Buying a Foreclosure? The Seven Things a Bank Must Disclose!
So you’ve decided to buy a foreclosure, you’ve found one you like and you’ve submitted an offer and it has been accepted, now what? You probably signed an addendum stating the contract is “as is, where is.” Your real estate agent has told you that the bank is not required to submit certain disclosures. What does this mean for you and what should you expect to be told?
1. Hazards - It makes sense that the banks would not be required to “disclose” information directly related to the property or it’s history because they don’t know anything about it. More than likely no one at the bank as ever actually seen the property. However, this fact does not mean that the bank is exempt from every disclosure. The bank is required to disclose information regarding potential hazards that may affect the property. One of the easiest reports to obtain is a natural hazard disclosure report which is completed by a third party disclosure company and can be purchased for about $100. Although the bank is exempt from the Natural Hazard Disclosure Statement, the bank is “not exempt from applicable statutory obligations to disclose earthquake fault zones, seismic hazard zones, state responsibility areas, very high fire hazard severity zones, special flood hazard areas and flood hazard zones.” The foreclosure seller is also not required to supply any information about special tax assessment districts. Therefore it makes the most sense to require the lender to supply a natural hazard report when you submit your contract. Make sure that the report you request has tax information for the county and city in which you are going to buy.
2. Disclosures - The foreclosure seller must give you any information they have that will materially effect the value and desirability of the property. For example, if a prior buyer conducted a pest inspection of the property and supplied a copy of the inspection to the seller, but decided not to purchase the property, the bank must provide a copy of this inspection to any buyer from that point on.
3. Smoke Detectors - The property must have operable smoke detectors in place and a written statement of compliance must be provided to the buyer. The cost of the compliance is negotiable.
4. Water Heater - The same applies to an operable water heater and a statement of compliance. The cost of the compliance is negotiable.
5. Lead Based Paint - Although a foreclosure seller probably has no idea about whether a property has lead based paint, the seller is required to attest to to their knowledge (or lack thereof) of any known hazards, provide the booklet, ” protect your family from lead in your home,” and give the buyer a 10 day opportunity to inspect for lead if the property was constructed before 1978.
6. Tax Withholding- Although the bank is exempt from the actual withholding laws upon the sale of the property, they are required to disclose the withholding requirement. Although this disclosure requirement is in place, it is a minor issue and does not typically effect the buyer directly.
7. Megan’s Law Database - Also known as the sex offender website, the existence of the website must be disclosed to a potential buyer although neither a seller nor a broker is required to check the website as this would be considered out of their area of expertise. The database is maintained by the Dept of Justice and can be search at www.meganslaw.ca.gov.
