The Bitter Battle of Buying A Bank-Owned Home

Tops on the list of getting a property that is a real ‘bargain’ is to buy a bank-owned home that’s below market value, fix it up and earn instant equity.

The actual process of doing this is not for the faint-hearted….. here’s a very recent experience of a couple I’m working with and what they discovered.

“Bank-owned” means exactly that- the bank (who gave the original mortgage) now has ownership of the home because the original homeowners defaulted on the loan…. as in they did not make payments, so the bank had to take the home back. This is a long and tedious process… often a property has been sitting empty for a year or so. The previous homeowners have either left or been evicted, the bank has sludged through their process (sometimes trying to sell it at a sheriff’s sale, etc.), has listed it with a realtor (often specializing in listing this type of property), and is waiting for an offer.

Logic would say that the bank is anxious to get this property off their books, but logic is definitely not part of this process.  Banks are slow and difficult to work with. I often tell my clients to think of a guy (or woman), sitting at a desk far away (usually in another state), with a HUGE stack of paperwork for this and other homes and no personal knowledge of the property. This person has to justify their job- and the way to do that is keep moving the paperwork.
There is usually no regard for contract timelines- even if you give them several days to respond.
They are going to counter and quibble over the most inane details… things that would normally be a given. 
And most importantly, there is no accountability or motivation to get that property SOLD.

My clients found a property in pretty good condition (many of these homes are in nasty condition…. I’ve seen homes with holes in the walls, feces on the floor, missing the furnace, toilets… it can be shocking) and made an offer.  It took THREE weeks negotiating back and forth- most of that time waiting for the bank to respond back to us. 

By the time we got in contract (and had to wait 5 more days for the bank to get us their signature), my clients had signed 5 times that the sale of the property was AS-IS (it was stated 3 times on 1 counteroffer- talk about overkill!), we had 5 days to do inspections, and my clients had to pay $250.00 up front out of their pocket to have the property de-winterized so the water could be turned on.  (”What?!” you say.  It was one of those ‘it-is-what-it-is’ situations…. if you want the house, that was one of the terms.  The bank ALSO wanted my client to put the utilities in her name and be responsible to get the water turned on… this we refused- which was a good thing in the end….).

The day of the inspection, our first challenge was an inch of water on the basement floor. The sump pump motor had quit working properly.  The inspector got it operating and the water quickly drained. The basement was unfinished, and the water had not risen high enough to affect the furnace, so things seemed OK.  The inspection went well…. until the inspector turned on the water main. 

Within minutes water was pouring through the kitchen ceiling. After a few minutes of panic, it was determined that the plumbing within the walls from the shower had a serious problem.  Water also poured down the exterior wall into the basement.

My clients decided to terminate the contract, and gave notice. It’s now 1 1/2 weeks later, and we’re still waiting for the Release from the bank to return the earnest money deposit to my buyers. After spending $250.00 for the de-winterization, and $370.00 for inspections, we are back to square one in the home search…..

(Note: for MORE battles to buy a bank-owned home, click on this later post….)