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Monday, April 28, 2014

First time buyers (or seasoned buyers) – Beware the bank counter-offer


Question - I made a bid on a foreclosed house and now the bank has countered with a huge document of their own. What’s that all about?

Answer – The bank has essentially made a counteroffer. Your original offer is now invalid and
they have asked you to respond to their counteroffer by accepting or rejecting their offer. Banks are arrogant corporate entities, faceless and soulless. They play by their own rules and nothing that you’ve already learned about the process will necessarily apply to a bank foreclosure deal (or a bank short-sale deal for that matter).

What the bank has sent back to you is their Purchase agreement with their terms and conditions. Go over it very carefully with your agent. Don’t make any assumptions that anything that you had in your original offer still applies. The bank counteroffer will give you the price that they will accept; they will tell you how much, if any concession they will make to help out with your closing costs and they will tell you exactly when you have to be ready to close or they will impose a monetary penalty upon you.

The banks also use this counter offer to construct an elaborate tort shield for themselves by denying any responsibility for anything to do with the property. Like Sgt. Schultz on the old TV series Hogan’s Heroes, “They know nothing.” It is not unusual for the various denials for various aspects such as condition or mold or anything else to take up 15-20 pages of legal mumbo-jumbo. Lawyers love the banks and make tons drafting these documents.

The bank may also specify that you must have yourself pre-approved by one of their loan officers, even if you don’t have any intention of using them for your mortgage. They use this ruse to gather more information about you to see if you are really a serious buyer. The banks may specify what type of mortgage you may get for this purchase and may disqualify some of the loan types or programs that you were hoping to use. Pay close attention to the clauses that define when you must be ready to close, the close target date and what the penalty is if you miss that date.

Lately the banks gave been using their unregulated power on these types of sales to ignore or throw out the local standards and practices for things like the tax proration and who pays various closing costs that have always been the responsibility of the seller. They just say, “Nope I’m not going to pay for your Owners title Policy, if you want one you pay for it”; or they may claim that they don’t have to pay normal state taxes or fees. Several states Attorney’s General or County Treasures have taken them to court and won over some of those shenanigans. They may also refuse to pay outstanding liens from the Homeowners Association for keeping the lawn cut on their run-down property and leave you holding that bag, too.  “Do the right thing” is not in their vernacular so don’t expect it from them.

The difference between dealing with a bank and dealing directly with a seller on these issues is that the seller usually really wants to sell and is willing to be reasonable and to make compromises. Banks just don’t care. They have no skin in the game. In fact they aren’t usually even the real decision makers; they are just acting as servicers for the real owners of the debt and just facilitate the process. The real decision makers are like the Wizard of Oz, hiding behind the curtain. They are never seen and you never get to talk to them directly.
The real decision maker in a foreclosure is an obscure entity call “The Investor.” Most of the time these days the investor is a corporate entity that bought you loan as part of a pool of loans that was collateralized. To this mysterious entity behind the curtain, you and this property are just numbers on a spread sheet; something for him (them) to “run the numbers on” and to be voted on in the committee meeting. There is absolutely no transparency in the decision making process of the investor. There isn’t any concern over you or the property, in fact they don’t even see it as a property, to them it is an asset to be bought and sold just like a commodity. This is as close as you’ll ever come to understanding how Wall Street works, because the investor is Wall Street.

So what can you do? You can walk. You can just say no. They don’t care. It won’t hurt their feelings because they have none. But, if you really want the house, then make sure with your Realtor that you understand what you are signing up for. Go over every line of their counter offer and understand any and all requirements that you must meet and the deadlines that they are imposing. Just understand that by signing up for this deal you are no longer protected by the rules and code of ethics of the real estate industry and you have probably given up a number of your normal consumer rights, too. Once you sign that contract you must dance to the devil’s song.

If this post has served to scare you off a bit, good; then it has served its purpose. You will seldom be in a more powerless situation over something that is important to you. This is not a game for virgins and even seasoned Realtors hate dealing with the banks on these foreclosure and short sale deals. You can get some great prices in these deals, but you can also get yourself into something that you can’t extract yourself from without it costing you -  caveat emptor!

Here are some other readings that may have different takes on this process –

2 comments:

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Deepti Sharma said...

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