Foreclosures 101 (Part 3): The Escrow Process
Well now, the good news is you have your financing all lined up and your offer on that REO property has been accepted. Now comes escrow. Some go smoothly, some do not. Remember, I warned you that this might not be an easy cruise, but stick with me and the end result (your HOME) will be well worth it. If you studied my last 2 posts on foreclosures you knew already what to expect during qualifying and offer periods. Escrow…here we come!
Okay, some basics first:
- Do NOT lock your loan until you have cleared all hurdles regarding title and any delinquent fees. This will all be monitored by your agent and the asset manager for the property. We went over earlier that there typically are delays in these transactions. Count on that. Also count on that the seller will not pay your loan lock extension fees because you jumped the gun and went ahead and locked the loan before you should have.
- Don’t give your notice to a current landlord until Title and Escrow have cleared the pathway to Close of Escrow. The Sellers will not approve early occupancy…ever.
Okay, those are the two big DON’Ts, now we move onto other checklist items you need to know about:
- Inspections: Typically, you will get 10 days to do your inspection. You are on the mainland and want to be there for the inspection? Well, you better hop on a plane because the Sellers will not extend the inspection period to accommodate your travel plans. Since there can be deferred maintenance on these properties, a licensed inspector is your best bet. Make sure to notify the listing agent when you would like to schedule inspection, so that they can confirm utilities are on. Your contingency period begins when the executed contract is returned.
- Disclosures: The Seller has NO information regarding the property, since it was acquired through foreclosure and will not provide disclosures or warranties of any kind, so don’t ask for them. They like to keep it simple. Inspections are the responsibility of you, the Buyer. Property is sold “AS IS” and the Seller will not renegotiate terms after your offer has been accepted and executed. You can, however, request to inspect the property prior to tendering an offer.
- Closing Extensions: are generally approved within reason, and if the reasons are out of the Buyers or Sellers control. Some reasons for extensions that can be.
- Title Deficiencies: Seller must remedy, and will approve extension for.
- Lender/Underwriter Delays: there can be many reasons for these delays, but they usually stem from a backlog of files, delayed inspections, something they find in the inspection/appraisal that needs to be remedied, or simply human error.
- Per Diem: If the reasons are due to something the buyer could avoid or has not complied with, then the extension can be approved, but with a Per Diem added. This amount will be stated in the Seller Purchase Addendum. Seller does not EVER pay any Per Diem due to their own delays.
Okay, we are are almost there!
Just a few more tips for you:
Title Company: Like it or not, Seller chooses, unless YOU, the Buyer would like to pay for the title insurance policy and closing costs. Listing agents have no say in this either, we also have our favorite Title Companies too! The Seller chooses the Title Company due to the fact that they usually have had significant amounts of title work done already during the foreclosure process.
Don’t ever make repairs to the property you are purchasing without Seller consent until close of Escrow. Believe it or not, this happens all the time when we are waiting on approvals for lender required repairs. Buyers occasionally think “let’s take the bull by the horns here” and go in to make repairs themselves, thinking that they are going to speed up the process. What it really does is slow the process down. Once you made an unapproved repair, what will you do when the Seller says, “why thank you but we won’t pay for that?” Frustrating as it may be, you have to wait out the process of approval.
Last but not least, I have said it before and I’ll repeat it here one more time. Expect delays. You will experience them, so when they come, don’t panic, breathe, count to 10 and remember…this is normal and commonplace for this type of transaction.
Hopefully, I have shed some light on the process of purchasing a foreclosure for you. Not for the faint of heart but the determined, it can be a very rewarding experience in the end, provided you come prepared and know what to expect ahead of you.
What are you waiting for? Start packing! You have a big move to make!
Source: Jayney Arden