Buying Foreclosures - Banks Not Disclosing Material Facts

This has become a very serious issue with the sale of foreclosed properties, also known as REOs (real estate owned). We are seeing this on a number of fronts from failure to disclose "known" material defects to failure to disclose "known" hazards, unpaid assessments, and other facts that may affect the value of the property.

Shhhh - Keep Your Mouth Shut - That's exactly what one bank representative told us when we advised them there was a roof leak and the garage conversion to a bedroom was in violation of the local building code. We were representing the bank as the listing agent. Another agent brought us a contract and during the closing process had the home inspected. The inspection report revealed the roof damage, the garage conversion issue and a list of a dozen other problems. The bank refused to fix any of the problems, so the buyer walked away from the deal.

When I advised the bank representative that we must now disclose all of the defects in the inspection report, they told me to keep my mouth shut, because they do NOT disclose anything.

Banks Don't Disclose - Initially, a bank does NOT have to supply any disclosure statement because they have not lived in the house, nor do they have any information about any defects. However, if they do have information about defects in the home or material facts about the surrounding area, they are required by law to disclose. Unfortunately, for buyers, banks still resist disclosing, even when they become aware of defects. This is in direct violation of Florida real estate law. Johnson v. Davis 480 So.2d 625 (Fla. 1985)

Brokers MUST Disclose - Here is where it really gets tricky. When the bank has no knowledge of defects, but the broker is aware of material defects in the home and maybe the fact that there is an assessment about to be levied on the property . . . the broker MUST disclose. Florida Statute 475.278 2 (d) The tricky part is, the bank is telling the broker . . . "if you disclose the defects and the assessment, you will never get another listing from us."

Most brokers realize, non-disclosure means they could lose their license AND be liable for the cost of repairing any defects or remedying any material facts that they failed to disclose AND had an affect on the price. In the most extreme cases, the broker would be required to purchase the home from the buyer AND pay all damages the buyer suffered. But there are still many, many, many, many broker that take this risk everyday.

Buyer BEWARE - As a buyer, you need to do your own homework. This includes a "real" inspection of the home. Unfortunately, most home inspectors are nothing more than guys that have done a little plumbing or construction work, and they know how to fill out a checklist. If you're paying less than $500 for an inspection, I can almost guarantee you that you are NOT getting a thorough inspection. We use a variety of inspectors, and yes . . . we sometimes use the checklist guys, because many of our clients don't want to pay $700-$1,500 for a detailed inspection by an "expert" that inspects everything from the basics of the roof to the most intricate electrical issues that require special equipment.

In addition to the inspection, I recommend having your agent send a letter to the listing agent, asking "specifically" if they know of any defects in the home, the property or any material facts that may affect the value of the property, including assessments, unpaid HOA fees, fines or fact regarding the surrounding area.

Good News - If you buy a home from a bank and later find defects or suffer damages, you may have a claim for fraud that may result in treble damages or punitive damages . . . if the bank or broker knew or should have known of the defects, and they failed to disclose. My advice to you is to be very careful when buying foreclosure properties.

Looking for a home in Florida? - I'd welcome the opportunity to assist you with a purchase of a home or condo. For additional information please call me 772-260-5448 or visit our website http://www.floridahomes.pro/

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