Thread: Should I alert the bank or not if I found significant defects?

Your lawyer is right. You are nobody to the asset manager and they hear this kind of stuff from self proclaimed experts all day long. If nobody buys the property and it sits on the market for a while then you might be able to get a price reduction.

Sometimes the best option is to move on.

let me be crystal clear... if this property is an REO (real estate owned) by bank or investor in most cases. Its being sold as-is / as-seen (you surly "seen" it well after any of these incorrect defective renovations by the previous owner because my guess is the house is vacant. therefor you changing your offer will NO DOUBT remove you from ALL hope of purchasing the property! You may certainly attempt to back out of the deal if your not comfortable (and could even make argument to obtain your deposit back), the bank will probably only ask for a release so they can freely sell it to another party. BUT, if you wish to buy this property then i strongly suggest you follow thru with your agreement and say "thank you very much" along the way...

Good luck selling that home.

Why in the world would you want the headaches associated with this house? Is it really the best property you can find? Even if you get them to drop the price how can you guarantee the amount you will spend fixing the place would be equal to or even less than the price drop?

Originally Posted by MassRealEstate

therefor you changing your offer will NO DOUBT remove you from ALL hope of purchasing the property! You may certainly attempt to back out of the deal if your not comfortable (and could even make argument to obtain your deposit back), the bank will probably only ask for a release so they can freely sell it to another party. BUT, if you wish to buy this property then i strongly suggest you follow thru with your agreement and say "thank you very much" along the way...

I have not yet made an offer.

I am merely trying to decide between the three options.

(1) This is too much hassle, walk away and look for something else.

(2) Take my offer, lower it by an amount that is going to be worth my while, and attach to the offer a report explaining my discoveries, with photos of defects and copies of original plans annotated, my report will include my signature, as well as my professional engineer seal. My report can be considered a qualified pre-inspection. My buyer agent recommended this approach.

(3) Take my offer and submit it. Don't say anything. If the deal moves forward, then order an inspection. During the inspection, share my findings with the inspector, and ask the inspector to include these as "defects" into the formal report. The property is being sold AS-IS, so I can't ask for a price reduction. However, since these "defects" are not unprofessional or sloppy work, this is an UNSAFE modification, and if we say at that stage the property is uninhabitable due to these unsafe conditions, Fannie Mae "MAY" consider repairing it or some degree of concession. And I can still walk away, having only lost $500 on inspection. That's my lawyer's advice.

Originally Posted by miamicuse

I have not yet made an offer.

I am merely trying to decide between the three options.

(1) This is too much hassle, walk away and look for something else.

(2) Take my offer, lower it by an amount that is going to be worth my while, and attach to the offer a report explaining my discoveries, with photos of defects and copies of original plans annotated, my report will include my signature, as well as my professional engineer seal. My report can be considered a qualified pre-inspection. My buyer agent recommended this approach.

(3) Take my offer and submit it. Don't say anything. If the deal moves forward, then order an inspection. During the inspection, share my findings with the inspector, and ask the inspector to include these as "defects" into the formal report. The property is being sold AS-IS, so I can't ask for a price reduction. However, since these "defects" are not unprofessional or sloppy work, this is an UNSAFE modification, and if we say at that stage the property is uninhabitable due to these unsafe conditions, Fannie Mae "MAY" consider repairing it or some degree of concession. And I can still walk away, having only lost $500 on inspection. That's my lawyer's advice.

I understand better now and can tell you exactly what to do...

this is an REO and banks do not play the games you normally would be used to in a conventional sale (no doubt the bank has done their appraisal and from their standpoint this property is priced according to all your defects). I would not listen to people shouting about "why take on the hassle", "why bother", etc. (the reason why is painfully obvious... a great value!). therfor: you should make your offer as YOU see fit PERIOD... if the property is listed at $200k and you honestly feel for YOU to buy it and fix it and to obtain a fair value you can only offer $150k (then SO BE IT!)
How long has this REO been "on the market" (you will find that if its been more then 30days they will decrease the price each 30 days or so slightly), the problem is.... you dont want to wait so long until they decrease it enough for rehabbers to take note of it because then your fighting with 100 other people to buy it! better to make your best attempt right NOW if you really wish to take a shot at it. If your offer is that far off their "mark" they will simply regect it and you've lost nothing but a little time.

EDIT: dont kill yourself with a photo spread of defects and long explanations about "why, why, why" you can only pay $X amount of dollars for the home (THEY DONT CARE!!!!), all they want to see is the price and terms your offering.

Originally Posted by miamicuse

I am in a catch 22 situation.

I was looking at a property for possible investment and it is an REO of Fannie Mae. Prior to taking possession of the property by the bank the previous owner had done significant renovations.

I am a structural engineer by trade so I am familiar with the construction trade and code. When I visited the property I look at details others might not.

In touring this property I noticed while the renovations "LOOK" nice there are some issues.

- They renovated the kitchen and bathrooms and yet all electrical outlets in them are NOT GFCI protected, nor do they go to a GFCI breaker.
- Their plumbing hook up was wrong, wrong size pipes, wrong connection etc...

While these are not major issues, because I can fix them myself fairly easily...it does tell me I need to check into this renovation and make sure it was permitted.

When I then look at the kitchen I noticed something that is strange. The kitchen is an open kitchen that looks to the living room which has a high ceiling, but above the kitchen is the second floor bedrooms. Because of the openness of the kitchen I speculated that some support has been removed.

Despite all that I still like the property and I am prepared to make an offer on it.

But before I did that I went to the city's building department and paid $25 to get the property's permits and plans. I found out:

- all the renovations, structural alterations, plumbing, electrical were all done illegally. No permit was filed. In fact, no permit has been pulled since 1980 when the property was built.
- there was a 18' long load bearing wall on one side of the kitchen, along the edge of the second floor, that whole wall was removed. In it's place now is a 12' long kitchen island. Based on my experience I believe the second floor is no longer properly supported.

My agent said I should document all this and send it in with my offer, and reduce my offer amount and use this as leverage for a lower offer. In other words, my agent advised me to relate to the listing agent and bank what I found, and hopefully they will agree to a lower offer price.

My lawyer advised the opposite. My lawyer said first of all, Fannie Mae does not care what you know and what you think you know. They will not trust your opinion one way or another, they probably will think you are playing games. However if they do consider your opinion, then they may pull the property off the market to try and remedy that. They will repair it themselves and not lower the price for me. In dealing with REO and especially Fannie Mae it is important to make the offer as simple and brain dead as possible instead of trying to make it complicated. The asset manager is sitting in a different city and process a bunch or properties a day you will not get the time of day for them to make an informed decision. If I am going to use it as a leverage for price reduction do it later when I get an inspection and get the inspector to properly include it into their report.

So, any opinion whose advice I should take?

Thanks.

You should. Especially on your first agreements and before you actually agree. You better check for defects and report it immediately so that they would know the situation and could assist you as much as possible in recurring those defects or fixing it out of your pocket.