Tuesday, December 29, 2009

Foreclosure Disclosure

June 2nd, 2009
Foreclosure Disclosure

As banks, especially out of state banks, list their foreclosed homes they
are often violating Minnesota Disclosure Laws. There is a provision to waive
the Seller Disclosure statement which asks everything from did the roof leak

did the cat pee on the carpet? If you have knowledge, or should have, you
are required to disclose murder that took place on the property, but you can
keep quiet about suicides, proximity to group homes and ghosts. (What about
ghosts of murder victims? Wasn't clear on that one).

But there are other disclosure requirements that can't be waved: lead paint,
methamphetamine production, septics and wells. And many lenders are
violating these and no one is doing anything about it.

John, my client, has been looking for a lot in a very specific area. He
calls me one day when he sees a little cottage for sale. It was a foreclosed
property listed with a realtor. John was in love and I saw why. This
riverfront property was in the coolest area that I had never come across in
all my travels in the Twin Cities. While it was advertised as a tear down,
the house looked OK -as far as we could tell with the electricity and water
turned off. And no disclosures. The listing agent claimed City Water but
there was no way that could be true. And we found no obvious site of a
septic and I strongly suspected the "septic system" was a pipe that flowed
straight to the river.

The price was no bargain, but I believe it would have appraised with a
functioning well and septic. So John submits a full price offer and with a
preapproved loan. On the realtors website was the disclosure forms for the
well and septic with this verbage: "Foreclosed home. Buyer responsible to
bring up to code". The form was unsigned and permitted me to type on it. So
I replaced "Buyer" with "Seller responsible to bring up to code prior to
closing" and included the disclosure as part of the purchase agreement.

The thing about the MLS forms is no one reads them---they just read whats
written in the blanks. So I was hopeful that the bank would miss my little
change and sign off on it and buy John a new well and septic.

Instead our offer was rejected as another one was "accepted", though it has
been 3 weeks and the property still doesn't show as "pending" on MLS.

Working with this Realtor was a bad experience. So I set off to find John
another property in this really cool place and found an unlisted property
that had been foreclosed but was still in redemption period. It was an
estate and I managed to find the attorney who sent me all the well test and a list of
and other things wrong with this tiny house. These problems were discovered
because the fishing buddy of the dead guy has a purchase agreement that he
can't get financing on. Thinking it was better to deal with the estate than
the BIG BANK who had foreclosed, we did a lot of research and wrote a very
fair offer that would have netted them about $5,000. Until the attorney tells us
about the 2nd mortgage held by the same BIG BANK.

John really wants this house and the $8,000 homebuyer tax credit runs out
December 1st. So we just have to bide our time and hope to locate the right
person from BIG BANK and hit them with the Disclosure info on the well and
septic that BIG BANK can't, or shouldn't, ignore once I give it to them.

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