April 20, 2011

The Facts about Foreclosures, Short Sales and HUD Homes

Hot deals. Rock bottom prices.  Getting the most for your dollar.

Most buyers these days are looking for a deal/steal in real estate.  Whether you are an investor or first time home buyer, it's hard to pass up some of these prices.  With prices low, rates low and inventory high, this is the Perfect Storm for real estate.  Short Sales and Foreclosed or Bank owned homes, in some states, are a large part of the inventory and are a major competitor to un-distressed homeowners. Yes, it's true that the price is right on these homes, but there are stipulations that buyers should be cautious and aware of.  What's that old saying " If it's too good to be true, it probably isn't".

Short Sales

  • First, a Short Sale is a transaction that depends on the sellers creditor/lienholders agreement to accept less than the amount owed on the property in order to satisfy the sellers obligations at closing.
  • 3rd Party Negotiators - A person designated to work with and negotiate with the lenders. It can be the listing agent, attorney's or other 3rd party negotiating co's.
  • A short sale transaction is a timely process.  Usually you won't receive any communication from the lienholder for an avg of 30-90 days. This 30-90 days does not include all the other time involved in counteroffers, negotiating, or waiting for the lienholder to get their BPO's back ( broker price opinions).  These BPO's will help the lienholder determine "fair market value" of the property and if the offer they have received is a fair offer or not.  So the lienholder can come back and refuse an offer or counter an offer. So this means more time involved.
  • Also the lienholders are often unwilling to cover a buyer's closing costs.
    Bottomline: If you are in a rush to purchase, this kind of transaction may not be ideal for you.

Foreclosed/Bank Owned/REO/ HUD homes

I lumped these together because they all operate the same. You are not negotiating with a homeowner or person, but rather with Management Companies that have been hired by the banks and government(HUD) to represent them.  Essentially, your transaction is just a number.  Really.  There are thousands of these transactions closing in every state and the best way to monitor them is by transaction number.

  • Offers are usually submitted as "bids" into a computerized system which will either accept the offer depending on price or kick it out if too low.  The response time for this is about 2-4 days.
  • All correspondence  is done via email or fax to the Asset Mgmt co.
  • If you are going to perform an Inspection, first know that the inspection is for informational purposes only. The utilities will have to be turned on through another Mgmt Co. and the charges for the utilities are billed to the prospective buyer.
  • These homes are usually sold " AS IS" meaning the banks/HUD will not pay for any repairs that the home may need.  Most of these Bank Repo's are in need of some sort of repair and would not pass an FHA or VA appraisal and inspection.  Also, once the sale has closed and a new home owner has found a defect in the house, you would have no recourse because the house was sold " As Is" and usually the Seller Disclosure has been waived on these sales.
    True story:  Had a recent FHA buyer who had a transaction going on a HUD home.  The home's roof had Moss on it and did not pass appraisal.  The buyer himself went out in the cold rain to spray wash the roof of this home so that it would then pass appraisal.  It passed, but he also took a chance to do what was necessary in order for the roof to meet the appraiser's conditions.
  • Also, if the buyer is not ready to close on the agreed upon closing date and requests an extension, the extension will cost the buyer $25/day and no less than a 15 day extension.

So again be cautious and be aware when looking at these hot deals out there.  There will be hoops and hurdles to jump through, but if you have a good Realtor, time, stamina and the home is in good condition, you could just get yourself a sweet deal and a sweet home.

Also, a sidenote about the buyer I referenced above, because of his determination and having a tenacious Realtor to walk him through this obstacle course of a sale, his new house payment is less than what he had been paying in rent.

If you would like more information regarding Bellingham Homes for Sale, Short Sales or Foreclosures or are a home owner considering selling your home, feel free to contact Roberta or call me direct at 360-303-3898.

 

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