Often times, when people ask me about looking at foreclosed properties, I hear the same remarks I have heard from others time after time.
“Foreclosures take too long to close.” ” Banks expect me to make an offer much lower than the listed price”. “These properties are always in really poor condition.” “The seller won’t make any repairs.” “How can people let a property go like this?” “What a loser to just stop making the payments.” ” The bank won’t help me. They just want to take my house back.”
First of all, after 20 years of selling foreclosed properties, I can tell you this. Bad things can happen to really good people. Job loss, poor health, divorce are just some of the things that can happen to cause people to get behind in their house payments. And, if those homeowners are in a situation where they don’t have the money to make their house payments, then the money is also not there to make the repairs. It is a tragic situation. People are lying awake at night worrying about what is going to happen to them if they lose their home. “Where will we go?” “What can I do?” “What is going to happen to my family?” The fear and worry are so great that some folks are paralyzed, frozen in place and take no action.
The second half of the foreclosure equation is the lender. The bank, or the institution who is now servicing the loan, is NOT in the business of buying and selling real estate. The lender does NOT want to take the property back. The additional legal fees, property preservation, holding costs such as property taxes, maintenance and marketing costs are a great incentive for the lender to work with the homeowner to offer options to help the homeowner stay in the home. Some of the options include work out plans, restructuring of the loan, payment arrangements to pay off the delinquent payments, refinancing and extra time for the borrower to sell the property themselves, sometimes at a “short sale” price ( an amount which is less than owed on the loan). The most important thing for the borrower to do, when payments are getting behind, is stay in touch with the lender and explore every option available.
So now we will talk about purchasing a property that has already been foreclosed. Just like with conventional sellers, not every asset manager assigned to sell a bank owned property will have the same marketing strategy. And not every institution with an inventory of foreclosed homes to sell has the same policies and procedures. HUD homes are usually sold “as is”. There is no inspection period offered . HUD prefers that purchasers do any inspections for informational purposes prior to making an offer. The earnest money is not refundable if the buyer terminates after entering into a contract to purchase a HUD property. Most other lenders and asset management companies will offer a 7 to 10 day inspection period. Even though these properties are also offered “as is”, if the inspection shows a major structural or mechanical defect, the buyer has an option to terminate the contract if the seller does not choose to make the repair and the earnest money deposit will be refunded. The important thing is to find out prior to making an offer, if there is an inspection period and if the earnest money is refundable.
Now , as to pricing. The days of assuming that foreclosures are sold for 10% to 20% lower than the current listed price are over. In fact, the last 5 bank owned properties that I have sold, sold for higher than the listed price with multiple offers. Banks and asset managers do great due diligence in deciding on the value and list price of a property. Usually, a full appraisal is ordered. Two different real estate brokers with experience in the local market are asked for an opinion of value. Contractors are called in to give estimates on what it would cost to bring the property to a move in condition. These opinions of value and repair estimates are compared. And the property is listed according to the current condition, sometimes with a further reduction for an investors time and effort. The current listed price is a price that has been determined based on what the property is worth, today, in the current condition.
Once the property has a contract for sale, the estimated time to close is the same as with a conventional property. If the sale is a cash sale, most institutional sellers will want the deal to close in 21 days. If the purchase requires conventional financing, 30 days is the norm. If the property will qualify for VA or FHA financing, the closing period is often allowed to go up to 45 days. More time is not needed just because a property is a bank owned property. The seller already has had a title search done. The deed has been recorded showing the bank as the new owner. Although, just as with any conventional property, surprises do pop up from time to time.
I hope I have answered some questions and debunked some of the misconceptions about foreclosures and bank owned properties. I don’t pretend to be an expert in all aspects of buying and selling bank owned properties. If you disagree with any of the information as I have described it, please email or call me and I will certainly make changes or add to the dialogue here.
There are some great deals still out there !!! If I can help you in any way to buy a bank owned property, sell a bank owned property or put you in touch with an expert who can help you avoid foreclosure on your own home, please call on me at any time.