There are many properties in some stage of foreclosure or taken back by lenders at this time and a lot of buyers ask about these because they’ve heard that this is where you can get an incredible deal. I’ve found that many buyers don’t really understand the downsides to these types of deals and will do my best to give you some basic information to help you make better decisions.
Many buyers have heard so much about what a good deal that short sales and foreclosures are but in most cases aren’t even aware of the problems that come with them.
You can find some really good deals still, in foreclosures and short sales and regular sales. BUT – there are some things you’ll need to understand because the process can be quite different from the normal.
Recent news reports about major banks halting foreclosures in several states due to problems with paperwork has shaken the foreclosure market and creates uncertainty about the future of many current and even past foreclosure deals. Because of this I’m not recommending anyone purchase a property that has been foreclosed on, unless they get an attorney involved who will review all of the foreclosure paperwork.
With that out of the way, we can start by clearing up the different terms used for properties in various stages of foreclosure.
There is a ‘pre-foreclosure’. This is a property where the owner has fallen behind on their payments to a point where the bank has begun the foreclosure proceedings (usually, in Florida, by filing a notice of pending legal action).
The next on is the ‘short sale’. This generally means a pre-foreclosure property where the property is being listed at a price that is less than what is owed on the outstanding loans. One word of caution though, some realtors will list a property as a short sale or “possible” short sale without even having their client complete a “short sale package” (the paperwork that will have to be submitted to the bank with any contract) – avoid these as in most cases they end up going nowhere or take months to hear anything back.
There are also “bank-owned” properties. Basically the term ‘bank-owned’ means the same thing as a foreclosed property because the bank has completed the foreclosure proceedings and has taken back ownership of the property.
Right now you should avoid buying these unless you have a very good attorney review all the appropriate paperwork.
That gives you a basic overview of the types of “foreclosure” properties you may run into. Now let’s look at what you need to know about them if you’re thinking about venturing into this area.
Short sales can be the hardest deals to go through. For the most part you should not even think about putting an offer in on most short sales unless you have the patience to wait 3-6 months or more to find out if it is accepted.
As an example, I spoke with another realtor a few months ago whose client not only put in a full list price offer but also offered to pay for the title insurance that would normally be paid by the seller. It still took 3 weeks to get an answer and what came back from the bank was that they wouldn’t consider the offer until they had a special disclosure signed by the buyer that is required on houses built before 1978. Only problem is that the house was built in the last 5 years and this disclosure isn’t required. But the bank didn’t care and wanted the disclosure before considering the offer. And it took weeks to even get this ridiculous request from the lender!
Not too long a client one of my clients tried to get a contract on a short sale which recently came back on the market. The lender did not accept a contract that had been put in over 5 months prior and the buyer didn’t want to pursue it anymore. The offer was lower than they wanted but they rejected even doing a short sale because the owner had been continuing to pay their monthly loan payment – and it took them 6 months to let the owner’s realtor know this.The good news is that the other Realtor and I were able to somehow get the deal closed.
I’ve found that the best short sales to work with are the ones that have already gone through the approval process and have just come back on the market. The advantage here is that the lender has already done all of their work in processing the short sale and has approved it as a short sale and has normally stated what they will accept for a price. In addition, they often give a time period of about 30 days that this approval is good for so if you jump in at that point you will usually get a fast reply and can have the whole process take a much shorter time.
Other than recently approved short sales, the easiest of all foreclosure properties to work with are bank-owned properties, at least up until recently. When these aren’t as much as risk, at some point in the future, you need to be aware that one of the biggest problems with bank-owned properties is that they can be in pretty bad condition.
I had a client that was interested in buying a bank-owned property in a nice neighborhood. They did their own inspection of the property and found that termites had caused some damage in a couple areas and there was some mold in an area where a roof leak had caused the ceiling to cave in. We provided a list of all these problems when we submitted their offer. The lender did not accept their offer.
The next year we saw that the property was still on the market but at a lower price. We went to see it again. The hole in the ceiling over the dining room where my client found some of the mold and termite damage was repaired and with no attic there would be no way for anyone to know what we had seen up there and I have found that some banks do not disclose these things (even when provided the information) and try to get away with that by stating they “never occupied the property”. By the way, even if they did not occupy the property, if they are made aware of any problems or their realtor is they do need to disclose it.
Another client put in an offer on a foreclosed house but after we had an inspection done and found the house needed a new roof, new A/C system, new ducting, new appliances and there were settlement issues (possible sinkhole) she cancelled the contract. This was with Fannie Mae and it took 2 months to get them to send her deposit back. We checked the listing after she cancelled and noticed that nothing about the settlement issues was noted. So with foreclosed properties you must have a thorough inspection done because that is your only way to find out the true condition of the property.
So when bank-owned properties are ‘safe’ to buy again, keep in mind that they are still risky due to possible unknown property condition problems.
If you ever do decide to pursue a short sale or bank-owned property, be sure to have your financing in place before you even start to view any. In all cases that I have seen so far, an offer won’t even be accepted in a short sale or bank-owned situation unless you submit a preapproval letter for financing or proof that you have the cash to buy it.
In most cases, your best bet is finding a property that suits your needs and is a good value where the owner can sell for a good price without being in a short sale situation.
I hope you’ve made it this far – I realize now how long this article got to be. I realize that this may seem like a lot to take in but I really feel that it is important to be well-armed with enough knowledge whenever you are going to do something that may put your hard-earned money at risk.
Keep yourself updated as a buyer with the tools and resources at Dunedin Florida Real Estate.