QUESTIONS ABOUT BANKOWNED (REO) PROPERTIES – Just Ask Lou
By Monrovia Weekly
Published: Thursday, April 24th, 2008
Because it is a buyer’s market, it is more important that the buyer be aware of what to expect when they decide to purchase a bank owed property. Just what are the seller’s responsibilities of bank owned properties? That seems to be the bases of many of the questions received.
A number of real estate agents have not previously experienced sale of bank owned properties, and it is a new experience. I must admit that there hasn’t been as much training for these type of sales, although the California Association of Realtors® (CAR) is making an effort to bring agents up to date. CAR has published a 16 page flyer of questions and answers for Realtors®, yet from a small survey that I have taken of agents in my local market, very few were aware of this material. With so much marketing information being made available to us, it is very possible that too much means setting aside time to read it all.
Let’s take a closer look at what to look out for when purchasing a bank owned property.
Banks do not have the same disclosure responsibilities as you or I would have if we were selling our own property. They do not have to provide a potential buyer with A Natural Hazard Disclosure Statement. This is a statement that tells a potential buyer if there are hazards in the immediate area of the property, such as being in an earthquake zone or if the property is subject to Mello-Roos or the 1915 Bond Act Assessment Notice. These two tax items stay with the property for just about the life of the property, where as under Proposition 13 the property tax is one-percent, but these two additional taxes could make the yearly state tax considerably higher.
Then there is the Supplemental Property Tax Notice, which must be disclosed when purchasing a property other than for a bank owned property. This is a notice that at some future date the buyer’s will receive a supplemental tax bill for the difference between what the previous owners were paying and what the value is when the buyer purchased the property. A professional Realtor® will or should make the buyer aware of this even though the bank owned property seller may not do so.
You may recall my article on Private Transfer Tax Notice, where some developers will receive a transfer fee every time the property is sold, or transfers ownership. Sellers of bank owned properties do not have to disclose this private tax, and it is very possible that the sellers may require that this tax be paid by the buyer. Although the seller of a bank owned property may not need to disclose this tax, it is the real estate agents responsibility to make a buyer aware of it, providing the real estate agent is aware of this hidden tax. Not all developments or condos have this hidden tax, but it is important to know if the property that you may be purchasing does have it.
Other disclosure items, that a bank owned property does not have to comply with are the Military Ordnance Location, and Industrial Use Zoning. During World War II, there are areas in California that were used for training, and have since developed into large communities. There could still be live ordnance in the immediate area, and it is an important disclosure item, as is if the property is close to an industrial area.
Sellers of bank owned properties do not have to provide a buyer with any transfer disclosure reports, simply because the owner of the bank property has never lived in the property and has no knowledge as to the condition. Therefore having a Professional Inspection made, and paid for by the buyer, is a must. The purchase should be subject to receiving an acceptable inspection report.
No doubt you have heard that sales of such REO properties are being sold AS-IS, AS-SEEN, or in other words “let the buyer beware,” but that does not apply to real estate transactions under California Law. To get around this, the bank will normally have the buyer sign an agreement stating that they are accepting the property in it’s present condition, and that no disclosure will be made.
Any facts known to the seller of a bank owned property, MUST be disclosed to a potential buyer; even so, it is always best to completely read all of the forms that the seller will ask the buyer to sign.
Now some benefits! In those cases that I have found, REO properties, for the most part, they are priced at current market values. Remember, the banks have many properties for sale, so do not be to concerned if you offer a lower price.
Some sellers of REO properties may be willing to carry the loan, and their interest rate may also be negotiable. In other words, if the bank is willing to carry the loan, consider offering a slightly less interest rate. This is especially true if the bank is holding fairly fast to their asking price. Banks will not make any repairs, but that doesn’t mean that you can’t negotiate a discount for making those repairs.
In those areas where the bank is not required to give any disclosure, the real estate agent representing the bank and your real estate agent, must disclose all known defects. Your agent can obtain the Natural Hazard Disclosure report for you. Your agent will not be able to tell you the amount of the Supplemental Tax Bill, as that information will come from the county but the fact that you will be receiving such a tax bill should be disclosed to you. The same will hold true for the Military Ordnance Locations, Industrial Use Zoning and the Private Transfer Tax. Unless you ask questions regarding such items, you may be getting some surprises in the future.
Ask your real estate agent about all disclosures, as there are certainly many more then what I have outlined so far. Many of those questions can be found in my book, “Just Ask Lou”.
Louis Perlin CRS, GRI is a Realtor®, a Syndicated newspaper writer, and an author. Lou can be reached by calling (760) 327-8401 or by e-mail: mprltr@aol.com.
Leave a Reply
