the process itself can be a highly stressful and emotionally draining experience.
While there are exceptions, and these are very rare, banks generally do not play fair. They act like the spoiled child that owns the ball and will not share unless they get their way. They appear not to respect you as a buyer. They don’t even recognize you as the solution to a problem they most probably created themselves in the first place through their own poor lending practices. It seems as though they begrudge you. Maybe it’s because they think you are getting too good a deal, and they just can’t stand it. Maybe it has to do with the selling decision being boardroom driven, and therefore lacking any semblance of humane sentiment. Or maybe it is a legitimate problem having to do with the legal processing implications, which by their very nature are protracted. (After all, that’s how lawyers get paid!). But it’s probably a combination of each of these, with a large dosage of intractable bureaucracy thrown in for poor measure. But whatever their motivation, the end result will inevitably be that they will put you through agonizing waiting periods and literally force you to surrender your traditional buyer rights in the contracting stage. In fact, you probably will never even have a truly binding agreement until the day of closing. In other words, consummation of the deal is at risk from contract to closing.
So if you are planning to personally occupy the property, be careful not to set strict logistical expectations that are tied the closing date. If you are getting a purchase money loan, get a generous rate lock-in period, because many buyers lose their rate lock-ins far too often simply because the foreclosing bank just couldn’t get to the closing table on time. Sometimes this delay kills the deal because the borrower was on the qualifying fence, and the new rate now disqualifies them. Very unfortunate, but don’t expect the bank to care or understand, the institution lacks this capacity. And even if you do ultimately close, in this instance, you stand to pay more for the loan, but don’t even think about renegotiating. They simply won’t hear of it.
Your agent will probably prepare the offer on a standard form that has been designed to be fair to both buyer and seller. But beware, the bank, in its infinite arrogance, will trump the agreement demanding that a special addendum prepared by their attorneys supplement the contract stipulating that its provisions supersede those in the contract. Such addenda often include demanding stipulations such as: only their chosen attorney can be used for the closing, that they hold the earnest money, that the buyer qualify with their specified lender, that you have no rights to an inspection contingency, and other unreasonable assertions.
Finally, if you cannot succeed in negotiating to use your preferred closing attorney, at least have a title search done by your own attorney. You might even have your attorney sell you the title insurance policy. The bank’s attorney will not like this very much, so if you want it, you will have to negotiate tough on this one. Keep in mind that the bank’s chosen attorney has probably already done (and been paid for) the title search when they foreclosed on the property, so they should not charge you anyway, but they will still probably kick up a fit over it. The thing to be wary of here is that if a title flaw was created or even just overlooked by the bank’s attorney, and they later discover their own error when working on your file, they may choose to look the other way to avoid the embarrassment from your discovery of their shoddy work. This happens more often than you can probably imagine. So even if it comes down to having to pay both the bank’s attorney and your own attorney for the same work… just do it. It may prove to be the best money you could spend.
In any case, if you want to buy a foreclosure, be prepared for a disappointing and even disheartening experience. Whether it is Fannie Mae or Freddie Mac, or one of the mega banks, they will do their best to make this as difficult and uncomfortable for you as possible. I’m not suggesting that you avoid buying foreclosures, just be mentally and emotionally prepared for it. That’s half the battle.
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