Bank Foreclosure "Gotcha's" :)

"Inspect All You Want" (They Said)

Welcome to the Hotel California
Such a lovely place, such a lovely face
They livin' it up at the Hotel California
What a nice surprise (what a nice surprise) bring your alibis

Mirrors on the ceiling, the pink champagne on ice
And she said we are all just prisoners here of our own device
And in the master's chambers, they gathered for the feast
They stab it with their steely knives but they just can't kill the
beast

Last thing I remember I was running for the door
I had to find the passage back to the place I was before
Relax said the nightman We are programmed to receive
You can check out anytime you like but you can never leave

--"Hotel California" lyrics; The Eagles

While it's still fresh, I thought I'd start a collection of favorite "gotcha" clauses in bank foreclosure contracts that I've run into recently.

Actually, "gotcha" would suggest purposeful intention; what often seems to be going on is that . . . no one's home -- in every sense of the word.

Examples:

--One size fits all. Once upon a time, Target sold mittens in its Southern California stores. Today, lenders with foreclosures in Florida -- where defective Chinese dry wall has been a big problem -- are requiring disclaimer language in Minnesota, where no one has heard of the issue.

--"Inspect all you want." Another bank included an Inspection Contingency that looked like the standard Minnesota form up until the last sentence; that's where the Buyer waived its right to back out of the deal, regardless of what the inspection revealed.

Ummm . . . that would be the whole point of the inspection, especially one that turns up major issues that the bank won't address because it's selling the property "As Is."

Even if the property is being sold "As Is" -- make that, especially when the property is being sold "As Is," with no disclosures -- Buyers want to inspect to determine the property's true condition.

--The Bank can get out, for any reason. The flip side of locking the Buyer in is letting the bank out.

Another bank contract included a clause on the last line of a 28 page contract allowing the bank to cancel the deal, at any time, for any reason.

Such a contract really isn't a contract, it's more accurately a "memorandum of understanding."

By contrast, a contract imposes reciprocal rights and obligations, and is binding upon the parties.

--Bank language supersedes Buyer's language.

Every bank deal I've seen so far (more than two dozen) starts with the bank tossing out the standard Minnesota real estate forms, and substituting its own custom, undefined contractual language.

Typically, the first sentence of the bank's substitute forms states that the "bank's forms supersede the Buyer's, and wherever there's a conflict, the bank's forms govern."

So, not only are the bank's contracts often full of ambiguous, undefined language -- they trump the standard Minnesota contracts where there's a conflict.

--"Knock Yourself Out" Inspection clauses. Another variant of the "modified" Inspection clause I've seen allows the Buyer to inspect, but makes them responsible for de-winterizing the property, re-winterizing the property, and paying for any damage that doing so causes.

So, theoretically, a Buyer could arrange to have the water turned on, have the place flood because the pipes are busted . . . then be liable for the damage! (even though they decide not to buy the home).

Bottom line(s): a) foreclosures aren't for novices; and b) the price had better be attractive enough to compensate for all the foregoing risks and hassles.

"As Is" Misconceptions

No Free Lunch

Selling "As Is" is a popular choice for banks, estates and other third parties who don't know the condition of a property (because they haven't lived in it), and don't want to be responsible for any repairs.

Occasionally, however, "owner-occupant" sellers -- especially ones with deferred maintenance -- view selling "as is" as a panacea for making costly repairs.

Yes and no.

Yes, in the sense that they can certainly avoid having to do the repairs themselves.

No, in the sense that they'll pay a steep price for having the Buyer assume responsibility for whatever needs to be fixed.

No Shortcuts

Perhaps the biggest misconception is that selling "as is" avoids a Buyer's inspection.

Wrong.

Buyers who agree to buy "as is" still want to know what they're buying, which typically means doing a very thorough inspection.

The second misconception is that selling "as is" will net sellers more money.

Wrong again.

For every $1 in repairs that Buyers assume, they'll typically deduct $2 or even $3 from their offering price.

That's not just because of the time and inconvenience, but to cover the risk that the necessary repairs will be more extensive than appears. In fact, especially when the issue involves (hidden) plumbing, wiring, and any related contractor permits, such "padding" is often warranted.

To avoid such "3-for-1" discounts, Sellers -- at least ones who can afford to -- are often well-advised to tackle the repairs themselves.

P.S.: I remember taking a class in college "pass/fail," only to find out that my grade would have been a "B+." Selling a home in good condition "as is" is like that.