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Inspections and Disclosures on Foreclosure Properties

Although full seller disclosure is the standard for most resale homes, the buyer is responsible for discovering all the potential issues with a foreclosure property. The lender has no knowledge of the property's condition and no duty to disclose defects. As with any property, home buyers and investors should be prepared to have full structural, mechanical and wood-destroying insect inspections performed before purchase.

All real estate sales in Texas are "as is" condition sales. The Seller must disclose any known problems, but is not responsible for repairing any current or future problems. Buyers review the Sellers Disclosure, have inspections performed and make every attempt to assess the condition of the property prior to purchase. In a non-foreclosure sale, most Buyers purchase an option period, typically 7-14 days long, during which time they can inspect the property. During this period, buyers may withdraw from the sale with no penalty and their earnest money will be returned in full. When the Buyer discovers a previously unknown defect in need of repair, most home owners are willing to negotiate a reasonable solution to the problem.

REO Sellers are exempt from disclosure requirements, since they have never occupied the property. REO properties are sold using addenda that do not allow for option periods. Buyers are permitted to inspect the property, but the Seller is given the option to repair any items that turn up. Many lenders and asset managers expect to sell the property in "as is" condition and are unwilling to perform repairs. If the seller is unwilling to make needed repairs, the buyer may terminate the contract during the stipulated time period and the earnest money is returned.

Some REO properties may have all the utilities turned on, making preliminary examination of the home by the buyer and her agent much easier. In other cases, the seller will not authorize the listing agent to turn on the utilities until a contract has been accepted and the property is ready for inspections. Some REO properties may cost extra to inspect, since the Buyer may be responsible for de-winterizing and re-winterizing the property before and after his inspections. Once the utilities are turned on, buyers may discover a number of obvious problems such as non-functional heat and air systems, leaking pipes and broken appliances which the lender may not be willing to repair. Buyers can spend hundreds of dollars to professionally inspect a home, only to discover expensive issues, which make the home a poor investment. In other cases, inspectors may find the home in nearly pristine condition. A good rule of thumb is to examine the home carefully before making an offer, looking for evidence of how well-kept it was prior to foreclosure.

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