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Foreclosure Real Estate Purchase Contract: What to Expect

A home in foreclosure is one in which the homeowner was unable to pay their mortgage loan, so the lender took over the home ownership through the foreclosure process. These bank owned properties are also known as REO (real estate).

The process in Arizona is similar to other states and will be the basis for this article. When you work with a real estate agent, he will write your offer to purchase with you into a standardized contract that was developed by the Arizona Association of Realtors. The contract allows the agent to customize the contract for their particular purchase and has many built-in protections for both buyer and seller.

When you bid on a foreclosed property, you can expect to receive an addendum to the contract from the seller (the bank that currently owns the property). These attachments are, in essence, a counter offer that the buyer must accept if he wants to buy the property. In some cases, the seller will negotiate with the buyer on these terms, but most sellers expect the buyer to agree to their terms. We have seen a wide variety of appendices in the past year while working with buyers. In all of them many of the protections for the buyer in the standard contract are eliminated or modified. These are some of the things we are seeing.

Inspection period

In the standard contract, the inspection period lasts ten days from the date both parties sign the contract. We have seen attachments change that to ten days from verbal acceptance of the contract and have even seen a five day inspection period that must be completed before the buyer signs and accepts the attachments.

Title / Escrow Company

Generally, the seller will require the buyer to use the escrow company of their choice. Generally, using this company helps facilitate the timeliness of the transaction because the escrow company is familiar with the seller’s requirements.

AS / IS and Disclosures

When you buy an owner-occupied property, you will generally get a Seller Disclosure Statement. This will provide information about the property and a history of repairs performed. When you buy a property in foreclosure, the seller has not occupied the property and generally will not provide disclosure statements. Additionally, the buyer is generally required to purchase the property in its current condition “as is” and the seller will not make any repairs. If something is missing, such as a kitchen appliance or garage door opener, the seller will not provide it. What you see is what you get. Please read the appendix carefully to understand what the seller will be responsible for if the property is damaged during the warranty period. The escrow period covers the time from when both parties agree to the contract until the sale records (closing of the escrow).

Cost of the extension of the closing of the trust

Most of these addendums have a charge per day if you need to extend the escrow closing beyond the original contract date. The most common reason buyers need to request an extension of the closing date is that the lender has not completed the loan processing and has not delivered the title loan documents several days before closing to allow time for the loan. seller and buyer sign. We have seen costs ranging from $ 40 to $ 100 per day.

Loan approval

The Arizona contract allows for the return of collateral deposited by the buyer if after a good faith attempt to obtain a loan at prevailing market rates to purchase the property, the buyer is unable to do so. Some schedules limit the buyer’s time to obtain loan approval to a specified number of days from the acceptance of the contract, for example, 25 days. If the buyer does not notify the seller of his inability to obtain a loan within that period, he will lose the guarantee right to the seller. This is true even if the inability to obtain the loan had nothing to do with the buyer’s financial qualifications. We have seen loans rejected in recent months for the purchase of condos because the community had too low a percentage of owner-occupied units or the HOA was not financially sound or, in some cases, for both reasons.

Tenants or other occupants

Most of these properties will be vacant; however, if you see evidence that someone is living in the property when you are viewing it and before writing an offer, you should ask questions. Who lives on the property? If the property has been rented, what are the terms of the lease? We have seen addendums stating that the seller will not evict any occupants from the property and that it will be the buyer’s responsibility once the property is purchased. You should also know that tenants also have rights. Be very careful when writing an offer on a foreclosed property that is occupied.

What should the buyer do?

It is very important that the buyer read the entire addendum provided by the seller before signing. If you have questions about the appendix, you should request clarification from your real estate agent. You should also verify that your real estate agent has read the entire appendix and noted the key dates.

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