4 Tricks and Traps Foreclosure Buyers Need to Know
Posted under: Market Conditions,
Home Buying,
Foreclosure
|
January 11, 2011 4:23 PM |
51,964 views |
173 comments
Interest
in buying a foreclosed home is on the rise, but so are concerns about
the risk involved in the process. In a December survey, Trulia found that
49 percent of Americans were at least somewhat likely to consider buying a foreclosure, up from
45 percent in May 2010. But the number of US adults who believed there
are disadvantages to buying foreclosures had also increased, from 78
percent to 81 percent over the same time frame. Among those folks who
had qualms about purchasing a foreclosure, the top concerns were:
When you buy an REO in this way, you have lots of opportunities to use some tricks of the trade, so to speak, to avoid some of the traps you may fear. Here are my Top 4 Tricks and Traps for Foreclosure Buyers:
1. As-is means as-is, period. (Most of the time.) Banks have very little interest, inclination or even the logistically necessary resources to execute repairs on your home. Many of these homes are managed by an asset management company in another state, and may not even have a local person besides the agent who can handle large repairs. Generally speaking, bank-owned homes are sold on a very strict "as-is, where-is" basis, which just means that you should expect to take possession of it, if you buy it, in exactly the position and location it is, no matter how defective. Do not walk into a viewing of a foreclosed home, notice how the plumbing is all ripped out of the wall, and make an offer for it, assuming you'll be able to get the bank to "fix" the issue later. Usually, if the bank is willing to do any repairs to a foreclosed home, they do so, on the advice of the listing agent, prior to the home being listed.
Out of hundreds of foreclosure transactions I have personally been involved in, I have seen exactly four where the bank did agree to do some level of repairs at a buyer's request. Every one of those times, the repair was to fix a health-and-safety endangering property defect, like a gas-leak or an electrical fritz. And every one of those times, the property defect was highly non-obvious - not something even a diligent buyer could have detected visually prior to making an offer. Maybe another few times I've seen a bank agree to a small price reduction due to surprising condition problems. And dozens of times, I've seen transactions fall apart or buyers take on the property’s repair costs, when they request repair credits, price reductions or actual repairs from the ban seller.
If a foreclosure you're considering has obvious property damage, have your contractor stop by with you or gather whatever information you need to get as comfortable as possible with your offer price, assuming that the bank will not be chipping anything in for repairs, before you make the offer.
2. The bank speaks no evil. When it comes to real estate disclosures, the fact is, the bank speaks not much of anything! Many states exempt banks and other types of corporate homeowners from making substantive disclosures about the condition of the property. Even in jurisdictions where the bank is not legally exempt, most banks will simply write across the required disclosures something to the effect that the bank has no knowledge of the property's condition. (Before you protest with a "that's not fair!!" keep in mind that the bank never lived in the property, so most often truly does have no idea of any important facts or details about its condition or location, the things an average home seller would be required to disclose.)
Even in a normal transaction, it behooves a buyer to be thorough in having the property inspected and meticulous about reviewing the resulting inspection reports. But buying a foreclosure ups even that ante, as you have no seller disclosures to highlight particular problems you should have looked at, and none of the usual legal recourse you would have if a “regular” seller made incomplete disclosures. Get a property inspection. A pest inspection. A roof inspection. A sewer line inspection. A pool inspection, if you have a pool and care about its condition.
Yes - all these inspections cost money, but the drama and thousands each of them can save you is well worth it. And read your state’s buyer inspection advisory or similar document (ask your agent), just to make sure you’re aware of all the inspections that are available to you, and work with your agent to determine which ones make sense, and which are not appropriate.
Some insider tips:
3. The contract terms, they are a changin'. One thing squarely in the wheelhouses of local real estate pros are local market standard practices. From negotiating practices to which party pays which closing costs, every market is different, and experienced local agents are experts on this information. If you’re buying a foreclosure, though, the bank will often require you to use it’s own purchase contract, rather than the more commonly used state forms. Many times, this is done to advise the buyer of the bank’s refusal to make substantive disclosures (see above) and to change some of the normal practices for your area to the bank’s standard practices.
For instance, if you are buying a home in a contingency state, where you would usually have to sign a document proactively releasing contingencies, the bank’s contract will probably change that, so that your transaction operates on an objection period. In "objection" based transactions, you have a certain period of time in which you must either speak up about your concerns with the property and/or cancel the deal, or you will automatically be presumed to be moving forward with the deal and your deposit money will be forfeited if you change your mind after that date.
If you’ve been making offers on non-foreclosures on the standard contract form, or you’ve bought homes before and think you know the drill, please - I implore you - READ every word of the contract you sign when you buy a home from the bank, and ask your broker, agent or attorney to explain anything that doesn’t make sense.
4. Expect the unexpected. When you buy a foreclosure, you might end up working with the bank’s escrow company, instead of a company you or your agent selects. And the bank's escrow provider might be slow or disorganized. C’est la vie. The bank might rush you for your deposit money, but take their own sweet time coming up with the necessary signatures on their end to close the deal. Par for the course. You might expect that the bank would be desperate for buyers, and instead find out that there are 20 offers on the same REO. Or, you might be the only offer and still get your aggressively low (but still reasonable) offer rejected, only to have the bank reduce the list price of the home to the same price of your offer! (They often want to see if exposing it to other buyers at the new, lower list price might generate more interest and higher offers.)
When you’re buying a foreclosure, expect glitches, expect your calendar to be derailed, expect the bank to be inflexible and possibly even unreasonable. It’s not overkill to ask your broker or agent to brief you on the common complications they see in REO transactions. Having realistic expectations may keep you from pulling your hair out. And if the transaction turns out to run smooth as silk? You’ll be pleasantly surprised.
P.S. - You should follow Trulia and Tara on Facebook, too!
- that
buying a foreclosure might involve hidden costs,
- that the buying process itself is risky, and
- that the home might continue to lose value, after escrow closes.
When you buy an REO in this way, you have lots of opportunities to use some tricks of the trade, so to speak, to avoid some of the traps you may fear. Here are my Top 4 Tricks and Traps for Foreclosure Buyers:
1. As-is means as-is, period. (Most of the time.) Banks have very little interest, inclination or even the logistically necessary resources to execute repairs on your home. Many of these homes are managed by an asset management company in another state, and may not even have a local person besides the agent who can handle large repairs. Generally speaking, bank-owned homes are sold on a very strict "as-is, where-is" basis, which just means that you should expect to take possession of it, if you buy it, in exactly the position and location it is, no matter how defective. Do not walk into a viewing of a foreclosed home, notice how the plumbing is all ripped out of the wall, and make an offer for it, assuming you'll be able to get the bank to "fix" the issue later. Usually, if the bank is willing to do any repairs to a foreclosed home, they do so, on the advice of the listing agent, prior to the home being listed.
Out of hundreds of foreclosure transactions I have personally been involved in, I have seen exactly four where the bank did agree to do some level of repairs at a buyer's request. Every one of those times, the repair was to fix a health-and-safety endangering property defect, like a gas-leak or an electrical fritz. And every one of those times, the property defect was highly non-obvious - not something even a diligent buyer could have detected visually prior to making an offer. Maybe another few times I've seen a bank agree to a small price reduction due to surprising condition problems. And dozens of times, I've seen transactions fall apart or buyers take on the property’s repair costs, when they request repair credits, price reductions or actual repairs from the ban seller.
If a foreclosure you're considering has obvious property damage, have your contractor stop by with you or gather whatever information you need to get as comfortable as possible with your offer price, assuming that the bank will not be chipping anything in for repairs, before you make the offer.
2. The bank speaks no evil. When it comes to real estate disclosures, the fact is, the bank speaks not much of anything! Many states exempt banks and other types of corporate homeowners from making substantive disclosures about the condition of the property. Even in jurisdictions where the bank is not legally exempt, most banks will simply write across the required disclosures something to the effect that the bank has no knowledge of the property's condition. (Before you protest with a "that's not fair!!" keep in mind that the bank never lived in the property, so most often truly does have no idea of any important facts or details about its condition or location, the things an average home seller would be required to disclose.)
Even in a normal transaction, it behooves a buyer to be thorough in having the property inspected and meticulous about reviewing the resulting inspection reports. But buying a foreclosure ups even that ante, as you have no seller disclosures to highlight particular problems you should have looked at, and none of the usual legal recourse you would have if a “regular” seller made incomplete disclosures. Get a property inspection. A pest inspection. A roof inspection. A sewer line inspection. A pool inspection, if you have a pool and care about its condition.
Yes - all these inspections cost money, but the drama and thousands each of them can save you is well worth it. And read your state’s buyer inspection advisory or similar document (ask your agent), just to make sure you’re aware of all the inspections that are available to you, and work with your agent to determine which ones make sense, and which are not appropriate.
Some insider tips:
- Vacant foreclosures often have their utilities disconnected. Work
with your agent to make sure the utilities get turned on - even for a
single day - so that your property inspector can run the water taps,
test the stove and dishwasher, see if the water heater and electrical outlets work, and so
forth.
- If appliances are there, the bank will probably leave them there, even though they may not have technical “legal” ownership of them, so they may not be included in the contract, like in a "normal" home sale.
- However, the bank will not give you any sort of warranty on appliances, so try to obtain any warranty coverage you want or need elsewhere - from a home warranty company or, potentially, the original manufacturer/retailer.
3. The contract terms, they are a changin'. One thing squarely in the wheelhouses of local real estate pros are local market standard practices. From negotiating practices to which party pays which closing costs, every market is different, and experienced local agents are experts on this information. If you’re buying a foreclosure, though, the bank will often require you to use it’s own purchase contract, rather than the more commonly used state forms. Many times, this is done to advise the buyer of the bank’s refusal to make substantive disclosures (see above) and to change some of the normal practices for your area to the bank’s standard practices.
For instance, if you are buying a home in a contingency state, where you would usually have to sign a document proactively releasing contingencies, the bank’s contract will probably change that, so that your transaction operates on an objection period. In "objection" based transactions, you have a certain period of time in which you must either speak up about your concerns with the property and/or cancel the deal, or you will automatically be presumed to be moving forward with the deal and your deposit money will be forfeited if you change your mind after that date.
If you’ve been making offers on non-foreclosures on the standard contract form, or you’ve bought homes before and think you know the drill, please - I implore you - READ every word of the contract you sign when you buy a home from the bank, and ask your broker, agent or attorney to explain anything that doesn’t make sense.
4. Expect the unexpected. When you buy a foreclosure, you might end up working with the bank’s escrow company, instead of a company you or your agent selects. And the bank's escrow provider might be slow or disorganized. C’est la vie. The bank might rush you for your deposit money, but take their own sweet time coming up with the necessary signatures on their end to close the deal. Par for the course. You might expect that the bank would be desperate for buyers, and instead find out that there are 20 offers on the same REO. Or, you might be the only offer and still get your aggressively low (but still reasonable) offer rejected, only to have the bank reduce the list price of the home to the same price of your offer! (They often want to see if exposing it to other buyers at the new, lower list price might generate more interest and higher offers.)
When you’re buying a foreclosure, expect glitches, expect your calendar to be derailed, expect the bank to be inflexible and possibly even unreasonable. It’s not overkill to ask your broker or agent to brief you on the common complications they see in REO transactions. Having realistic expectations may keep you from pulling your hair out. And if the transaction turns out to run smooth as silk? You’ll be pleasantly surprised.
P.S. - You should follow Trulia and Tara on Facebook, too!
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Comments
One thing to add: Buy an owner's title insurance policy! With the crazy stuff happening in Massachusetts and other robo-signing problems, no one wants a cloud on title that they have to resolve themselves!
Contact the banks in your area and ask them for their listing agent info. Many of ours are in the surrounding counties MLS. Ask an agent in other MLS's that you are a member of to help you. Also your local court house has a list of foreclosures and of course Trulia is a great way to find those foreclosures. I want all Realtors in my area to sell the foreclosures so we can move on to our other listings. Good Luck, Ina
I do want to take issue with the banks failure to provide property disclosures.
Banks claim to have no knowledge of the condition of the property. This is simply untrue. Every REO agent called upon to do a BPO for a property must evaluate the condition of the property to assess its value. The REO agent must inform their client of what works and what doesn't. Obvious visible damage is easy, as are utility related issues that are assessed before the property is winterized. I can't tell you how often REO brokers/agents have told me there is no seller's disclosure and then proceed to disclose what they know about the heating system, roof, appliances etc.
In my opinion, if an REO agent does a thorough BPO , the bank/owner knows a lot more about the property than
the paperwork shows.
This also poses an ethical question for those REO agents. If THEY know the condition of the property they are bound to disclose it. If the bank/owner will not complete a disclosure and their agent has knowledge of the condition, some kind of disclosure should be available in writing from the broker.
I just think the banks can't deny knowing what their agent has told tem, plain and simple.
Dawn Rupersburg
Coral Shores Realty
Ocala Florida
352.553.3369
I wanted to add a ccomment about "as is" where is... Coming from Las Vegas , unfortunately , I am all too aware of this statement. We are working mostly with foreclosures and short sales. In most cases , if the property is in really poor condition , ( ripped out plumbing and electrical , etc) we will advise a client that their lender will probably not approve the loan and move on .However in some cases , for instance , the HVAC or water heater or something that is a normal functioning system of the home is not working, it will become an appraisal condition . Usually , if it is an appraisal condition , the bank will fix it . Also the homebuyer should always pay for a home inspection . Alot of foreclosures here in Las Vegas have been vacant for a year or more and have had no utilities on , so that presents another problem.
One other thing I would like to add is this. The prices of these homes are already low . Have your Realtor pull the comparables in the neighboorhood before making an offer. Then , depending on whether there are multiple offers and the length of time the property has been on the market , you can decvide what your offer should be. Alot of people think they can really lowball the offer . You can try , but the banks have done their homework , they know what the poperty is worth and are not going to accept a ridiculous offer . Also , if the appraisal comes in lower than the agreed upon price , the banks may ask the buyer to come in with the cash difference. Because the buyers lender will not loan more than the property is appraised at , the buyer would have to come in with the difference. Most buyers can't afford that. Then the transaction is cancelled. The buyer will get his earnest money back most likely , but will lose the inspection and appraisal fees.
All in all, you are right Tara , the banks pretty much absolve themselves of any wrongdoing , now and in the future. Caveat Emptor , Let the buyer beware.
Thanks again Tara
Johh Kavaller
Sullivan County, NY Catskills
Realtor and Licensed Sales Agent
Annie Morse. Realtor, Myrtle Beach, SC
Good advice though, I'm going to share this article with my buyers!
For taking the time to make us buyers more aware,only through patience it seems can best results be achieved.
Al Batten
In a market where ALL HOMES are competing with distressed properties, it's better to make the wise choice. New construction will get you the most benifits/incentives, but if you've got all your closing costs, resale is another great choice. Seller's are stretching as much as possible to close deals. Great article!!!
Linda A Owens
Reliant Realty
Nashville, TN
615-300-1994
Barbara Murphy
Broker, GRI, ePRO
Tartan Properties
http://www.TartanPropertiesFL.com
Serving the Greater Pensacola, FL Area including Pensacola, Pace, Milton, Gulf Breeze, Navarre, Pensacola Beach and Perdido Key
Thank you!
Roberta R. Roberts, Broker
310-383-4886
DRE 0117837
Re/MAX Palos Verdes Realty
CA, 90275
Herma Young
Bryce Daniel Properties
Houston, TX
832-368-3763
Perry & Ruth
Thanks. I've been working with clients interested in REO's.
Stephen B. McClain, Broker/ Owner
Cornerstone New Home Solutions
I am a Buyers' Agent and I have been EXTREMELY busy since day one of the decline of this market....I am extremely versed in dealing with Bank Distressed properties....I have even been told by a Leading Foreclosure Listing Agent here on the Beach that I was one of the Best if not THE Best Agents she has ever closed a transaction with, knowledge, expertise, professionalism, etc....and the reason I am pointing this out is....I have a 98% of winning bids average!! So, I do not agree with your statement of using the Listing Foreclosure Agent...plus, that is a Dual Agency and they are extremely limited on what they can offer the Client...and their loyalty is to the Seller/Bank...So, I do not see where that is in the Buyer's favor....I Believe it is in the Best interest of the Buyers...to use a Buyers' Agent who has much experience in this market!!
Myrtle Beach Realtor!
5-th thing the buyers should be aware of, REO's are not arms length transactions so the assessor might assess the property value according to their standards...the property taxes may be higher than buyer expects.
My main concern is always ensuring that buyers are well informed before making any decisions and that they have their own professional inspections completed. A win-win is always possible.
My personal opinion is that most foreclosures are clearly preferable to short sales. Once in contract, the foreclosure is fairly straight forward, as opposed to the never ending, non responsive waiting for an approval from who knows who, that usually takes 3 to 6 months (and the property may be sold out from under the short sale escrow in the mean time! by the foreclosure department! of the very same bank!)
We've all had horrifying experiences but we've learned from those experiences and are smarter for them--t's tough times but the best possible outcome comes from qualified buyers working with experienced, knowledgeable agents. Thank you Tara!
June Havekost
Davis and Davis
Roseville, California
(916) 652-8880
TG
Jose'
MMB 1-13-2011
1) Make sure, if you are a buyer, that the listing agent has experience with short-sales; an agent with experience will know things rookies will not (ie sending in the monthly bank statements, paystubs, etc of the seller so lender has current info).
2) Buyer should realize up to four players have a say in the decision: seller, lender or servicing agent (ie Bank), investor (Fannie/Freddie, etc), mortgage insurer.
Good luck!
...............
Debt Management
It was sent to me by a client with whom I am working. Her budget makes it likely that most of the properties that we will look at will be distressed properties. REOs and, also, short sales that at controlled by the bank are subject to the “new normal” in transacting real estate sale. You have reinforced and expanded upon conversations that many of us are having with our clients these days. I am going to save this link so that I can share it with others.
! want to Add two thoughts; 1 Forclosures are considered "commodities" to be disposed of . That's it !
Banks take no more interest in the asset than that. For this reason there is
no wisdom in depending on them for anything . That's one reason the
contract needs to be tight. You would'n't buy commodities and depend
on the seller . You don't do that with REO's .Do the research, employ the
professionals needed to have Title,Condition, and Value all in clear sight.
The information obtained will allow one to reduce exposures and
point the way to a deal yielding useful results. ( see next)
2. Foreclosure is only symptomatic of some of other problems many
times jnvolving the commodity a bank is trying to sell. The investment
required to make such a property an Asset is not the purchase price!
It is acquisition cost + Fix -up +fees,costs ,and legal work all totaled.
If this doesn't come out subtantially below market :"cheap " is not
a "deal" !
BOB BRUBAKER HIGHLIGHT REALTY PALM BEACH COUNTY FL.
Thanks for another great article.
In light of your article, our recent experience of trying to obtain a REO was horrible regardless of preparedness.
First off, when you deal with big name banks, you would expect a higher level of professionalism throughout the endeavor. Such was not the case in our dealings with BofA.
We had identified a REO we were really interested in purchasing.
BofA owned the place and required we prequal with them prior to submitting an offer.
The property needed renovation so we asked the BofA senior Loan officer for information on a purchase loan and home improvement loan. She mentioned the 203k program very lightly. We also fed the info for a prequal letter, which we found out was never sent to our agent.
The internet being a wonderful thing allowed me to research HUD’s 203k program and eventually find a lender and began preparing our offer and loan.
Back to BofA to make the offer and they explained we now need to prequal through their 203k renovation specialist.
All we need is another simple prequal letter right? This time a 203k prequal letter. We already had our chosen lender as BofA didn’t even take their shot at servicing our loan when we initially contacted them interested in the property.
So upon contacting BofA renovation specialist he emailed me the following……
Chris,
The objective around here on a 203K loan is not to simply waste our time with a pre-qualification. Your mortgage lender called me which is odd in the first place. Are you aware of the benefits you receive here on a 203K loan on a Bank of America foreclosure? I sense that you wish to “use us” for a pre-qualletter and that you might potentially have no intention of giving us a legitimate shot at actually handling the loan, however, I could be wrong.
Signed,
BofA Renovation Specialist (17 years in the business)
So we hit an obstacle, but this is America, we should trust we get a fair shot at home ownership, right??
(What is needed to prequal?)
(Why couldn’t the BofA Senior Loan Officer share our info with the BofA renovation specialist? Modern technology and only a few physical miles between branch locations.)
So I send BofA our earning statements “again”!!
They pull our credit report “again”!
But that’s not all…….
The BofA renovation specialist asks for our tax returns, our bank statements, our asset statements and so on.
Are we putting the cart before the horse??
I expressed my concerns for the zeal when all I need is a prequal letter to make an offer.
I was told I would get my letter……..soooooon.
At this point we went back to the BofA Senior Loan Officer and asked for the original prequal letter, as we were told by the listing agent another offer was being prepared.
Time is of the essence now.
The Senior Loan officer explained she was reducing the original amount of our first promised prequal!!
What just happened??
Clock is ticking……
Monday morning, no promised prequal letter from BofA renovation specialist and no promised prequal letter from the BofA senior loan officer.
We tell our agent to inform the listing agent our offer is being prepared.
By noon Monday we get word the other offer was accepted.
At this point we feel we were slow rolled by BofA.
I contacted both the senior loan officer and the renovation specialist and asked for their supervisors’ contact information to express my concerns. I also asked for their procedure for filing a complaint with BofA as I don’t think this is normal business practice.
That was Monday last week and I still do not have the information.
The BofA renovation specialist has not returned my phone calls (2).
At this point I find myself wondering what is the best course of action to take.
In reality, we were not given a fair chance to obtain what could have been the home of our dreams.
Why?
And is there any recourse?
Let me know your thoughts?
The buyer or their agent should submit a FOIA request to the municipality the property is in to get any available information on permits issued or inspection violations imposed on the property by that municipality.
We bought a foreclosure last year and hired a contractor to do an energy efficiency retrofit and other work. Unfortunately he didn't pull sufficient permits for the scope of work being done. Our Village imposed a Stop Work Order citing several unresolved failed inspections from work done on the property PRIOR to us acquiring it, the most egregious problems being electrical and some plumbing. So far we've had to spend $10K we hadn't budgeted for to satisfy the Village enough to get passing inspections...which are not only desirable for our own health and safety, but will also come in handy when we eventually go to sell.
We still would have bought the house, but having known about and the nature of these failed inspections would have helped us tremendously in our negotiations with the Bank. Plus, we definitely would have approached the rehab project differently to more efficiently incorporate the work required by the Village.
Christie Day-Gee
Oak Park, IL
My latest surprise was payment of the "per diem" fee. While it was always in the contracts, no bank had previously enforced it. It cost my buyer client and additional $1800 for delays caused by her mortgage company. Be very careful about the on or about closing dates, the bank may hold your client to them or force your client to pay; both perfectly within their rights as written in the contract.
Find Tampa Bay area Bank Owned homes at http://www.floridachoicehomes.com/
Suzette Gray, Broker - Charlotte NC
Bruce Lynn, Realtor- Dallas, TX
You mentioned that the banks rarely do repairs. I had a deal about 1.5 years ago, a huge old house that had been mostly renovated, but had some issues like the roof and mold from a roof leak that we took into consideration when making our offer. When our licensed inspector reviewed the property, we discovered a water leak that was not evident and should not have been there. The bank had contracted two separate preservation companies and neither winterization was properly done. The bank paid to have the repairs done (several thousand dollars by the time the sheet rock and pipes were all fixed) and, I presume, sued the preservation companies for the cost of repairs. Which is as it should be.
Good information well package and presented really love this, Tara speaks no evil, these are all factual and my next buyers will be grateful to have them.
Thanks.
I have had buyers or even their agents believe that I was not being truthful when advised that the banks don't have to play by our rules. Our time lines mean nothing but their time lines can be set in stone! My last experience involved a situation where the asset manager was ready to pull the rug out from under a buyer who was having a delay in obtaining his financing, primarily due to the bank's slow response time. Then the issue came up regarding a cloud on title where the bankruptcy filing had not been properly resolved so more delay. Oddly enough I had discovered this issue early on in the listing process and was assured by the asset manager that it would be taken care of right away..... Not!
Something buyers fail to grasp is that even though the bank has "accepted" the offer and sent out their addendum without signatures, they are not committed until the buyer signs and returns this addendum and the REO bank's authorized representative has signed it as well. So another offer can come in which the listing agent is required to present and the bank can accept that offer, it doesn't matter which offer came in first.
fair or reasonable, but if you want the property enough, you just have to bite the bullet and get through
the transaction. I can't stress due dilligence on the buyer's part enough.
Another important point is that: Unfortunately, few Buyers have the resources to go 20% down (conventional financing) or an all cash deal. So, the very fact that these properties are "as is" makes it difficult for Buyers to get no and low downpayment VA and FHA mortgages. (These types of Gov. backed loans require the sellers perform and pay for any repairs that come up on the buyer's lender's appraisals.)
Although on very rare occasions with the "AS IS"-I've too, had a very few successes with eleventh hour bank approval with payment for a few FHA required repairs.
I've found the best options for low-cost & cash strapped buyer financing, can be: FHA Streamline 203 (K) loans, and/or sticking to those rare properties that seem unlikely to have anything that would need any FHA lender required repairs . (I always insists that the Buyer's inspection contingencies begin after we see the appraisal report (listing the required repairs.) Few banks will accept VA and FHA financing on their foreclosure and short sale properties because of the required repair issues.
Although the shining exception is HUD (properties owned by the FHA) where Buyers get preferential treatment as owner occupants. ( I have seen even thousands $$$ lower bid for a Buyer who's going to live there- win over an investor Buyer who bids much more.) Some HUD bids never open up to investors.)
I've done a few HUD deals, and I'm not an expert, but it seems HUD that has already done the FHA appraisal prior to offering it up for sale, and it lists the required repairs on their website. It takes the guess work out of what's required. And (sometimes) HUD will pay licenced contractors to do FHA the FHA repairs. ( You know I have to say that an FHA or VA appraisal is not a substitute for inspections!)
HUD bids are done online and are a whole other animal for sales contracts, having very strict rules that must be followed to the letter. However, they can be great deals for qualifying buyers to own a foreclosure home.
Cash is King in purchasing foreclosures and Short sales. So along with patience and risk, there is also financing to be taken into account before deciding to buy a foreclosure property as well.
What I find to be very helpful is to gain as much knowledge as possible about REO property while waiting for bank's acceptance which might take a week or even longer. It involves some leg work: such as going to the local county, talking to neighbors and if possible bringing your professional inspector to take a quick look at the property. Even if your offer won't get accepted in lieu of multiple offers - it'd still bring you and your Buyers closer as they'll appreciate all the extras and a hard work you've done for them.
Thanks again Tara!
From an insurance point of view, once the "as-is" contract is accepted and moving forward through the bank approval process, insurance companies are now asking if the property is being purchased as a foreclosure. If "yes", the standard carriers (State Farm, Travelers, Farmers, Allstate) may decline coverage due to "as-is"/delapidated condition. The buyer needs to be forthcoming with their insurance agent in order to place the proper policy on the property without worry of decline. Of course, with increased risk of loss comes a higher premium. Always happy to answer any concerns you might have regarding coverage issues in todays real estate enviroment.
Rose Essy, Vail Co
WATERWAY REALTY, REALTORS
So, the weak response is to say that we can withdraw our offer and buy something else. The problem is, we missed out on other great opportunities, since we were told that our offer had been "accepted". It has been over a month now, that we've been told that our deal is awaiting "Sr. Mgmt. approval". Their on-line offer processor, Offer Submission (a company that claims to expedite REO deals), told us that we could expect sellers' signed contract within days. This is a circus that needs to be investigated and changed. Mindblowing to rational, professional people.
Adirondack Rentals