Hi folks. Lately I have been selling quite a few REOs (banked owned) property. As you know if you deal in these properties the sellers (banks) always offer them for sell in "As Is" condition. No biggie since most of my Buyers are experienced Investors.
"As Is" in Florida means As Is with right to inspect. This means the Buyer normally has 7-10 days to have the property inspected after a contract has been accepted and signed by all parties. If during this inspection the Buyer finds structural or mechanical issues that they weren't made aware of during negotiations the Buyer can cancel the contract and get their deposit back.
In Florida, a Seller is obligated by law to disclose to a potential Buyer any material defects that the Buyer cannot readily see that affect the value of the property. Banks, no matter what they think, are NOT exempt from this disclosure.
Recently I have been negotiating for a Buyer to purchase a REO property. The property is only 2 years old and has never been lived in. After several counters the Bank has finally accepted our price BUT they want to close in 2 days (impossible) and they will not let the Buyer inspect the property. Can you say RED FLAG!!!!
Anyway, here is the Email I sent to the listing agent:
Hi XXXXX, I have just left a message for the buyer. I'm pretty certain he can close the first week in March but I have asked him for a definitive date. The corporate name on the contract is correct.
We will not purchase the property without an inspection period. So the lender just needs to get over that ridiculous request. That property has been sitting vacant for too long and it is very possible that central heat and air are frozen. Also the lighting in the kitchen is all coming out of the ceiling. The buyer is willing to accept "as is" assuming there are no major structural/mechanical issues uncovered during the inspection period.
The seller's unwillingness to let us have the property inspected tells me they are aware of an issue and are hiding it. They either want to sell or they don't. No inspection is a deal killer for almost all buyers. Anyway as soon as I hear back from my buyer I will let you know his response. Thanks for your efforts.
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Within minutes I received this:
FYI This homes has a skylight that leaked (flooded from the skylight in the kitchen. It effected all the walls, floors inside area in kitchen, laundry room, living and dinning room area. The mold has accumulated & there was a terrible blackening of the molding & area around the skylight & fixtures and it began to smell. I had Solivita do the entire kitchen, ceiling,walls, floors etc to fix it & do the right job. The electrical outlets, wires etc were all replaced & fixed.
As of right now that home has been put back correctly & no charge to the bank or to the owner. I worked very hard to get this home redone. You know how builders can be. Since the home was never occupied nobody was aware of its condition.
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Folks, that email was sent to the current agent from the previous agent!!!
The lesson here is to NEVER accept a contract where the Seller will not allow an inspection. It is obvious to me that this Seller was fully aware of these issues. As most banks do, they feel they are exempt from laws that were put in place to protect the public.
It would have been very easy for me to persuade the Buyer to go through with this transaction. It's a brand new house......what could possibly be wrong? Well how about extensive BLACK MOLD!!!
Watch yourself out there.....the Banks may very well be jeopardizing your lively hood. What say you?
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Reservd Parking For "The Lovely Wife"...TLW...ROAR!
My goodness...I love your letter and the response is astounding! I think all of us should be on the same page about the necessity of inspections no matter what...but, if anyone is in doubt, this should solve that! BTW, TLW is looking great:)
That's the first time i've heard of a bank refusing to let the buyer do their inspections. That's a definite red flag.
I say the previous agent giving the current agent and the bank the knowledge means the bank was about to go into a fraudelent claim of non disclosure. I know that a bank in an REO doesn't have to fill out a Sellers Disclosure, but if it was KNOWN... I wonder if that changes the situation? You have a lucky buyer who took the good advise you gave, no inspection, no deal.
Sad. Sad. O.K. So the banks have lobbied the legislatures, Congress, HUD et al., and a non-occupant doesn't have to make disclosures. O.K.
But, that listing agent should be drawn and quartered in the public square. Seems to me that this borders on a criminal act. If a family moved into that home without knowing of the mold history, they and particularly children could become seriously ill. It the mold is stachybotrys, it could cause fatal lung desease.
Once a home is found to have a serious mold growth, I believe it should simply be bulldozed down and the materials buried.
Can you imagine what the C.L.U.E. report includes?
As a home inspector, I have inspected dozens of REO properties. I can't ever recall a disclosure from a bank or listing sales agent. The problems uncovered are often incredible. You did the right thing and I commend you for your advocacy.
Wow, I cannot believe it they TRY to hide such a big defect by refusing buyers to do the inspection.
Yikes, I can hear my broker saying disclose, disclose, disclose. If I were the listing agent and received that email, it would have been disclosed up front.
UNBELIEVABLE! I am sure the laws differ state to state - but they need to know what the laws are in each and disclose when required!
Most of the banks I've been dealing with have allowed the inspections... Thanks for sharing
I've never heard of a bank refusing to allow an inspection. We do occasionally see the old "bait and switch" on the state documentary taxes that the seller is supposed to pay. I always warn REO buyers that they may very well end up paying for it at closing if the banks refuse and they still want the house.
One of my buyers from NC was interested in a particular Orlando city home. The price was too good to be true, even for a short sale. So I took a look at the home myself since the buyers were so keen and the home was close enough for an easy drive-by.
Now I'm just your typical female who doesn't know a helluva lot about construction except what she's learned from home inspectors and observation, but all I had to do was pull up to the seriously cracked driveway to know this house was sitting on a sinkhole.
Doncha think this is something that should be disclosed somewhere somehow? It's so obvious, so blatant, and a waste of a good listing.
Well, okay, I guess the value is in the land, but the listing should have said so.
I checked Connecticut Agency Law, this is taken directly from the 2008 Continuing Ed Course under "misrepresentation"
Enough said? I have shown a few properties that required both myself and my client to sign a waiver concerning mold, I don't get access until I fax it back to the listing agent. However, that is not to say that there have been some that I was unaware of the mold.
Also, as a side note, in CT the banks pay for the power/water etc, to be turned on for an "informational only" inspection.
I say right on Broker Bryant! Don't let the banks get away with cheating. I would love to use this story as an example to a particular buyer....with your permission and acknowledgement, of course.
Our world is getting stranger by the minute! Beyond the obvious issue of the lack of wisdom in buying anything that you sink thousands of dollars into without inspecting it...there's the short sightedness of any organization that thinks that this type of denial and avoidance of disclosure in the name of 'buyer be ware' is prudent in the era of 'transparancy.' Some call it Karma...
That was definitely a "buyer beware" moment. Kudos to you for catching it and protecting your client.
Byrant:
I think it is great that you spoke to "As Is Purchases with Right to Inspect. As you may recall I spoke with you a few months back about this very subject to make sure I fully understood the buyer's rights under the "AS IS" sale. Cash deals aren't they sweet!
BB- Wow, I am shocked by this.. How is it that banks are getting away with this type of business practice?
Best,
Scott
Bryant- I would NEVER allow a buyer to buy an REO without an inspection! I would withdraw as their agent if they insisted on moving forward.
BB - Well THAT was certainly a red flag, wasn't it. A 2 year vacant home immediately would concern me. PRetty shocking especially given what you learned as a result of your forcefule letter. I cannot imagine a buyer not having an inspection, even more so in this case.
Jeff
BB - absolutely right! I haven't encountered a bank that wouldn't allow an inspection, even though the sale is "as is". That would be a red flag in front of a bull - meaning, run the other way.
IMO the banks are acting in a criminally negligent fashion when they will not allow an inspection. If your buyer is highly allergic to the mold or other 'stuff' that me be residing in the walls and halls of the home in question, are they going to be responsible for his/her medical care after being exposed when they open the door of that home?
As is is one thing. Being a hard head is another.
BB - Hello there! Well the real kicker here is... shouldn't they have disclose those mold and leaking information prior to YOUR email to them? What happened if you did not email and request inspection period?! WOW.
Bryant, this doesn't surprise me at all. (I've seen too much of it)
What I would like to see is a class action lawsuit against these banks/asset managers AND a requirement for each home to have an inspection prior to it hitting the market with full disclosures attached to multitude of addendums that our buyers have to sign. (Or better yet, having the disclosures in hand while viewing the homes.)
Am I correct that what the bank did is Fraud and they are governed by the same laws we are?
TLW...ROAR!
If it quacks like a duck, walks like a duck..etc. As Is with right to inspect. No inspection? No deal. Keep looking out for your clients Triple B!
Another thing is to verify with code enforcement about impending liens or violations as part of the due diligence. I've seen several REO properties with all types of code violations where the lender knew or should have known of pending code hearings yet did not disclose them to potential buyers. If the the lien isn't recorded prior to closing, the only way I buyer can know is by contacting code enforcement. The lender is supposed to diclose this info by law, but good luck collecting from them after the fact.
I have never heard of a bank not allowing time for an inspection either. Way to protect the client!
In FL disclosure of items that materially affect the value of a property are required to be disclosed. Banks have long claimed ecemption from this and the courts have held that they are under federal regulation. On the other hand a listing agent has a license to consider, and even a non rep is required to disclose known issues. Everyone wants to list REO's, but, this is a case where the listing could cost the listing agent their license, if they did not research the property history, previous listings, dificulties, etc.. Can you imagine the liability for the listing agent for not knowing about or disclosing the roof leak, and a buyer who purchased the home without inspection discovered balck mold?
You did the right thing for your buyers. I hope they realize the great service you did for them, by not pushing the deal through for a quick paycheck.
Was the listing agent a Transaction Broker? I'm sorry but, there are agents out there who know exactly what they are doing. I once showed an REO property that was covered in black mold inside. I called the listing agent and asked why none of the photos showed the problem and why there was no note in the listing. His reply, I can't say that it's mold... I'm not a mold inspector. NEXT!
Mold in Florida is a serious problem and a potential health risk. Inspections are a must for any buyer. You are correct that the banks MUST conform with the laws in place to protect the public,
"If they won't inspect simply reject" is my motto!
I've encountered those situations as well. Typically, they go like this. The listing agent tells me if the bank accepts the offer, the deposit will be nonrefundable. It doesn't mean we can't inspect the property, but it does mean if we find something horrible during the home inspection and decide to cancel, the buyer won't get the deposit back.
So, I wait until I get verbal acceptance from the bank. Then I send a home inspector out to the home immediately to meet with the buyer. By the time they get finished, we then have the accepted contract in our hands, generally demanding a cashier's check within 24 hours and signed receipt. But we're prepared by then.
Broker Bryant, you are so right! Buyers must know what "as is" is to make an informed decision.
OK so tomorrow we are going back over to have another look now that we know what to look for. My buyer is very knowledgeable so is not too concerned with the mold as long as it has been taken care of. Avatar is a pretty big builder so chances are they repaired it properly. We are now trying to get reports from the repairs.
I sent this email to the listing agent:
I am meeting the buyer at the property Monday morning. Needless to say we are very concerned that this mold issue was withheld from us. This is certainly a major defect that affects the value of the property and by law needed to be disclosed by either the seller or the agent if they had the knowledge, as you did. But having said that, the buyer is still interested in the property. Do you have any of the repair documentation from Avatar that you can provide us?
I received this one back:
No, no disclosure for bank owned property as seller never occupied. Previous agent said all repairs were complete and there are no issues. As I requested prior, please have the buyer obtain a professional home inspection to confirm. Thanks!
I feel like I'm dreaming!!!!! I guess the fact that she knew and didn't disclose doesn't concern her.YIKES!!!!!
Elizabeth we would have done exactly that except there are no utilities on at the property for us to be able to inspect.
Yeow, one more thing. So far my dealings with REO's have been pretty straight up. I will be on the look-out for a seller who trys to shorten or cut-out all together the inspection period. Thanks.
OK so here's my update. My buyer has this property under contract. He waived the inspection contingency!!! We did a lot of home work and took a ladder over there so the buyer could stick his head up in the attic. Turns out my buyer is....are you ready......an expert and licensed mold remediator in Canada!!!!! Go figure.
Bryant - I'm glad that your buyer is an expert on mold! I hope it all works out for you! :)
Bryant...definately good info! I always tell my agents that there is a reason for everything! Dont just assume that what is being said is the "real deal" Good post!
Bryant, I see homes listed all the time that say "NO SPDS (Seller Property Disclosure Statement) PROVIDED" for various reasons. Usually, the seller never occupied the home, or the home was never lived in. Many of these homes are bank owned. The seller is saying that they don't know anything about the home, and can't tell you anything about the home. I find that more often than not, the seller knows something! I would always suggest/recommend that my buyer get an inspection, and have never had a bank say the buyer couldn't. Anyway, glad it worked out in your situation.