When it comes to bank-owned properties, I’ve seen some pretty unbelievable things in the past year or so. There’s a reason these homes are called distressed properties: Oftentimes, either they’ve been left vacant for long periods of time, which creates all kinds of problems, or the previous owners who surrendered the home to their lender have stripped, damaged or even destroyed the property out of desperation or frustration.
To wit: There’s the rural ‘60s home that was in such bad shape I was hesitant to walk through it with my clients, for fear that the dilapidated wood floors might cave in under our weight. The million-dollar log home that had been stripped of just about every fixture in the massive two-story structure (the culprits had been so insistent on taking the kitchen sink that they’d shattered the tile counter surrounding it when they jerked it out). The once-charming Craftsman home on acreage, which had been abandoned by humans but discovered by a very active family of mice (you couldn’t take a step through the kitchen without plopping at least one foot on mouse poop). The creepy secluded workshop with the boarded up windows, which had been home to who knows what (none of us even wanted to know — we couldn’t get out of there fast enough).
So nobody has to convince me of the importance of performing a home inspection before purchasing a foreclosure property. But when one of my preferred home inspectors, Dawn Dickens, owner of ACE Real Estate Inspections, offered a class titled “Foreclosure & REO Inspections from the Eyes of an Inspector” in conjunction with a local title company, I couldn’t resist. If nothing else, it would give me a chance to catch up with a friend I used to see much more regularly.
And sure enough, Dawn (one of only a handful of female home inspectors in Central Oregon) provided some valuable food for thought that I wanted to pass along. Maybe some tidbit shared here will help you during your next inspection.
Tip No. 1: A Home is Like a Living Thing
To prolong its life expectancy, a home needs heat, activity and upkeep – three things that are often sorely lacking in a bank-owned property. The at-times harsh weather conditions of a Central Oregon winter can be especially damaging to a home that’s empty. And don’t think that just because a home has been “winterized,” it’s good to go. Which brings us to Tip No.2…
Tip No 2: Winterization is Not Your Friend
Just because a listing agent tells you an REO property has been winterized doesn’t mean it’s been winterized properly. How do you know whether the company that was hired to do the job is trustworthy and competent? Dawn mentioned that she has encountered a growing number of REO properties that haven’t been correctly winterized, and has seen a growing number of problems as a result. (By the way, even if a home appears to be in good working condition now, potentially disastrous results may reveal themselves down the road as the seasons change).
What’s worse, if a property is on the market through several seasons, it may have been winterized and de-winterized multiple times. And the more often it’s done, the higher the potential for damage. Dawn said the number-one problem she’s seeing is damaged hot-water tanks, which are being ruined because of the repeated interruption to the elements. Overuse of toilet and sink valves will cause leakage. Breakers that are repeatedly turned on and off will wear down.
If at all possible, have your inspection done on the same day as a de-winterization (and ask your home inspector to be present), and make sure that all the utilities will be functional.
Tip No. 3: If You’re on a Tight Budget, Do Something
At the very least, ask your inspector to do a partial inspection. Have them check the crawlspace, attic and roof. It should cost significantly less than a full inspection (between $150-$175, Dawn said), but you’ll at least have an expert’s evaluation of the three areas where most problems occur.
Tip No. 4: Call in Reinforcements
If you do encounter significant problems during an inspection that you want the bank to address before closing, don’t assume the bank will say no to you. Ask your inspector to write a letter detailing the problem(s) and provide that to the bank. It could strengthen your negotiation.
Food for Thought: Just a Few True Nightmares
Here are just a few issues that Dawn has encountered when inspecting REO properties:

  1. An air duct system flooded with water
  2. Doors and windows glued shut
  3. A home stripped of every door, hardwood floor, light fixture, cabinet & bath fixture (including tubs, showers & toilets)
  4. Every carpet in a home littered with thousands of small needles
  5. SRV lines on a water tank pulled
  6. Back-flow devices missing
  7. Breakers/heat pumps/furnaces missing
  8. Plumbing vents blocked

One Last Thing…
Yes, there are plenty of bank-owned properties in Central Oregon that are in good working condition (those are the ones that are often snapped up within 30 days of listing). So I’m not suggesting that you automatically rule the category out when doing your home search. Just make sure you know what you’re getting before you’re handed the keys. It’s money well-spent.

About the Author:
Lisa Broadwater, GRI, CDPE
is a Central Oregon-based real estate professional who specializes in listing and selling homes, especially in Sisters, Tumalo, Redmond and Bend.