Bank Foreclosure Losses exceed 20% in Snohomish Co.

I recently finished an analysis of public records in Snohomish County in which I pulled up every single Trustee Deed (i.e. – bank foreclosure) issued by a particular bank over roughly the past year (June ’09 – May ’10). The bank in question is one of the top twenty largest banks in the country (ranked by total assets), but is not among the top 5 (Chase, BofA, Citi, Wells, & US).

I thought the results were somewhat interesting, and might be useful for anyone who is considering doing some shopping for a bank-owned home.

Overall Stats
# of Properties repossessed: 59
Total loan amount: $18.8 million
Average loan amount: $318k

Sold Home Stats
# of homes sold as of July 13th: 35
Total loans on sold homes: $11.6 million
Total amount recovered: $9.8 million
Total loss (net): $2.6 million (22%)
Average sale price: $280k
Average loss: $74k (14%) (all 35 homes)
Average loss: $89k (24%) (excluding 4 homes that sold for more than the loan amount)
Average # of days held: 158
Largest loss on a single home: $271k (56%)

Here’s a chart of the percentage loss the bank has taken on each sold home plotted versus the number of days the bank held the home.

Bank Losses on Foreclosed Homes

Note that I have excluded one of the sold homes from the above chart as it is an extreme outlier that screws up the scale of the whole chart (loan of less than $60k, home sold for over $200k for a gain of over 200%). The outlier is included in the above summary statistics, however.

Given the Snohomish County population of 711,100 (OFM 04/01/2010 estimate), this one bank has lost $3.63 for every resident in the county in just the last year. If they were to experience that same rate of loss nationwide, they would be looking at a loss of $1.1 billion in 12 months. Ouch.

I had my friend Marc Holmes of WaLaw Realty (real estate lawyers that also provide flat-fee brokerage services for buyers and sellers) take a look at the underlying data for this post. Here are a few of his thoughts:

I’m convinced that maximizing the price is not the bank’s principle objective. It seems that many bank REO employees simply don’t care about selling any given property and I suspect they have relatively little incentive to do a bang up job.

I think your data supports the suspicion that I (and many others) have had for awhile about these huge institutional lenders: they’re overloaded with foreclosures so they just want to get them out the door and will gladly slash their price to do so.

If a house has been on the market for very long at all don’t be afraid to low ball. If it’s brand new to the market and you think it’s priced a little high and you’re willing to gamble a little bit, then just give it a few weeks before making your offer. They’ll be preparing the first price drop by that time and you may be able to beat them to the punch and, if you’re lucky, they’ll decide to just accept your low ball or counter it in hopes of bringing you up a little bit.

Marc also noted regarding my chart of bank losses that:

Some of these houses had second mortgages on them so the total loss for all the lenders involved was frequently even greater than what you have listed. Ouch.

Based on Marc’s observations, here are some errors banks tend to make in the foreclosure resale process that might allow persistent buyers to find a good deal.

  • Sending all their REO business to a single agent, who becomes complacent and doesn’t try very hard to sell any given home.
  • Not making basic repairs (patching drywall, replacing a sink, etc.) that would dramatically improve a home’s appeal.
  • Requiring buyers to be pre-approved through them only.
  • Poor marketing on the MLS (only one picture, lousy pictures, a poor description, etc.)

Have you spent some time looking at bank-owned homes, or maybe even made an offer on one? Let’s hear your experience. What advice would you give to someone shopping that subsection of the housing market?

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

46 comments:

  1. 1

    My Advice: Do This Only If You’re Travelling Light, You’re a Work-a-holic, Good Schedule Manager and Single

    I had a realtor help me in this area, as he was doing it too. He got me on to an older publication, Investor’s Edge [it’s apparently out of circulation now], which allowed the savy investor to grab ’em up before they went to the courthouse auction. You bought with cash, then moved into the unit for remodeling it yourself [hiring too much out to expensive licensed contractors makes it a likely loss effort, IMO]. This means, you better know how to use a hammer, saw and a paint brush….I cheated and hired a lead carpenter, who had an electrician buddy with good plumbing skills too, paid them by the hour, but got an estimate in writing before the job was completed [of course the estimate was too low, when aren’t they, even with a licensed contractor?]. I was the trainee labor helper, painter and substitute contractor getting material to the job site. You’ll need cash for the remodeling and labor costs too, albeit you may be able to get a home improvement loan with your bank, now that you have the property’s title in your name.

    I eventually did it with my mother-in-laws’ house [same scenario though], bought it real cheap on an owner contract [have your attorney look at their paperwork]. I put in another 25% than purchase price [it would have been 125% with a licensed contractor] and completely remodeled the kitchen, bathroom, redid the oak flooring, put new linoleum in, painted everything inside, installed a garage laundry room, redid the electrical outlet with hottub connections [this you need city inspected and use a licensed electrician too] and added a wall too. I used all new solid wood oak cabinets, higher grade designer grade too. It took two months and yes, the wife and kids waited in an apartment during renovations…..that’s why I suggest do this if you’re single…LOL.

    The house went up 40% in value per an appraissor after I remodeled it….so I made money too :-)

  2. 2
    AndreL says:

    One point: this excellent analysis compares first mortgage loan amount to selling price, not house market value to selling price, which could be even more dramatic.

  3. 3
    Cara says:

    That’s days held by the bank not days on the MLS. Both are interesting numbers for different reasons.

    I suspect that most of that delay is just getting it to the market, but if not, if foreclosures are really sitting without takers for weeks on end in Seattle right now, you are staring in the face of the moment of opportunity (largest market fear). Now is the time to break out those low-ball bids and see if you can get lucky. Take it from someone in a market that’s “ahead” of you by about a year in peak timing and bubble deflation progression, by the time you know it’s the bottom these banks accepting steep losses on foreclosures will either be gone, or the competition will be so fierce that owner-occupant buyers won’t stand a chance getting their hands on one. (even though the prices for them will still be almost as low).

  4. 4
    David says:

    No, sorry, I don’t buy it. The bank gets:

    1. 25% payout on mortgage insurance.
    2. A write off for the ‘loss’
    3. And, the property to re-sell
    4. Also, any interest and closing fees that were paid prior to foreclosure.

    No, sorry Tim. The house ALWAYS wins.

  5. 5
    RoflCatDown says:

    Well, you have to understand what you’re buying when you purchase one of these homes.

    First off they’re almost always sold “AS-IS” which means that there could be a lot wrong with the house that you simply don’t know about. I’ve seen homes that were move-in ready, I’ve seen homes that had everything not nailed down stripped out of them (including the ventilation hood in the kitchen…) and I’ve seen one where it looked like the owner was foreclosed upon who turned off the water and then went around smacking all of the pipes for sink fixtures with a mallet to crack the solder in the pipes for the next victim, er occupant to find.

    And, I’ve seen some where the short sale price prior to foreclosure was 100k lower than the price the bank was asking.

  6. 6
    Brainiak says:

    We found a bank owned property and our agent put in an inquiry saying what we are willing to pay. The response from the bank’s agent was that they only negotiate when a contract has been signed and that low ball offers will be declined with no response. It was 30% off what they were asking, all cash. We plan to wait. It seems like there will be plenty of opportunities and we don’t want to rush.

  7. 7
    RoflCatDown says:

    RE: Brainiak @ 6 – So, you failed to put in an actual offer that could have been refused or accepted and walked away. The worst thing that would have happened is they said no, declined the offer, and you’d have been out nothing of consequence for your trouble.

  8. 8
    Brad says:

    Having looked at a few, and short sales as well, it seems as if banks are setting the price they will accept as a fraction of the original loan amount, with almost no relation to the actual condition and value of the property. So your chance of finding a deal is directly proportional to how foolish/greedy the previous buyer was on price and equity extraction. And don’t expect to negotiate appropriate discount considerations for any adverse conditions of the property. If it’s not in perfect condition, walk away, because to the bank it’s already listed at an “AS-IS” price.

    In the mid-to-long term, this will only increase the bank’s losses – they’ll move the good properties at a big discount to their real value, and end up with only the garbage on their books.

  9. 9

    I haven’t digested all of that, but I’d point out a lot of this particular problem is the result of the banks not properly dealing with short sales.

    I’d also note that either Freddie or Fannie (or maybe both–I don’t remember) does fix up a lot of their listings. New paint, flooring, carpet, etc. They can still have a lot of defects, but at least they look good.

    Finally, I once had a bank not counter an offer we made, and then within a couple of days lower the price to within 5k of what we offered. In the end I think my clients got a lot better property, so I really didn’t mind.

  10. 10
    Brainiak says:

    RE: RoflCatDown @ 7

    We think they will be dropping the price pretty soon (it has sat for a while). Our agent had no problem with submitting the offer, but it seemed like the listing agent would probably tell them it was not a fair offer and they should decline. Of course maybe the bank would have taken it. I don’t think anyone else is going to be jumping on it, so I can see the logic in letting it ripen a bit.

  11. 11
    SummitSeeker says:

    I’ve heard many stories similar to what Kary described; i.e., REO asking prices are firm at any particular moment in time, but are decreased gradually every few weeks. So the situation arises a lot of times where the bank asks 400k, someone offers 390k and the bank refuses, then shortly thereafter the bank lowers the price to 380k.

  12. 12

    Tim,

    I believe the banks are so overwhelmed by this market collapse that many don’t have any idea what they are doing. We have a buyer trying to buy a REO. We’ve made two offers and the bank refuses to counter offer or accept anything other than full price. They say they are willing to sit on it indefinately.

    ~palm plant to forehead~

  13. 13
    Whidbey Islander says:

    Out here in island county, the bank-owned stuff often gets pawned to an out-of-area realty company that doesn’t do any marketing at all. It sits and sits and sits and then gets slashed down to nothing…and then it takes forever to close, which I assume means the agent slashed the price in hopes of getting some sort of offer, but didn’t actually talk to the bank about it first.

    A lot of MLS-listed bank-owned houses out here don’t even get signs on the street. They certainly don’t get things like lawn mowing or property/house cleanup.

  14. 14
    S-Crow says:

    Tim,

    Quick drive by comment here:

    The comment by Marc regarding additional losses by second lien-holders is also my experience in seeing what we close. The 2nds are not a part of your data as far as the foreclosures, but I assure you they are part of the equation.

    Recall that about 70% of all PURCHASE transactions we closed in about a 24 mo. period from mid ’05 through 07′ were 100% financed. That is a boat load of 2nds, much of which were with the same lender and today, if the loan is in default, (natural default or strategic) the 2nd is completely wiped out. Worked on one where the 2nd is a bit less than $400K. The 2nd will be gone, either by short sale w/o recourse, eventual foreclosure or by bankruptcy. Ugly.

  15. 15

    RE: S-Crow @ 14 – What’s amazing is that investors thought that 2nd position loans were worth much. Very naive, even in steady markets.

  16. 16
    ray pepper says:

    RE: S-Crow @ 14

    2nds are taking 10% -15% on the dollar in Nevada (Wells Fargo) on numerous investor properties I have witnessed. The owners of the worthless properties make the offers and they are settling. Thgis is usually done after the 1st is negotiated down to where it makes sense to keep the property. The 2nd has no choice anyway. They either take the 10% or get nothing for many years to come.

    I love the 3k and 5k “incentive” owners of properties are getting in the mail to short sale their property. I have four investors that short saled their property to their tenant and got 5k to boot. Imagine that..Suck up rent for two years then get another 5k BONUS to short sale their own property they defaulted on.

    Comical if it wasn’t so tragic.

    The latest is homeowners getting cashier checks out of their banks for the amount indebted and then sending off these cashiers checks at the 11th hour before the Trustee Sale. However, the owner of the home (and the cashier check) stops payment on the check (which was purchased 2 weeks prior) and the process nearly starts all over again with the cancellation of The Trustee Sale. The owner continues to live in the home/rent it out and the bank continues to pay and pay.

    Couldn’t get me to buy BAC, WFC, JPM,…none of them…All insolvent in my opinion….

  17. 17
    Sara says:

    I have a Seattle bubble story to tell. It involves me, a regular lurker here and a little bank owned property I now call home, but to begin we must go back in time to 2007… fades to past….
    In 2007 I was 28 and decided It was about time to buy my first home. My partner was game and everyone was buzzing about real estate. Our friends were crowing about how easy it was to get approved and we thought if they can do it so can we. So off to the bank we when and lo and behold we were approved for $350000. Huh! I am a numbers geek so I went home and figured out that payment and said no way. We had a combined income of $70000.00 so I thought that the bank was crazy. First warning sign. I came up with a payment I was comfortable with and set my own ceiling at 200000 and went shopping. Now we live in Tacoma so this is possible, but the places they were showing us were dumps. We moved on to less desirable neighborhoods and did find something we liked in a decent place. By now however I was starting to suspect something was wrong. We made more than the average income for the area and yet all we could find was a 2 bedroom on the wrong side of town. My Realtor tried to talk me into moving my purchase point up to the maximum but I started searching the web for more information. In my search I found this website, Seattle Bubble and I started reading. I read every post for the last 6 months I swear and when I looked up I knew I had my answer. Canceled my shopping trips, fired my Realtor and sat down to wait. And wait. And wait; well at least it felt that way. Fast forward to 2010, two raises, one baby and one Mom tired of waiting for her fenced backyard. We decided to start looking again. First day in we put in an offer on a 2 bedroom bank-owned property. Listed at $85000 it went to multiple bids and sold for $80000.00. The multiple bids scared us so we pulled out and waited and watched Redfin. A few months later another two bedroom came on the market listed at 94900. We were ready and put in an offer immediately. It also went to multiple bids and we put in what we were comfortable with 95000. We won the bidding war and we were under contract. I put these examples in to show you that just because there are multiple bids does not mean they are high bids. Both houses had over 5 offers and we would have won either with a full price offer. Now a history of the house. http://www.redfin.com/WA/Tacoma/1410-S-43rd-St-98418/home/2940086. It is a 2 bedroom one bath 1906 Victorian remodeled in 2006 before it’s last sale at sale price 192800. Updated plumbing and electrical with no major problems found during the inspection. The bank fixed a busted pipe in the bathroom and painted one exterior wall without any hassles about bank will do no repairs. Funny things is despite our income growing to 90000 a year this time our original loan application with BECU was rejected! We are both post-grads with student loans up to our ears. So we had to go, you guessed it FHA, the new sub prime. All in All it all went smoothly, we closed on June 25th in time to get the $8000.00 tax credit for a final home price of 87000 and have moved in. The house is comfortable, I have mowed the 4 foot grass and painted some walls bit other than that It was move in ready. So that is my Seattle Bubble, REO story. Finding this website and waiting 3 years saved me $105800. Prices may still decline but for now I am now longer in an apartment and renting this same house would be 900. Our payment is 740. So I guess Ray is right, there are gems out there and Thank you Tim for me at least you made a big difference in my life.

  18. 18
    ray pepper says:

    RE: Sara @ 17

    Congrats to you Sara….. and WOW Tim…Nothing is greater then hearing that from a reader.

    You have truly made a difference in peoples lives!

  19. 19
    Ross Jordan says:

    By Sara @ 17:

    […] All in All it all went smoothly, we closed on June 25th in time to get the $8000.00 tax credit for a final home price of 87000 and have moved in. The house is comfortable, I have mowed the 4 foot grass and painted some walls bit other than that It was move in ready. So that is my Seattle Bubble, REO story. Finding this website and waiting 3 years saved me $105800. Prices may still decline but for now I am now longer in an apartment and renting this same house would be 900. Our payment is 740. So I guess Ray is right, there are gems out there and Thank you Tim for me at least you made a big difference in my life.

    Congratulations. That is a great story and sounds like you got a nice home that you can afford. Just out of curiosity, how much do you think a home like yours would rent for in the same or similar neighborhood (I’m not familiar with the rental market in Tacoma)

  20. 20
    Sara says:

    RE: Ross Jordan @ 19 – This house would rent for 900.00 easy. The apartment we moved out of was 800 a month and this is a house with a garage.

  21. 21
    Blurtman says:

    Are some of the crooks finally going to jail?

    FDIC sues former executives at IndyMac’s homebuilding loan division
    http://latimesblogs.latimes.com/money_co/2010/07/fdic-sues-former-executives-at-indymacs-homebuilding-loan-division.html

    Are the former WAMU execs starting to sweat? Recall that WaMu, according to a US Senate investigation, pursued a deliberate strategy of peddling high-risk, often fraudulent loans, and selling them off to investors. It would be interesting to see which Washington state politicos benefited from thsis crooked outfit’s largesse.

  22. 22
    Mark says:

    Congrats to you Sara. That sounds a lot like my experience. The big differnce here though, is I was looking for an investment, I already own my own home. I was thinking about buying another property a few years ago to rent out but had heard a bit about the bubble and thought that it would be prudent to research that idea a bit further. I had been heavily invested in the stock market in the late 90’s – early 2000’s and knew how much pain a bubble could inflict on someone.

    I found this site and a few others that explained what had driven real estate prices to the levels that they were at and decided it was best to sit out any further participation in the real estate market. Sure glad I did.

    I aint the sharpest knife in the drawer, but was sharp enough to search out those that knew what was going on.

  23. 23
    David Losh says:

    You are very observant. Yes, banks are interested in closing files. That’s the job. If you close files you get an at a boy, or girl.

    The money is irrelevant because the cash is tied up. Yes, once again your observation is extremely correct, it is 20% of the loan amount, that’s the goal.

    If you are in the market for an REO there is a procedure that is standard. Policy, and procedure are in the manual. Banks are usually the servicer, but they all play by kind of the same rules.

    I wrote an article about this for Rain City Guide, but Dustin has kind of left it hanging. The gist is that if you are a solution to a problem file you have a better chance of making a good deal. You also need to be ready, willing, and able to close the day you make your offer.

    This means you buy an inspection, appraisal, get a loan in place, and have a closable deal, on the table. Your agent says, “we are ready to close.”

    If you have cash that’s better, but you need to be ready to close. People with cash all think they are ahead of the game, but they want to play by some weird set of rules of jacking every body around.

    In this arena, a closed file, is an at a boy, or girl. It’s a promotion, a raise, or job security.

    So deposit your Earnest Money in an escrow account, get an inspection, get a loan, or cash, and be ready to close. Make an offer you are comforable with, and call it good.

    I’ll just add that even if other offers are accepted before yours, you have a closable transaction. Keep it on the table. If you want to move on, then rescind your offer. Your recission may kick a deal.

  24. 24
    The Tim says:

    RE: Sara @ 17 – Wow Sara, that is an amazing story. Thanks so much for sharing! I love hearing reader feedback like this!

  25. 25

    RE: RoflCatDown @ 5

    Anything Is Sold As-Is, If Its Older and Used

    Sure, it may look immaculant all clean and perfect during the home tour; but serious hidden defects are typical on even completely remodeled old houses, and even a thorough building inspection doesn’t use x-rays.

    The new homes have their problems too, some hidden under the glossy new materials; so don’t assume if it looks good it’s alright.

    If you remodel an old house yourself, at least you can tear some exterior walls down and find defects no one would find hidden beyond the sheet rock.

    There are no perfect homes and all are likely potential money pits, sooner or later.

  26. 26

    By softwarengineer @ 25:

    RE: RoflCatDown @ 5

    Anything Is Sold As-Is, If Its Older and Used

    If you’re talking about normal sales of older houses, that’s not correct. Older houses are sold on the same terms and conditions as other resales, unless they’re extremely run down and limitations are stated.

    BTW, “as-is” in the real estate industry tends to mean something different than “as-is” in other areas. It merely tends to mean that the seller will not do any repairs. If they want to go beyond that, and not be making any warranties, more needs to be said if you’re the seller, IMHO.

  27. 27
    JJG says:

    Those Tacoma prices sound nice.

  28. 28

    RE: Kary L. Krismer @ 26

    I Agree Kary

    I’m sure our tearing apart remodeling efforts on older homes [especially your’s] fine-toothed and discovered hidden defects…..did we find and repair them all? Lord only knows.

    My brother-in-law’s new house was inspected OK and subsequently sheet rocked; covering up copper pipes with illegal plastic joints….he’s already recently remodeled it twice in about 10 yrs of ownership due to flooding of the illegal plastic plumbing joints bursting in the walls. Every investment has risk and any type of home purchasing risks big money.

  29. 29
    ARDELL says:

    The Tim asks: “Have you spent some time looking at bank-owned homes, or maybe even made an offer on one? Let’s hear your experience. What advice would you give to someone shopping that subsection of the housing market?”

    Both Craig of Wa Law and I both wrote posts on the “perils” and quirks of a bank-owned transaction, using our most recent closings of bank-owned transactions as examples, vs “hypothetical” situations.

    Craig’s post: http://raincityguide.com/2010/06/10/bank-owned-home-make-offer-at-your-peril/

    My post: http://raincityguide.com/2010/06/12/buying-a-bank-owned-home-balls-in-your-court/

    Lots of extra detail in the comments as well.

    Comment #5 above states: “First off they’re almost always sold “AS-IS” which means that there could be a lot wrong with the house that you simply don’t know about.”

    That is not usually the case with a bank-owned property available via the mls (vs buying “at the courthouse steps). Yes it is “as-is” BUT that does not mean the buyer does not do an inspection, as no one should buy a house they “simply don’t know about”. It is of great value to do an inspection and to have the right to cancel on inspection.

    The general rule is you do a thorough inspection of the house on your own prior to offer and adjust the offer price for all known defects and “subject to an inspection contingency”. Then you additionally have a professional inspection while in contract Hopefully you have considered worst case scenario in your original offer, and the inspection does not come up with something major that you didn’t already adjust for in price. If it does, you can cancel.

    As you can see from the discussion I am having with Craig on his post, in most cases it is best to cancel and start over, than to begin “negotiating” on the home inspection. The turn around times for response from a bank seller will mess up your closing date, so best to cancel and start over if the items unearthed at time of inspection are significant and not known prior to offer.

    HUGE warning is if you are a buyer using an FHA loan to close, buying a bank-owned property can quickly become problematic if your lender requires repairs be done prior to closing. I just pulled one off that needed a new roof prior to closing, but you get stuck in a big Catch-22 of d-mned if you do and d-mned if you don’t. The contract says “no repairs”, but the loan won’t fund without the repairs.

    The #1 “problem” with bank owned properties is they WILL keep your Earnest Money if you do not close ON TIME. Buying a bank-owned is not your normal “touch-feely” brand of residential real estate purchase. It is much easier to lose your Earnest Money on a bank owned purchase. Most of that is covered in the links above.

  30. 30

    By ARDELL @ 29:

    That is not usually the case with a bank-owned property available via the mls (vs buying “at the courthouse steps). Yes it is “as-is” BUT that does not mean the buyer does not do an inspection, as no one should buy a house they “simply don’t know about”. It is of great value to do an inspection and to have the right to cancel on inspection.

    Ardell, unlike the NWMLS forms, you don’t necessarily have the right to cancel on a bank owned. You typically have to provide them the inspection, allow them to fix the items you don’t like, and if they don’t, then you can cancel. Thus, just having your mom drive by and say she doesn’t like the place won’t work, as it does with the NWMLS forms.

  31. 31
    Stacey Mayer says:

    Finally; the truth. There are so many bank owned homes in some areas, it’s amazing. We’re going to just stay back, and keep watching the neighborhoods. Thanks for all the transparency you provide the public!

  32. 32
    ARDELL says:

    RE: Kary L. Krismer @ 30

    My clients all had a regular Form 35 right to cancel inspection contingency, and none of my clients have ever done a “mom drive by inspection” (have yours?). None of my clients who purchased bank-owned property cancelled on inspection, but we did cancel one that could not deliver clear title due to a neighbor dispute and lawsuit pending.

    Raises a good point…OFTEN there is no disclosure…so the work during the due diligence period is amplified 1,000%! On new construction I did more than one inspection, including an extra structural engineer inspect. Title Review Contingency is always a good idea but a MUST on a bank-owned.

    Relying on “allowing them to fix items” doesn’t work well in the areas I work, Kary. YMMV. Also I would not trust a bank to fix things properly…so “allowing them to fix” vs cutting the price up front, is not usually a good way to go with a bank-owned property. Depends on the bank. Local banks are easier to work with than the huge international owners represented by an out of state servicing company.

    Best not to walk into a bank-owned expecting them to do repairs, when the contract says “no repairs-as is”.

  33. 33

    By ARDELL @ 32:

    RE: Kary L. Krismer @ 30

    My clients all had a regular Form 35 right to cancel inspection contingency, and none of my clients have ever done a “mom drive by inspection” (have yours?).

    But the bank form that comes back undoubtedly has a provision that says that their provisions control. Your Form 35 is irrelevant on most bank owned, but you have to include it in your offer since the banks don’t typically provide the forms required.

    No, I never have had a client do a mom drive by, but I have had that happen to a seller client. They didn’t even go inside the house.

  34. 34

    By ARDELL @ 32:

    RE: Kary L. Krismer @ 30 – Relying on “allowing them to fix items” doesn’t work well in the areas I work, Kary. YMMV. Also I would not trust a bank to fix things properly…so “allowing them to fix” vs cutting the price up front, is not usually a good way to go with a bank-owned property. Depends on the bank. Local banks are easier to work with than the huge international owners represented by an out of state servicing company.

    Best not to walk into a bank-owned expecting them to do repairs, when the contract says “no repairs-as is”.

    I would agree. My point is though that once you find something that is beyond what you expected, your choice isn’t to walk as it is with Form 35. Your choice is to have them fix it or fix it yourself.

  35. 35

    RE: ARDELL @ 32 – From the last bank owned addendum I closed on (and it was in all caps):

    THIS ADDENDUM AMENDS AND SUPPLEMENTS THE CONTRACT AND, IF APPLICABLE, ESCROW INSTRUCTIONS. IN THE EVENT THERE IS ANY CONFLICT BETWEEN THIS ADDENDUM AND THE CONTRACT OR ESCROW INSTRUCTIONS OR NOTICE OR OTHER DOCUMENTS ATTACHED AND MADE A PART OF THE AGREEMENT, THE TERMS OF THIS ADDENDUM TAKE PRECEDENCE AND SHALL PREVAIL EXCEPT AS OTHERWISE PROVIDED BY LAW.

    Since their addendum could really have stood by itself as a separate P&S agreement, that meant very little, if any, of the original contract offer remained.

  36. 36
    Leanne says:

    We bought a bank owned property last summer. Originally saw it listed at 340k, well below what we expected for property type and location. Checked out for unexpected problems (collapsing roof? Next to dump? ) but no major issues. Still, we decided to pass since we couldn’t occupy for two years. A month later price dropped to $320k, and we mulled it over and offered $290k, cash, with inspection contingency. 30k ernest money. Bank gave oral acceptance with no counter, if we could close in ten days. We pushed back for a few extra days, but had problems getting them to return the signed contract, and to meet the closing deadline we had to inspect before we had the final contract in hand. Still in the end we closed on time. Once we had the docs we saw the last selling price was $699k, outstanding mortgage was $550k. The “bank” appeared to be some kind of investor trust out of Florida, not a local bank or big national bank. We are happy with the purchase, and overall it went pretty easily, despite the few fidgets.

  37. 37

    RE: Leanne @ 36 – My first reaction was that it was crazy to put 30k earnest money down on a bank owned property. But without knowing the terms of the contract that would be impossible to say. Just as the contract probably changed the inspection terms, it also probably changed the default terms, effectively providing for an election of remedies rather than retention of the earnest money being the sole remedy. Putting $30k down the bank would be very likely to elect taking the earnest money instead of suing you, so perhaps that was a good move. Probably more than required to get that result though.

    Anyway it should be clear to people that the risks in buying a bank owned are much greater than the risk of buying a normal property or even a short sale. I suspect that’s why Craig is of a different opinion of them than Ardell. Personally, I’m somewhere in the middle, thinking they are okay for people to buy assuming they understand the risks.

  38. 38
    Hector says:

    After looking at a number of them (some good, many of them scary), we just had an offer accepted on a bank-owned home, and we already have some lessons learned:
    ___
    The bank asked for a short closing, we agreed to it, but also countered their counter (net 12% below asking). They responded by verbally accepting, and asked us to sign an addendum in which we agreed they could basically check out our every corner of our entire lives to ensure we were worthy of buying their house. But hey, it was 12% below asking, right?

    The bank then spent 2 weeks, with us in the dark. It turns out even though they had owned it for 2+ months, the mortgage insurance still not been settled. Of course over this two weeks the listing agent could only tell us “No idea what is going on, but if a better offer comes in, the bank will likely take it”. Thanks…On a side note, this agent deals strictly with REO listings, and she is not willing to rock that boat.

    Spent the next week getting utilities turned on. The bank fortunately agreed to extend the inspection date and also our closing.

    Showed up for the inspection yesterday…no utilities…Called listing agent, she’ll call the bank…Inspection went ok otherwise, but a few minor things have popped up as a result of the banks “repairs”.
    ___

    All in all it’s been an ok experience, but the listing agent is adding zero value from our perspective, and the bank doesn’t seem motivated to sell this house. That all being said, it last sold for $453k in 2007, and we are at $310k.

  39. 39

    RE: Hector @ 38 – Although the piece was written on a different topic, the third to last paragraph of this piece touches on the REO contract process, and how much of it is oral, and their ability to take a better offer.

    http://blog.seattlepi.com/realestate/archives/177171.asp

  40. 40
    ARDELL says:

    RE: Kary L. Krismer @ 35

    I did have one of those recently, but the counter addendum also had an allowance for repairs (dollar amount), but only if those repairs were lender required. We did capture that dollar amount toward the new roof bill at closing.

  41. 41
    Hector says:

    By Kary L. Krismer @ 39:

    RE: Hector @ 38 – Although the piece was written on a different topic, the third to last paragraph of this piece touches on the REO contract process, and how much of it is oral, and their ability to take a better offer.

    http://blog.seattlepi.com/realestate/archives/177171.asp

    Kary, I was responding to Tim’s final paragraph of his post in which he asks:

    “Have you spent some time looking at bank-owned homes, or maybe even made an offer on one? Let’s hear your experience. What advice would you give to someone shopping that subsection of the housing market?”

    I believe I responded appropriately.

  42. 42
    Kary L. Krismer says:

    RE: Hector @ 41 – I wasn’t suggesting your response wasn’t appropriate. I was just trying to indicate your experience was somewhat typical.

  43. 43
    Hector says:

    By Kary L. Krismer @ 42:

    RE: Hector @ 41 – I wasn’t suggesting your response wasn’t appropriate. I was just trying to indicate your experience was somewhat typical.

    Gotcha, sorry, I complately misread your post.

    It is good to hear that I am not alone in this experience.

  44. 44
    David Losh says:

    RE: Leanne @ 36

    I have worked with many investors over the years that do plunk down earnst money to a bank to get a deal.

    We do our own inspections so maybe that’s a difference, and some we don’t inspect at all because we figure they are a complete gut.

    The sacrier they are, the more the bank gets confused, nervous, and ready to settle.

    BTW the listing agent doesn’t work for you, or with you. Your agent should know the process, what works, and what doesn’t.

  45. 45

    […] Actual Listing Photos: Bank-Owned EditionBy The Tim on July 19, 2010 | Leave a responseSpeaking of poorly-marketed bank-owned listings…It’s time for another installment of Real Actual Listing Photos. Once a month (or so) I […]

  46. 46
    Leanne says:

    We could barely get the listing agent to respond to our communications. We used a buyer’s agent to submit the offer, and looked very carefully at the amendments/addendum they made to our contract before countersigning, but they were minor–shortening the closing period, which we renegotiated a bit, and indicating they would not fix any problems found at inspection.

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