Buying a Foreclosure in Portland? Things every Buyer should Know!

Are you looking to buy a home in Portland? Curious about buying a foreclosure in Portland? In a December survey, Trulia found that 49 percent of Americans were at least somewhat likely to consider buying a foreclosure, up from 45 percent in May 2010. But the number of US adults who believed there are disadvantages to buying foreclosures had also increased, from 78 percent to 81 percent over the same time frame.

While there certainly are risks that run with buying a foreclosed home, the most risky way to do it is also the least common method: at the foreclosure auction itself. Auction buyers often don’t have the opportunity to fully vet the foreclosure to ensure that they are receiving clear title and/or to make sure they’re not getting a lemon. With that said, most foreclosures are resold not at the foreclosure auction, but as an REO (short for Real Estate Owned – by the bank), listed by a real estate broker on the Multiple Listing Service.

When you buy an REO in this way, you have lots of opportunities to use some tricks of the trade, so to speak, to avoid some of the traps you may fear. Here are some tips every Portland home buyer should be aware of:

1. As-is means as-is, period. (Most of the time.) Banks have very little interest, inclination or even the logistically necessary resources to execute repairs on your home. Many of these homes are managed by an asset management company in another state, and may not even have a local person besides the agent who can handle large repairs. Generally speaking, bank-owned homes are sold on a very strict “as-is, where-is” basis, which just means that you should expect to take possession of it, if you buy it, in exactly the position and location it is, no matter how defective. Do not walk into a viewing of a foreclosed home, notice how the plumbing is all ripped out of the wall, and make an offer for it, assuming you’ll be able to get the bank to “fix” the issue later. Usually, if the bank is willing to do any repairs to a foreclosed home, they do so, on the advice of the listing agent, prior to the home being listed.

In a very rare cases I have seen the bank willing to only make a fix that was a health-and-safety risk, like a gas-leak or an electrical issue. And in those cases, the property defect was highly non-obvious – not something even a diligent buyer could have detected visually prior to making an offer. Maybe another few times I’ve seen a bank agree to a small price reduction due to surprising condition problems.

2. The bank won’t talk. When it comes to real estate disclosures, the fact is, the bank speaks not much of anything! Many states exempt banks and other types of corporate homeowners from making substantive disclosures about the condition of the property. Even in jurisdictions where the bank is not legally exempt, most banks will simply write across the required disclosures something to the effect that the bank has no knowledge of the property’s condition. (Before you protest with a “that’s not fair!!” keep in mind that the bank never lived in the property, so most often truly does have no idea of any important facts or details about its condition or location, the things an average home seller would be required to disclose.)

Get inspections! Yes – all these inspections cost money, but the drama and thousands each of them can save you is well worth it. And read your buyer inspection advisory, just to make sure you’re aware of all the inspections that are available to you, and work with your agent to determine which ones make sense, and which are not appropriate.

3. If you’re buying a foreclosure in Portland, the bank will often require you to use it’s own purchase contract, rather than the more commonly used state forms. Many times, this is done to advise the buyer of the bank’s refusal to make substantive disclosures (see above) and to change some of the normal practices for your area to the bank’s standard practices. Basically the banks forms are designed to protect the bank, not the buyer.

For instance, where you would usually have to sign a document proactively releasing contingencies, the bank’s contract will probably change that, so that your transaction operates on an objection period. In “objection” based transactions, you have a certain period of time in which you must either speak up about your concerns with the property and/or cancel the deal, or you will automatically be presumed to be moving forward with the deal and your deposit money will be forfeited if you change your mind after that date.

If you’ve been making offers on non-foreclosures on the standard contract form, or you’ve bought homes before and think you know the drill, please – I implore you – READ every word of the contract you sign when you buy a home from the bank, and ask your broker or attorney to explain anything that doesn’t make sense.

4. Expect the unexpected. When you buy a foreclosure in Portland, you might end up working with the bank’s escrow company, instead of a company you select. And the bank’s escrow provider might be slow or disorganized. The bank might rush you for your deposit money, but take their own sweet time coming up with the necessary signatures on their end to close the deal. Very typical. You might expect that the bank would be desperate for buyers, and instead find out that there are 20 offers on the same REO. Or, you might be the only offer and still get your aggressively low (but still reasonable) offer rejected, only to have the bank reduce the list price of the home to the same price of your offer! That happens all the time!!(They often want to see if exposing it to other buyers at the new, lower list price might generate more interest and higher offers.)

When you’re buying a foreclosure in Portland, expect glitches, expect your calendar to be derailed, expect the bank to be inflexible and possibly even unreasonable. Having realistic expectations may keep you from pulling your hair out. And if the transaction turns out to run smooth as silk? You’ll be pleasantly surprised.

by Betsy Ballantyne

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