The first step when purchasing any real estate usually entails hiring a local real estate agent or broker to assist you with your search. In the case of bank owned properties, this is almost always a requirement. The bank will use a broker to list the property (if it is not sold to a private buyer at auction).
Unlike standard transactions, in the bank owned arena, typically this broker cannot serve as both the buyer's and seller's agent. You should hire an agent who is experienced in these types of transactions and who can accurately assess the market value of the property.
Hire an Attorney
Most people wait to hire an attorney until after they have entered into a contract with a seller. This is the most common mistake purchasers of real estate make. Part of the value an attorney can offer includes the review of a contract prior to its execution. While most real estate contracts have a clause which allows for attorney modifications, it is far better to allow an attorney to review the contract so that modifications can be made prior to being bound by ANY terms in the contract.
Hiring an attorney prior to purchasing a bank owned property can be an even larger advantage to the buyer because there are standard terms that most banks will not accept. Having the right terms in your contract when you make your offer may increase the chances of it being accepted.
Make an Offer
Making an offer in a bank owned situation is usually different from making an offer on other property. Sometimes the property will not have a list price and it will be open for bidding. The bank will specify the time within which it will entertain offers and you will have to submit your offer with in this period. Even if a price is listed it will often be well below market value and other bidders may bid above the asking price. This is why it is so important to have the right agent or analyst assist you with the offer price.
Within the bank owned arena it is very important to remember that barriers to an agreement may cause you to lose out to a lower bidder. For example, the bank will likely accept an all cash offer over an offer that requires financing, even if the financed offer is higher.
Review Acceptance Terms
Most banks have a set of terms that they will insert into any offer they are willing to accept. If you have not hired an attorney at this point make sure that you do so now. These terms are highly technical and you should have them explained to you by a competent attorney.
You also must make sure that you can fulfill the terms and that they are agreeable to you. Most of the time a bank will sell the property "As-Is" and will not allow modification based on an inspection. Considering you will be required to put up earnest money in these transactions you absolutely should have hired an attorney before agreeing to these terms.
Prepare for Closing
If you are paying cash for a bank owned property make sure you have access to all of the cash. Sometimes it will take a bank a few days to process a request for a cashiers check of large amounts of money. Call ahead of time and find out what your bank's rules are so that you are prepared on the day of closing. Perform an inspection of the property if it is permitted. Make sure you provide the inspection information to your attorney so she has an opportunity to review it as well. Make sure you receive a Title Commitment package and that you are using a reputable title company in any transaction.
Attend the Closing
The buyer will have to sign many documents in the bank owned transaction, just like any closing. The major difference in this situation is that you will most likely leave the closing without any documents signed by the seller. This can be very alarming to a buyer. Typically the closing occurs at a title company and the title company will fax the buyer signed documents to the bank. The bank must follow certain protocols for selling bank owned assets and will then sign the documents and fax them back to the title company a day after you attended the closing. You will then receive seller signed documents via overnight delivery.
Confirm the Purchase
After the closing has been completed your attorney should verify that the proper documents have been recorded with the local recorder of deeds office. Some jurisdictions take longer to record than others. If your attorney does not do this for you make sure that you confirm the documents have been recorded properly by contacting the recorder's office directly.
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