Legal Considerations when Purchasing a Bank-Owned Property

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Pre-owned property is often overlooked for various reasons, but when someone buys the house or land again, there may be several defects. Additionally, these locations may be owned by the bank. This is especially true if there was a foreclosure. It is important to understand how these properties are different than when purchasing through a seller with a financing company backing the purchaser.

In certain circumstances, credit checks must be exceptional when dealing with a bank directly. Some financial institutions require dealing directly through their business. This would rule out any other direct financing for the loan or payment arrangements.

When buying a property owned by a bank, there is a standard contract that has significant modifications such as addenda. These may be rather lengthy such as ten to fifteen pages of added information and alterations many of which are key terms to the contractual agreement. These are generally only beneficial to the lending bank. Unfortunately, these clauses are not in the best interests of the buyer, and there are few if any legal protections available in such documents. This may make the use of a real estate lawyer essential to ensure the terms in the contract completely side with the lending banking institution.

Contract Issues with Banked Owned Property

When the lender is not the seller or a standard financial institution, the time to wait on a response for any possible offers, questions, answers, modifications to the contract or other matters and any other issue could be lengthy. However, if the lender is also the bank, it is possible that the time needed to wait for these responses could be a standard week or two weeks as per any ordinary requisitions posed by others that utilize the bank. However, changes to a deal made with a bank-owned property are often slow or may not occur at all based on the alterations needed.

When confronted with a contract with a bank that owns the property, it is possible to see the agreement cancelled or broken at any point before closing occurs. Unfortunately, this appears to be standard practice by certain institutions until the documentation is finalized and the deal has closed. That means that the house or land is still marketed to others while the property is under the contract with the potential buyer, and the agreement is not safe until the entire dealing has been completed. This right may be reserved in the contract signed by the buyer.

The Purchase and the Lender

When the buyer enters into a real estate deal with bank-owned property, the land or house are usually as-is. This means that no repairs are performed, when taking tours of the house, the buyer is not protected as he would be when an individual seller is part of the process and no credits are given to the buyer as would be in other procedures. Any discovered defects or problems must be accepted if the property is purchased by the buyer. The lending institution may only have cursory or limited disclosures of the house or land. This means that certain aspects may not be explained or revealed as are required by sellers in most states when a deal initiates.

There is only a seven to ten day limited window to inspect the property by the buyer. This means the potential purchaser must act swiftly after a contract has been signed and accepted. The effective date of closing is usually established and other processes proceed rather quickly afterwards. Additional or alternate financing are the responsibility of the buyer instead of the lending facility. In many circumstances, the lender will not pay the contract provided customary tax pro-rations as are usual.

Other Stipulations and the Real Estate Lawyer

There are some fees such as the title and closing expenses that would be paid by the bank, but agents involved in these processes are usually chosen by the financial institution. Unfortunately, this may mean a lack of communication for various procedures. This could also lead to a challenge to the title when this has not been researched properly. If the title is not in good standing, this could mean that the buyer is out a great deal of money without property in his or her hands.

If after everything is understood and the potential buyer wants to proceed, it is crucial that he or she hire a lawyer to assist with the event. The bank may not perform due diligence, and the entire situation is skewed towards the financial institution with little mind to the buyer. The legal professional may ensure his or her rights are protected while buying real estate.


Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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