,” or currently causing more damage to the property. Section 2 conditions are those not currently causing damage but are likely to if left unattended.)

Q: Will the bank pay for earthquake retrofitting?

A: More than likely not, so the buyer — and the offer — should be prepared to handle that during escrow.

Q: Will the bank offer financing?

A: It’s possible.

Q: What about contingency periods?

A: The buyer must adhere strictly to the specified contingency periods or risk having the contract canceled and the deposit lost. This is a business transaction, and banks don’t like excuses or delayed decision-making.

Some banks institute a per-diem charge for delayed closings, as noted above.

Q: Will the bank accept contingent sales?

A: It is highly unlikely that a sale contingent on the sale of a buyer’s home would be accepted. If such a necessity were to be discovered and had not been disclosed in the offer, the sale would be canceled immediately.

The Pismo Coast Association of Realtors is the organization for more than 850 licensed real estate professionals and professional affiliates in the Five Cities area.