Caveat emptor usually brings to mind well-known real estate developers and brokers that were famous for fraudulent land deals from the 1960’s and 1970’s primarily in Florida until the Florida Installment Land Sales Practices Act curtailed the activity and several other states enacted false advertising laws to protect citizens from mail order land sale schemes.
More recent caveat emptor situations target buyers of auction or foreclosed properties looking for a deal.
According to experienced real estate professionals, there are many new rules for purchasing foreclosed property. Before bidding online or entering into a contract to purchase – their advice is research and investigate.
Katharine Mackie, a resident of Cecil County, Maryland owns rental units. She decided this might be a good time to look for a new primary residence. She found some that were interesting on the foreclosure lists and one that she really considered placing a bid to buy but reconsidered when her real estate agent told her some of the qualifications and fees associated with placing a contract on the property.
A Chase bank flier on one property in Cecil County identifies Chase as the property owner. It also instructs, “Seller requests buyer to contact Chase for prequal” and, “for seller financing incentives, agents and their buyers are requested to contact our designated Chase Loan Officer”.
Other restrictions and rules Mackie encountered:
- She could lose all or part of her earnest money deposit if for any reason she could not close on he designated date. Rules do allow extreme personal circumstances such as a death in the immediate family as a reason for a delay or postponement.
- Inspections: must be ordered and paid (by the prospective buyer)prior to writing a contract or bid. (If her bid was rejected, she would lose the money paid for inspections)
- Contract contingency: none allowed
- A buyer premium of 5% or another disclosed amount can be charged on the sale
- Escrow money for prepaid mortgage insurance (MI – on the prequalification form) and an annual premium each year thereafter.
- HUD has even greater restrictions and rules if their financing is accepted for purchase of a home in need of repair: origination fee, independent consultant fee, consultant, appraisal fee, inspection fee as work progresses, title update fee to name a few.
“Buyer beware is not dead in today’s housing market,” Katharine Mackie concluded and decided a deal is not a deal with these conditions. She could envision costs outpacing the reduction in price expected when buying at a sheriff sale of foreclosure auction.