C Tann-Starr's Outside Blog

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That foreclosure is a bargain ... but will your bank finance it?

 

Realtor Paul Slaybaugh, Scottsdale, AZ Real Estate at Realty Executives can be reached at his Office Phone: (480) 948-945. If you are looking to buy property in the Scottsdale Az market, I highly recommend my friend. He is an excellent Realtor, writer and has graciously made this article available for a re-blog to my readers. Don't forget to select the link and visit his blog to leave your comments. 

 

 

Beautiful house. 

A few drywall patches will cover the holes where the surround sound speakers were yanked out of the wall.  The sprinkler system is ready to go into the ground out back.  That dirt will green up in no time.  What’s that smell?  Oh, the water’s off.  Someone must not have realized that when they decided to test the plumbing.

There are downsides to entering the world of the bank-owned properties, of course, but buyers have little choice in many instances these days.  Banks are not only setting the market, banks are the market in many parts of Phoenix.  As the floundering institutions look to offload their liabilities, typical mom and pop sellers are having tremendous difficulty competing with the bargain basement prices.  Buyers are willing to look past a little ugliness if it means saving a couple hundred thousand dollars.

Where it gets interesting, though, is financing.  I’m not talking about the current credit crisis that has made it difficult on many would-be buyers to qualify.  This could involve someone with bulletproof credit and cash reserves so ample that Henry Paulson will be calling any day for “a little help here.”  The problems that can arise with financing an REO property often have nothing to do with the buyer, but rather the property.

Case in point, a client of mine purchased a bank owned home earlier in the year.  Steady, verifiable income.  Credit tighter than Chinese fingercuffs.  The deal almost blew up because of a leak at the kitchen sink.  The day prior to funding, I had to slip my handyman in to make the repair (banks don’t often make any repairs to their properties).  Only after I supplied the underwriter with the documentation of the repair (they would later demand a copy of the handyman’s business card, I kid you not) did the deal actually close.  Mind you, this was for a leaky sink.

See where I’m going with this?

With most bank properties, a leaky sink is going to be the least of your concerns.  There might be all manner of physical conditions which preclude your lender from giving you the loan for which you are approved.  Some lenders are demanding copies of inspection reports, and have charged appraisers with reporting observable defects.  Once an underwriter has knowledge of certain defects, your loan is imperiled unless repairs are made prior to the close of escrow.

Termite infestation, roof damage, non-functioning major components and systems … all of these things can torpedo your loan.  Lenders are fearful enough of handing out money for prime properties at this stage of the game.  A distressed property is far from ideal collateral.  I get the impression in some instances that an underwriter or funding department will look for any excuse not to risk depleting their coffers further.  Even if you want to move ahead with the purchase because you are getting such a smoking deal, you might not have the means. 

I showed a property the other day in which two of the three A/C units had been cannibalized for copper and parts.  Outside of paying cash or arranging private financing, this steal of a house (quite literally) would be difficult to buy through conventional means.

If the bank won’t make the necessary repairs, buyers can be left with the unenviable decision of either walking away from a dream purchase, or making the repairs themselves.  A buyer tackling such expenses prior to the close of escrow is fraught with risk for all parties.  The buyer risks losing that money if the deal goes south, and the seller risks the buyer gaining an equitable interest in the property prior to closing.  Bad juju all around.

There are deals to be had in bank properties right now, but it’s better to be aware of the potential pitfalls before you sign a contract .  Home inspections will reveal many of the non-glaring defects, but I find it’s better to address the obvious loan killers in the initial negotiations.  Why waste weeks of your life jacking around with a seller that has no intentions or repairing anything, regardless of whether it affects your loan or not?

Seem stupid of the bank that owns the property not to make the repairs?  Counter intuitive?  Assume they will do whatever it takes to offload the inventory that they desperately don’t want?  Believe me when I say that the depths of a bank’s stupidity can be an uncharted abyss, populated by the freaky, googly-eyed monstrosities that the Discover Channel tells me reside only in the deepest oceanic trenches and asset manager’s offices.

Be prepared for the eventuality that your lender might not be as keen on the property you wish to purchase as you are.  Lean on your mortgage professional and your Realtor to help you successfully navigate the purchase of a distressed property.

There’s gold in them there foreclosure hills, but someone needs to lend you a shovel if you don’t have your own.  And they’ll want to know what manner of muck you are planning to dig into before giving you the go ahead.

 

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Comment balloon 12 commentsC Tann-Starr • October 11 2008 07:37AM

Comments

C - thanks for the reblog - missed it the first time.

Posted by Mike Saunders (Lanier Partners) about 12 years ago

Big Mike, you are very welcome.

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) about 12 years ago

I had the buyer's lender insist that the toilet (there were 3 baths) in one bath be reseated, a sink installed and the stove reconnected. The stove I could understand, but why must there be 3 working baths? We didn't bother asking the REO (seller) if we could do it. We just did it.

elizabeth weintraub sacramento real estate agent in land park

Posted by Elizabeth Weintraub Sacramento Realtor Top 1%, Put 40 years of experience to work for you (RE/MAX Gold) about 12 years ago

These properties are sometimes pretty sad looking. Many buyers that are scouting these out and think they are going to get a bank to finance are wishing al for nothing.

Posted by Lizette Fitzpatrick, Lizette Realty, Lexington KY MLS - Kentucky Homes (Lizette Realty - Richmond KY) about 12 years ago

Caroyln - This is the first time someone has re-blogged anything of mine, and I must admit that I am glad you have the honors.  Pride may be a sin, but I feel it nonetheless.  I hope it reaches your readers in Flushing, and helps prepare them for the process of shopping the foreclosure market.  Thanks, C :)

Posted by Paul Slaybaugh, Scottsdale, AZ Real Estate (Realty Executives) about 12 years ago

Thanks for the awesome post.  I'm really enjoying making notes in a journal of stuff that I'm learning here.

Posted by Kristin Hunteman, Escrow Closing Officer (True Title Company) about 12 years ago

Thanks for the re-blog C, and thanks Paul ... did not catch it the first time around ... good points.

Posted by Marie Meyer, Orange County New York Realtor (Keller Williams Realty) about 12 years ago

Elizabeth, sometimes you just have to do what you have to do. I had a lender have us jump through hoops. We did everything we could possibly do, then the owner decided to change his mind, leaving my buyers without a property because he just didn't want to cooperate with the lender's list of particulars.

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) about 12 years ago

Lizette, this is very true. I have a lovely home up the block from me where the owners ripped everything out. They had done a gorgeous remodel the year before, got into financial difficulties and failed to redeem their home from foreclosure. When the realized they were really going to loose the home, they removed all of the upgrades. It resulted in no kitchen and bathroom being on location. I've never seen someone pull the tile from the wall, high-jack the sink and tub and completely gut a kitchen. I was told by the neighbors that they rented a storage unit to house their upgrades. (LOL)

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) about 12 years ago

Paul, thank you for your kind words. I am very happy that you were kind enough to make this available for a re-blog. It's a wonderful post and I hope they enjoy your article as much as I do. :-)

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) about 12 years ago

Hey Kristen H, I'm glad you found it useful. I'm like you, I tend to make a lot of notes and love absorbing what I find something useful.

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) about 12 years ago

Marie, you are very welcome.

Posted by C Tann-Starr (Tann Starr & Associates, Inc.) about 12 years ago

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