My Foreclosure Purchase Part 2
Posted by Rebecca
Read Part 1 of this story.
At the end of my last post, the bank had verbally accepted our bid on the home. In a traditional home purchase , the seller accepts an offer by signing the original purchase and sale contract. The two parties would then have a binding agreement at that time. In this case, the bank didn’t sign anything, but sent us an unsigned "addendum" to fill out, sign and return to them, at which point they would sign it and the original purchase and sale contract. Not until then would we have a binding agreement.
The Addendum
This addendum is basically a large packet of papers written by the bank’s attorneys to protect them in the transaction. It outlines the terms already stated in the original offer, as well as the length of time you have to get inspections done, title transfer information, etc. The verbiage can be very one-sided in the favor of the seller.Where does that leave you as the buyer? Unprotected if you don’t have your own Realtor. And I don’t mean the listing Realtor, because he is representing the bank. You need your own representation.
Your Realtor should be able to help you decide which concessions you’ll need to make in order to play ball with the bank and which terms are worth negotiating. After we filled out the addendum and sent it back, we were back to waiting on a signature from the bank. More waiting. This is an emotionally challenging process for the buyer. The ball is seemingly always in the bank’s court, but if you’re getting a great deal, it’s more than worth it.
In our case, our home appraised at 52% more than we paid for it.
Inspections
The paperwork stated that we’d have seven days from the binding agreement date to do any inspections on the property, so as soon as we received all the signed paperwork, we had to hit the ground running. When I say that we had an inspection period, this does not mean that the bank was willing to do any repairs, changes or renegotiation in response to these inspections. The sale is as-is.
However, if the inspector were to find a major defect in the home, the buyer would have the option to terminate the contract. The first expert I had out to the house was a termite guy. I knew the home had not been under bond (you can expect this with most foreclosures), and I didn’t want to pay for the home inspection if there were major visible termite issues. The house checked out ok, so I confirmed the appointment for the home inspection. Keep in mind that the water and power may not be on, and you will need these for a home inspection. GA Power requires at least 24 hours’ notice to turn the power on, so keep that in mind when planning appointments.
By the day of the home inspection, Rob and I were already in love with the house, and so we were desperately hoping that no major problems would be found. The home inspectors arrived, and for about three hours, they checked over every square inch of the house. Aside from missing doors, switch plate covers, a few holes in the walls and a broken window and sliding glass door, the house was in great shape. It needed landscaping work, interior painting and some serious cleaning, but these are all cosmetic issues, so the deal was still a go.
Complications
About a week before closing, we had a major set-back. The home was in a flood zone, and the flood elevation certificate could not be located. In a resale situation, the buyer could just ask the seller for a copy, but the bank had no such records, and we had no contact with the previous owner. Without the flood insurance, our loan could not go into underwriting. We were getting down to the wire, and on top of everything else, we were going to have to pay for the new flood certificate to be issued! You probably won’t encounter this exact issue, but count on complications. If you don’t have any, you’ll be pleasantly surprised, and if you do, you’ll be prepared.
Closing!
We closed on the home about three weeks after placing the bid. It was an arduous three weeks, but we couldn’t be happier. We love our new home, we’re proud of our investement and now it’s time to get it looking its best. Check back in the coming weeks as I catalog our improvement projects.
Tips Gleaned from this Post for Buying a Foreclosure:
- Find a Realtor who has experience in forelosure sales, and make sure she represents your best interest.
- Be prepared for an emotional rollercoaster. Keep in mind that a few hard weeks are worth a great end result.
- Always get a termite inspection. Since a quote from most companies is free, do this first in case major problems are found; then you won’t be out the $300+ dollars you paid for a home inspection. After the sale, follow up and get a termite bond on the home!
- Use a trustworthy inspector. If you don’t have anyone in mind, your Realtor should. Don’t skip getting an inspection done or use the cheapest inspector you can find. This is even more important in a foreclosure than in a resale purchase. You don’t want to be stuck with a costly hidden defect, and homeowners’ whose homes are being foreclosed upon often take out their frusterations on the house. Sometimes in very sneaky ways.
- Use a reputable closing attorney, and get owner’s title insurance if the bank doesn’t provide it for you. There are many title issues that could surface in a foreclosure situation that wouldn’t be as likely in another type of purchase.
- Be prepared for last-minute issues, and have a game plan. Try to be calm about the situation and get the problem resolved immediately.
- Enjoy the fruits of your labor! If you’ve played your cards right, you’re a new homeowner with a large amount of equity in your home.
Subscribe to my RSS Feed for update notifications, and don’t hesitate to contact me for help finding your own great deal!