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
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 –
Posts
2 comments:
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