Buying a foreclosed or short sale home

Q: We would like to down-size and are looking at a community with a lot of short-sales and foreclosures. Is there anyway to lessen the expected protracted period of waiting to hear from the bank for purchase approval? We can make an all cash offer.

A: If you’re looking for a quick purchase, your best bet is to look for a property that has already been foreclosed by the lender. These homes are typically referred to as an REO property or Real Estate Owned. Since the bank owns the property, the process to buy the home can be relatively quick. In fact, lenders usually have their own real estate brokers and attorneys ready to get a quick sale of the property.

Some lender-owned properties can close within a week or two of the signing of the contract. The lender will, however, want to know for sure that you have the funds ready to close. If you do, the closing can be relatively painless and quick.

From your perspective, make sure you have an attorney represent you in the purchase. Recently I closed on a condominium owned by a lender and the lender seems clueless that the future owner might be responsible for payments owed to the building for past expenses. Some troubled buildings don’t always fit the normal process of buying and selling and you could be in for a big surprise.

In this troubled building, the buyer would have ended up having to pay several thousand dollars to the building for past amounts owed. You should also work with a real estate broker or agent and attorney that have experience in real estate and in the problems that can result from buying a house or home in a troubled community or development.

If the development or building you are buying in has many other foreclosed homes or condominium units and the stability of the community from the financial perspective is precarious, you might be in for a wild ride living there the next several years.

If many homeowners in a development don’t pay their share of the expenses, you and the other owners that have money, may end up having to pay for those expenses and may never get anything back from the homeowners that didn’t pay. You may also find that certain lenders will not close real estate deals in those communities now and for some time to come.

Finally, living in a community that has a financial black cloud over it could be a challenge. While you know that you may face financial challenges in that community, you may also face a situation where you don’t know from day to day who your neighbors are or will be. Some homes may remain vacant for some time. Other homes may have renters that change frequently. Still other homes may have maintenance and upkeep issues that aren’t addressed.

But if you are careful and come to a community that is in trouble knowing what you are getting into and can foresee what may change in the near future, you could get a great deal. Sam’s client was able to obtain a property that had sold for $300,000 a couple of years ago for about $50,000.

Switching to whether you should contemplate a short sale, there are some things you can do to speed up the process. The short sale process is anything but smooth. In many transactions, the short sale is painfully slow, tedious and results that fail to meet anybody’s expectations. You truly need patience to work and buy a short sale home.

In a short sale, the home seller wants to sell his or her home for less than what they owe the lender and that same home seller doesn’t have or can’t come up with the difference that they owe.

In that situation, the lender has to evaluate the financial condition of the home seller, the value of the property and the whether the lender is better off taking this deal, waiting for a better deal or foreclosing on the property.

You’d think that the lender would automatically know that they would be better off never allowing a home to go into foreclosure, but recently I had a deal that fell through with a big box lender because they were unwilling to take the amount the buyer offered and wanted the buyer to come up with five percent more money to buy the home. The market changed and the buyers decided to buy something else. The home is still on the market after almost two years.

So what can you do? You can research the market and know what homes should sell for in the area and be prepared to walk from the deal if the lender is not responsive in the short sale process. You can also ask real estate brokers and attorneys that deal in short sales to see if one lender is better than another in handling short sales.

In some regions, some lenders have become quite fast and efficient in handling short sales while others have not gotten their act together.

If you can find out which lenders are willing to work with their borrowers, you’ll have an edge. Before you make an offer on a home, you can try to find out what lender has a mortgage on the property. If you know the name of the lender, you can at least know whether you have a better chance of getting the property.

Also, if the property you’d like to buy has only one loan, you have a better chance of getting the short sale approved. With multiple lenders involved you have increased changes that either lender can drag its feet to get the deal closed or that one or the other lender could reject the offer.

Thus, if you know which lenders are willing to deal and the property has only one loan, you have a better chance of getting the deal to go through. Finally, you also need to have a listing agent or attorney or other party that is representing the seller that knows the short sale process to get things started early and to process the paperwork to the lenders in an efficient manner. Your attorney’s real estate law advice can be quite helpful through the process.