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posted: 6/13/2013 4:08 PM

Some banks can skirt home-disclosure issues

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It's still "buyer beware" for those interested in purchasing a bank-owned foreclosure.

Q. We have been looking at several for-sale homes in a few different neighborhoods, and a lot of them are foreclosures that have been on the market for a long time. All of these bank-owned listings state that the property is being offered on an "as-is" basis, and that the lender won't take any responsibility for problems with the house that we might discover after a sale has closed. But isn't the bank required to disclose any problems that it knows about so we don't wind up purchasing a "money pit"? We can't even check the lighting or furnaces in most of the homes because the electricity has already been turned off!

A. Your question raises some complex issues about purchasing foreclosure properties from a lender. But, effectively, the bottom-line answer is "no" -- banks generally aren't held to the same high standards of disclosure that are imposed on individual sellers.

If you or I were selling a home today, we likely would have to disclose to the buyer any problems that we know about -- a leaky roof, a basement that floods during the rainy season or a built-in stove that doesn't work properly. We'd know about these problems because we had lived in the property for several months or years, so we're legally obligated to tell potential buyers about the flaws, and they could adjust their offering price accordingly.

Bank-owned foreclosures are treated a bit differently. More than 5 million foreclosures were sold in the past few years or are being marketed today, so the previous owners aren't available to vouch for the home's condition, and many of the banks that own the properties now haven't even viewed or inspected them. They can't be held liable for a problem that they didn't know existed.

The difficulty involved in inspecting a foreclosure often is compounded by the fact that some or all of the utilities have long since been disconnected, making it even tougher for a potential buyer to find out if there are electrical, plumbing, water or sewage problems.

If you want to make an offer on a foreclosure, contact some local home-inspection firms that are skilled in dealing with such properties. In some communities, inspectors are allowed to use portable generators to check a home's electrical system, water heater, appliances and the like. It's not a perfect solution, but it's better than having no formal inspection at all.

Q. We have been approved for a $180,000 loan at a 4 percent fixed rate to buy a house, and the lender has given us the option of paying the roughly $5,500 in closing costs either in upfront cash or through monthly installments that would be added to our regular payments for the mortgage's principal and interest. Which is the best choice?

A. The decision largely depends on how much extra cash you'll have after making the actual down payment.

Paying the $5,500 in upfront cash would allow you to avoid financing the amount and paying it back for the next 30 years, thus saving you $3,953 in future finance charges. That's a tempting idea, but don't do it if the down payment itself will leave you strapped for cash, if you'll need a lot of money to fix up the new house or if you don't have an amount equal to at least six months' or a year's salary socked away to pay the bills if you or your spouse lose a job or run into unexpected big expenses.

Q. I contacted an estate planner about creating the type of basic living trust that you often recommend. He agreed that forming a trust and putting my house into it would be a good idea, but said I also should create a "pour over" will. Is a pour over necessary, or is he just trying to pad his profits by selling me something I don't need?

A. Some planners and attorneys recommend the use of a pour-over will, but others are adamantly against it.

The trust will allow your home and other assets it contains to quickly pass to your heirs without going through the long and costly probate process. A pour-over will is sort of a backup: It states that any items that were purposely or inadvertently omitted from the trust also will automatically pass to the trust -- in other words, "poured over."

A pour-over often includes a provision stating that, in the unlikely event that some or all of the trust is invalid, distribution of your assets will be made under the same terms as stated in the invalid trust.

The problem with pour-overs is that, in most states, assets that are poured into the trust after you die are still subject to probate proceedings. So, while items that you put into the trust today will still quickly go to your heirs, the trust itself can't be dissolved until probate for the remaining items has been completed. That can be an inconvenience for your heirs, as well as for the person you have named to distribute your assets.

REAL ESTATE TRIVIA: For-sale properties with an address that ends with "Street" are listed for an average of $86 per square foot, according to a nationwide survey by realty giant Trulia Inc. That's 36 percent less than the $117 per square foot that owners on "Boulevards" are asking, and about 12 percent less than the $96 a foot asked by sellers who live on an "Avenue" or "Drive."

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers, P.O. Box 4405, Culver City, CA 90231-4405.

2013, Cowles Syndicate Inc.

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