Many readers think that they can get a deal by buying a bank owned home because they think they'll get it at a bargain price. During the past couple of years some bank owned properties have been offered for sale via several online auction websites. I have helped several buyers purchase homes through these sites. One particular online auction turned into a real estate horror story.
I registered the buyer and myself as his agent so that I could be a part of the process and earn a commission if the buyer was the successful bidder. I read the TERMS before signing up. I warned my buyer up front that the standard Florida Purchase and Sale Contract would not be used but that the contract written by the online auction company would be used instead. That contract was totally written to benefit the bank as seller. I used to be a lawyer. The law describes this type of contract as a contract of adhesion. The thing is if a buyer wants something so badly, he'll probably sign anything just for the chance to get a good deal.
My buyer was paying cash so there was no third party mortgage involved. The house itself was a total mess. My buyer did not do an inspection as the buyer planned to do a major renovation.
Within the first week or so we received a preliminary title report which showed that the law firm that foreclosed the mortgage omitted a necessary party to the foreclosure' This required the attorney to do a new foreclosure the omitted party. This set back the closing date by several months. Just about the same time my buyer became aware that someone had complained to City of Key West Code Enforcement about yard debris and trash in the front and back yards on the house upon which my buyer had a contract. The City of Key West Special Master imposed a daily fine of $250 on the property until such time as the mess was cleaned up and the fine paid. I got a copy of the FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER and emailed a copy to the listing agent, asset manager, and closing agent all located at the same address in the faraway Florida city. All of the asset management people and title people had Muslim last names except for the real estate agent. I checked with the Florida Real Estate Commission - he is a real person who lives in Florida.
I told Mohamed about the code violation and ongoing fine. He asked me to send him a copy of the FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER which I had previously sent to him. I did. Then we began a series of email correspondence about the ever-growing fine. A few weeks into the process Mohamed assured me the problem had been resolved. He said he initiated a process to hire a vendor to clean up the yard. During the meantime my buyers left town for a previously planned vacation. I drove by the house to see if the place had been cleaned up. The front yard looked okay but I could see trash in the side yards. I went to the backyard where fallen palm fronts and other debris littered the yard. I took photos. Then I went to City Hall to speak to someone about the property. I was informed that the city would hold my buyer responsible if the bank owner did not clean up the mess and pay the fine by the time we closed.
About five months had passed since the new foreclosure was started. The title agent emailed me a notice the bank was ready to close. I sent emails to Mohamed and others at the asset management company stating that the code violation constituted a title defect and that the buyer required the bank to pay the fine and get the code violation cleared. Mohamed and the title agent sent a series of written in English but which either intentionally or accidentally never stated that the bank clear the code violation and pay the fine before closing.
I re-read the bank purchase contract (the contract of adhesion). The contract specifically excluded the bank as being responsible for any code violations. I then engaged a local law firm to write a letter to the bank asset manager and title company reaffirming the buyer's position that the code violation constituted a title defect. Mohamed and the title agent became more responsive to the lawyer who communicated in a non-threatening manner but simply required the bank to clear the title defect before closing. I went to city hall and got a form by which the bank could seek to mitigate (reduce) the amount of the fine which by then had risen to over $20,000. Remember the fine was $250 per day.
I sent the mitigation form to Mohamed who said the contractor he hired to clean up the yard had done so. I told him that whoever he hired picked up trash in the front yard but not the side yards or back yard. I told him emphatically not to mess the government. He finally got the message. The bank extended the closing a few extra weeks so that it could appear before the Special Magistrate to mitigate the fine. The yard was cleaned and the fine was reduced to only $15,000. The bank paid the fine at closing.
But that's not the end of the story. The TERMS disclosed at the online auction site were less than forthright in disclosing all the fees that the buyer would be required to pay. The biggest and most offensive non-disclosure appeared when we received the preliminary settlement sheet. The buyer was required to pay the Seller's State of Florida Documentary Stamp Tax which is calculated at 70 cents per one hundred dollars of sales price. This is always a seller cost, but under the bank's contract shifted this expense to the buyer. While the bank paid the title policy, all of the other title closing costs were likewise shifted to the buyer. The buyer's sole remedy upon learning all the associated fees would be to walk away from the contract, lose his deposit, and not get the property. Buyers do what buyers do: they suck it up and pay the fees.
