USDA Direct Loan + REO (Bank-owned) Property

This week I closed one of the most difficult real estate transactions in Lake Stevens, WA. The buyers were pre-approved for a USDA Direct Loan.

While USDA Direct loans can be very advantageous to buyers, it proved to be some challenge to close a deal.

Since my buyers were looking to get a good deal, we were buying an REO (bank-owned) property. Now, how do the USDA Direct Loan and and REO (bank-owned) home mash together?

It’s a common knowledge that USDA Rural Development periodically runs out of funds.

We wrote up a full listing price offer on a bank-owned home in Lake Stevens. A few days later the listing agent calls me. The bank denied our offer.

Why? Because, it’s contingent on USDA financing. They consider that unreliable and don’t want any complications with possible extentions. Do they have any other offers? No, so in a few weeks, if there are no other offers, they may reconsider ours.

Needless to say that shortly this home was gone.

There was a similar situation with another home. The bank accepted another offer, which was lower but wasn’t USDA.

I can’t blame them, though. By the time we got through the inspections and negotiations, the USDA did run out of funds. We ended up negotiating a 1-month extension.

Both, the USDA and the bank wanted the other party to play by their rules.

For example, both wanted to use their own closing agent (escrow company). Banks (or REO management companies) usually develop relationship with certain escrow companies. Since the REO management company may be located in the other part of the world (no kidding), they rely on their designated escrow company for local expertize.

In turn, the USDA has a list of approved escrow companies. Those are hard rules, and the USDA cannot send money to any other company.

You guessed it, the escrow that the bank wanted wasn’t on the USDA list. After long negotiations we ended up having a “split escrow” (I didn’t even know before that such may exist :). The buyer and seller used their own escrow companies, which coordinated the transaction between them.

This increased the closing costs slightly, but that was the agreeable solution.

After home inspection USDA required some repairs despite the fact that the bank-owned home was sold “as is”

Bank-owned homes are usually sold “as is”, meaning that no requests for repairs will be granted. The USDA however has stricter requirements on the condition of the home. So after the home inspection, they requested that certain minor items are fixed.

Ironically, it wasn’t something major that needed repairs. According to the bank rules, the listing agent had to get repair bids from 3 different contractors.

The only repairs requested by the USDA were to adjust the garage door, attach a stairwell handle bar, and reverse the hot and ground wires in the laundry room outlet. Contractors wouldn’t want to waste their time to go and prepare a bid on such a small job. :)

Despite all these (and other troubles), we were able to buy a bank-owned home with a USDA direct loan.

More Lake Stevens Homes for Sale:

Showing properties 1 - 2 of 62. See more city of Lake Stevens real estate.
(all data current as of 5/20/2012)

1. $229,995 : 9310 12th St NE, Unit 0002, Lake Stevens
   
   3 beds, 2 full, 1 part baths

   Home size: 1,473 sq ft

   Year built: 2012

   Parking spots: 2

   Days on market: 1
   
2. $244,995 : 1130 92nd (lot 8) Ave NE, Lake Stevens
   
   4 beds, 1 full, 2 part baths

   Home size: 1,748 sq ft

   Year built: 2012

   Parking spots: 2

   Days on market: 1
   

Listing information deemed reliable but not guaranteed. Read full disclaimer.