Thursday, September 11, 2008

Is It Safe To Buy From A Bank Without Disclosures?

We are seeing an interesting phenomenon in our Market with all of the “bank-owned” properties offered for sale. Known as REO’s (real estate owned), “bank-owned” properties aren’t always owned by a real bank, but they are owned by a lender and are being marketed by the lender, or an asset manager hired by the lender. REO properties bring a new set of challenges for the agent as well as the Buyer.

The primary change has been the unwillingness on the part of the lender to make any disclosures regarding the condition of the property. The properties are, of course, offered “as-is in its present condition with all faults…” The lender didn’t live in the property, hasn’t seen the property, and generally has no knowledge with which to disclose anything about the property. Most lenders are requiring a waiver of the Seller Real Property Disclosure Statement, SRPDS. Per NRS113, a Seller must provide an SRPDS, and the only way to not have one is for the Buyer to sign a waiver in front of a notary.

A lender’s insistence on a SRPDS waiver (Seller’s Real Property Disclosure), and the additional many pages of non-warranty, hold harmless, as-is language they require Buyers to sign, though foreboding at first blush, aren’t all bad for a Buyer. One can split hairs and say that the lender knew, or should have known, about property deficiencies. We’ve seen rodent infestation, missing roof shingles, obvious water, mold, or sheetrock damage, etc. in REO homes that they must surely know about, but they aren’t disclosing. Remember that lenders have many floors of lawyers in their office buildings. It is their job to protect the lender which they do by a providing a good “clause shield” in their transaction documentation, no disclosures position, and requirement for only “as-is” sales.

A return on an investment must be considered in relationship to the risk taken. If you are looking for a good buy in a REO property you must consider the risk of the as-is burden you are accepting. Most things are obvious, i.e.- the lawn has died, painting is required, etc. Your main risk is the unknown, that which you can’t see. It can be under the house, in the attic, underground (sewer or sprinkler lines), title, well/water quality, neighborhood, etc. A thorough inspection of the house should reveal major defects. Most REO homes are simply in a state of disrepair and deferred maintenance.

Our Advice: Don’t try to fight the lender on disclosures if you want the house. Make sure you understand the extent of any damage on your own before you irrevocably commit to buy the home. Hire an inspector if you can’t do it yourself. Turn on the power and check out the systems – consider it cheap “insurance”. If squirrels have infiltrated the walls of the house you could have a major electrical problem – rodents love to chew on wire often resulting in stripped insulation, a serious fire danger. Better to know what you are buying before you close escrow to minimize the risk of your investment.

You don’t need a disclosure to buy with confidence. Don’t look for trouble, and don’t expect it – just be smart about your investigation and inspection process. The bank is acting to protect their overall assets from the liability of litigation. Protect your assets by investigating your potential acquisition thoroughly – you will be well rewarded whether or not you close escrow.

Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, 775-781-5472,,

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