How to buy a Foreclosed/ Bank Owned Property

Thom guides the buyer through the combination of Disney Theme Park and Cambodian mine field that is the process in buying a foreclosed home in Bend, Oregon. Yes, there is a lot of good, and really it is the only way to buy right now, but I think you need to know about the tough stuff as well.
So, you want to buy a foreclosed/ bank owned property, eh? Well, you’ve come to the right place! (He says as he peeks around, then opens his trench coat to display a good dozen listings that look too good to be true.)

The truth is, if you are letting me help you find a home, that’s mostly what I am going to show you. Unless you don’t care about money, and then I have some fantastic plots of land 475 feet under Lake Mead I’d like to talk to you about. Right now, nothing comes close to foreclosed homes as far as value for the buyer- certainly not conventional homes, which represent the very top of the current market, and which are generally priced 20- 40% higher than the foreclosed home next door. Short sales are often even worse, because the price you see on a short sale rarely is the price you will pay (it’s most often higher, sometimes a LOT higher), and short sales generally take 90 days to close, and to make matters worse, during that ninety days you most often have zero idea of whether or not you will ever get the home. It takes the banks a long time to respond on shorts, and the entire time you are waiting for them to answer you (weeks to months), the house is still on the market, and offers are still being accepted. It is not uncommon for buyers to sit and wait, all the while becoming more and more attached to a home, only to find sixty to ninety days out that someone else has made a better offer. Bye- bye dream home, and hello pissed off buyer.

Foreclosed properties, however, combine the best aspects of both conventional sales AND shorts. Like shorts, they are priced far under the rest of the market. It is my belief at this time, owing to improved economic numbers that come out almost daily (have you seen the stock market this month? how about durable goods orders? how about new home sales? how about home resales? how about same store sales? how about Bend home sales? how about oil prices? I could go on and on, but all of these are up in the last months, not just the market itself- these underpinned the market’s rise), that foreclosures represent the coming bottom in home prices, a bottom that I think will arrive sometime in the first days of Summer or waning days of Spring. But, if you get my point, foreclosures are already representing early Summer numbers, and quite often numbers so low we will never see them again. And the difference between a short sale and a foreclosure is that the price you see on a foreclosure is the ACTUAL price, not a BS number made up by a Realtor. I was at a Principal Broker’s meeting last week, and many of them want to do away with short sales altogether, as they believe they represent false advertising and set us up for bad things to come. I do not disagree.

Bank owned properties, like conventional sales, do NOT take 90 days to close, and once a deal is reached (often within days to a week), they are marked PENDING, and cannot be shown to other buyers like shorts can, AND they can close as fast or faster than a conventional sale- (30-45 days in the current lending climate.) Let me put it this way, if I was buying a home right now (you have no idea how much I wish I could- but my debt to income ratio is too high for the new standards- usually around 30%, then there is the self employed problem, etc…), I would ONLY look at foreclosed properties. Besides that, as many as there are out there, they will be gone before any of us even knew what happened, and we will all be looking back, wishing we had known they would disappear so quickly, just as we wished we had known the downturn was coming.

Sounds pretty good, right? Well . . . there ARE banks involved, after all, so how could they be perfect? Is there anything less perfect than a bank, ANY bank in 2009? I think not (I’m looking at YOU, CHASE, you pack of weasels). So, let me tell you about the negatives.

FIRST, we get no signatures on offers, or counter offers, until a deal is reached. This can be disconcerting to those who are control freaks, but we will have quick and regular communication from the bank, often communicated verbally or by a brainless computer to the agent on the other side. So, this one is really just an annoyance.

SECOND, and this is the big one, once you get past the standard right of refusal for a) a loan you could not get or did not like, and b) a bad inspection, both of which you can still pull out after, provided it is within the time limits specified in the contract, once you get past those? Yep, you get the house, or you lose your earnest money, and sometimes damages as well. All banks on foreclosures make you sign a really nasty addendum that makes lawyers nervous, saying that you cannot sue them for anything once you have blown through the inspection and the loan process. They are all sold as-is, so it is the buyer’s responsibility to be sure that as-is works for them. Really, this is just a grown up way of doing business, unlike the hand-holding that often accompanies traditional real estate sales. It’s put up or shut up time, essentially. They don’t want to waste their time with a buyer who is wishy washy. And who would?

THIRD, they won’t fix anything. It is paramount that you get the best inspector you can find, and for years we have queried our clients as to whom is the best, and we have a list from 1st choice to last. I will of course always recommend Mike Wilson, the first on that list. But several others are good if he is too busy to get it done in time. So, as-is, really means as-is. We may be able to get them to reduce the sales price based upon a poor inspection on a house that you still want to keep going with, however, so be sure to let me know immediately, as we usually have 7-10 days AFTER SIGNING to pull out or whine, based on an inspection.

FOURTH, they won’t listen. Now, this is a much worse category with short sales, because there they won’t even listen to you throwing your money at them, much less your desires and wants about this or that problem with the property, or the fact that you think it’s basically a tear down, or that you’d really like them to replace the carpet before you reach a deal, or any of the things you can often push for with a regular sale. REMEMBER, YOU ARE GETTING IT FOR WAY UNDER MARKET VALUE, so they aren’t going to play that kind of ball. The only chance we have for those sorts of caveats is the one I mentioned above, the post-inspection period. That’s it.

FIFTH, there is an icky little thing called a PER DIEM. What this means is that if YOU, THE BUYER, go over the closing date for some reason, usually because your loan guy can’t get it done, (Please think about using Carl Salvo if you want as close to a trouble free, well informed, HONEST process as you will ever see- he saves me trouble, pain, and sleep, and he saves you trouble, pain, AND money), then you owe the bank some extra money at closing. This can be $50 per day, or $100 per day. Either way, it is trouble. And they will neither rescind this stipulation, nor will they pay it if THEY go over. Not exactly fair, but a cost of getting a great deal. Hey, I said they weren’t perfect. But they still are the best thing going out there. SO, the key with this one is that you check with your loan guy and be sure he can get it done in the time allotted. If he doesn’t, at least he gets yelled at, not me! Happy

Now, you will get a Special Warranty Deed at closing, which is basically the same as a traditional sale. Only, as they have never been to the property nor lived there, it is a Special Warranty Deed, not a General Warranty Deed. This really is just a name thing, with no real troubles ahead for you in reality. And, your title insurance policy that you pay for at closing insures you against some creep coming back later and saying he has title. Guess what? He doesn’t. And even if he could prove he did, the title insurance would pay him off, or for your home, or whatever remedy is necessary. But these are so rare as to be akin to the Dodo.

The last major thing to tell you about foreclosed property sales is that you can’t be that guy. You know the guy, the one who think he is going to get everything at a huge discount, or he’s walking away? Now, we all have a little of that guy in us, but it’s important to keep him on a short leash during a foreclosure negotiation. Foreclosed homes are, again, WAY BELOW MARKET VALUE, so they are rarely going to go more than 10% to at the most 15% lower than the listed price. We can offer lower to try to get bargaining position, and I always recommend we do to start, but it is important to get real about how much you want the home after the first counter, because they will often not continue negotiations unless you quickly get in the ballpark. The other minor thing to note is that the best ones go very, very fast. Often under two weeks on the market. If I have been working with you on foreclosures, you have probably heard me say, “Whoops, that one’s gone”, at least once. It is not uncommon for me to pull a batch of 5-10 homes one week, only to discover the next week that 2-3 of them are outta here. So, find what you want, get serious, and move fast. The deal you get will be worth it, especially a few years down the road.

So, if I haven’t scared you away with my usual, full disclosure style, and you want to check out some foreclosed/ bank owned homes, email me at Bendbrokersrealty@gmail.com, or call me at 542-480-7554. Let’s go get ‘em!

BEWARE Multiple Offers, Artificial or Natural

Beware the new monster lurking in Bend. His name is “Multiple Offer”, and he comes in both natural, and artificial, forms.

I’m here to warn you, folks, that there is an ugly monster lurking about in the bend market that we haven’t seen hide nor hair of since 2006. His name, which I don’t even like to speak, is Multiple Offer. Egads! See, that wasn’t fun.

I have been involved this year in several multiple offers in Bend, and I do NOT recommend them. They generally cause people to bid homes up to levels that the homes don’t merit. Unless this home is your dream home, you have other options and I would always suggest that you exercise them and move on to your next choice.

This year they seem to come in more flavors than usual as well. You have the legit ones, where multiple people actually do offer at once on a home and they are then told they have so many days to come up with their “highest and best” offer. These things happen, and in a hot market such as ours, you will eventually come across one. But there is another kind that really gets my goat, an artificially drummed up kind in which the Listing agent sets the price artificially low, often on a short sale so that there is no real obligation for the seller to go through with it if no other offers appear. These are ugly, and in my opinion, unethical. And there’s a new type I just saw, which blew my mind. I’ll get to it in a bit. First, a couple examples of some I have seen this year.

The first was on a West Side bank owned. Those are rarely seen anymore, as we have pretty much run through our allotment of West side foreclosures, and it’s been a long while since I have seen one. But if you do see one and you want to buy it, you will be looking at multiple offer s. The one I was in occurred in January, and my buyer came in at $1000 over the asking price, which we thought at the time might actually get us the house. How wrong we were. This house ended up going for $28,000 over asking price, and mind you this was a home listed at around $175,000, so we’re talking a large percentage here. I DO NOT recommend you ever go more than a tiny amount over list price, as it rarely works out in the end for the buyer. Buyer Beware.

The next one was a short sale on the East side. The Realtor had been unsuccessful selling it, so one day she slashed the price by a large margin, to a hard to believe low amount. Well, it was hard to believe because it was never going to happen. This price was so cheap, the cheapest ever in that neighborhood, that buyers and their agents descended upon this home en masse. I ran into several agents that said “hey, have you seen this house? My buyers want to write on it.”. So did mine, I said. The Realtor then said that she was getting so many offers that she was telling everyone to submit their “highest and best” by that Friday. My buyers were willing to come in a bit higher than list, but I quickly became aware through other agents that it had already been bid up to a HIGHER price than it sat at for months with no offers! Much, much higher than the latest asking price! DO NOT fall for this trick! If a short sale looks too good to be true, folks, it is.

And now the new wrinkle. I saw a home, a very nice home, this week and it was a standard, traditional sale. The price seemed very fair, perhaps overly so. But the eye catcher was in the agent remarks, where it said that they were accepting offers through Thursday (the house just went on the market on Monday), and would decide Friday. Wow, I thought, what the heck is this? They must have already gotten a bunch of offers. Well, it turns out, that’s what they wanted us to think. But when I called on Tuesday to ask, I was told there were no offers yet. None. They were “anticipating” a buyer frenzy based on showing interest. Yep. That smelled to me like they were trying to build a buying frenzy through buyers liking this very nice home and being afraid someone would get it before they did, and gosh, now we better make our offer HIGH if we want to win! But a win when there is no one else competing is not a win at all.

So, the moral of my tale, folks, is that sellers and their agents have come up with some new ways to get you OVERLY excited. Don’t let them. These are the days of multiple offers in Bend. And if someone else m

Crisis & Bailout

Was that noise I heard in September people buying houses or just the thud of the !CRISIS!, and where the hell is that bottom anyway?

Did you take a look at those September statistics on my stats page? Huh, Didja? Because, if you did, you’d see that we were up for September! Yes, you heard me right. We were up! As in, more sales than August! Shock of shocks, it’s true. And let me tell you, I saw it from the ground. The first three weeks of September I was deluged, and quite happily so, with buyers who came out of nowhere. In fact, I had been predicting that people would hit September and say to themselves, “It’s the Fall. That’s supposed to be the bottom! Let’s check it out!” And that they did.

So, is this the bottom? Is this the end? Is it up, up and away from here? Did you notice how I mentioned “three weeks”, as in a finite sense? Well, there’s a good reason for that. You see, the new buyers stopped coming right about the time the good old news media found a new way to hit us all below the belt . . .

!CRISIS! Yeah, you heard me, I said !CRISIS!. And that’s the way I will spell it from now on, and if you see me in person I will put my hands to the side of my face and give you the pained shriek look from the painting “The Scream”, because I have discovered you can’t discuss the !CRISIS! without panic and hysteria. It’s like eating jelly without peanut butter, you can do it, but you won’t get the full effect.

And so, dear reader, I tell you that buyers were stopped in their tracks by the !CRISIS!, and not just by an over zealous news media, but by the very same banks that caused much of this in the first place with their bogus loans and lack of income verification, and even flat out income reporting fraud, who found that they no longer had enough money to lend. Loans dried up very quickly, and perhaps the scariest sign of all was that our incessantly lazy and self centered President got out of his easy chair for a few hours and actually tried to DO something! God, that scared the bejeezus outta me! I mean, if he’ll sit through Katrina, and snoozed halfway through an attack on our Country’s soil, when he gets up it must be awfully serious!

Our recovery was killed right as it got started. And I don’t blame the buyers, I’d have sat out a bit and watched the skies for a few months myself. That’s just being prudent. But, there is good news. The !BAILOUT!, derided across the Union by folks who don’t like seeing sharks in suits steal our cash, is actually starting to work. The money it provided is starting to slither its way through the dark underbelly of the reptilian banking sector. How can you tell? A 24 hour viewer of CNBC like myself can tell you that LIBOR is coming down. LIBOR reflects the risk of lending capital between banks- a high LIBOR means that it is hardly worth loaning money, as you will pay too much to whomever you have to borrow it from to re-lend it, whereas a low LIBOR means that all is clear, and that banks are able to profit from loans again. That is merely a layman’s description- hit CNBC for more on that one.

But banks are beginning to lend again, and we can look forward, I believe, to a Springtime where people feel happy to have a smart President once again, where spirits are lifted by the site of children playing in the White House once more, and yes, where banks can lend money with a portion of the freedom they once did. We are not going back to easy loans, thank goodness, but we are going back to responsible loans that will be freely available to folks with a traditionally high beacon score of 720 or more, rather than the 800 or so needed now. And we should be going back to 90% loans, maybe even 95%, though probably not 100%.

I believe we are at the beginning of the bottom, and we will continue to build that bottom over the Winter. Spring should be better in many senses of the word, and I continue to feel that we will have a real “Morning in America” happen with the change of the presidency. Positivity will be in the air, a new day will be dawning, and if ever there was a promising time for housing to stabilize, that would be it. Signs point that direction- Buyers coming out, Loans becoming more available, finally getting this god awful election season behind us, and a new family in the White House- a young family with smiles and energy that will lift all of our spirits. I doubt we will see prices shoot up any time soon, but as we are down a good 40% or so in real market value terms, we should see some leveling off in 2009 -the year I originally said this would end, way back in Fall 2006.

Of course, I could be wrong.

Careful with Short Sales

I am changing my tune, a bit, on Short Sales and the likelihood of closing one. Also my tips for finding short sales that might actually close, and a word about a specialist and moronic lenders.
Ahh, yes my friends. I have been married to the most wonderful woman I have ever met for two years today. We have the best life, the best kids, and wow, what a relationship! I never knew it could be so real, so deep, and so on the level with a woman before. If you knew me during my previous marriage, you’ll understand. Thanks for being my wife, Jeni, and I love you so much.

But, Real Estate intrudes, at least for the afternoon. There is a subject I have been meaning to write about here, as I am changing my tune just a bit on the hot little newcomer to the Real Estate scene- short sales. If you used my previous website, ThomGardner.com, you may have seen my short sale primer, telling buyers not to be scared of shorts, and that that’s where the real deals are. Well, it USED to be that way, but banks are exposing their moronic underbelly to those of us in the business, and those of you with a TV, every day now. It used to be that they understood that prices were in decline, and that they better be prepared to take a loss to move the product that they allowed to become so falsely inflated in price to begin with. THAT is how you clean up a balance sheet, by getting rid of the bad assets, writing off the loss, and moving on with those assets in your portfolio that ARE actually worth the paper they are printed on. I mean, if you have tried to sell anything, as I have, in the past year, cars, boats, bikes, electronics, clothing, whatever, you have likely found that they are worth much less than they were last year. My car had a used book value of about $17,000 at the beginning of the year, only to fall precipitously to about $12,000 today. IF I’m lucky and can find a buyer. But, such is the cost of cyclical swings, and I think both you and I understand that fact of life.

But the banks don’t seem to know what to do. They have homes they are going to have to foreclose on, at a minimum cost of $60,000 per foreclosure. And then you have the Winter here, and have you ever bought a foreclosure in the Winter in Bend? NOT RECOMMENDED! You are buying a foreclosure (an REO) as-is in all cases, and I am here to tell you that these far flung banks have no concept of our climate (they think Oregon is where it rains all winter, not snows or freezes, and hey, it’s all the same hillbilly state, right?), and they hire fly by night fools to “winterize” them, fools who don’t care about the home, only the check, and lo and behold, when you take possession of this home in which they have refused to keep the utilities on, you have tens of thousands of dollars worth of damage from burst pipes waiting for you on move in day! WELCOME TO YOUR NEW HOME!!! I personally watched a bank’s crew “winterize” a home here that we had been representing, and all they did was spend 5 minutes pouring antifreeze down the drains in the home. Yep. That’s it. Magically, we were able to sell the short the day before foreclosure, and the new buyer moved in to a home with ALL the pipes destroyed, and a pool of ice under the house, and a selling lender that basically gave them the finger.

So, you would think they’d be in a hurry to move these homes, cut their losses, and get back on track, right? WRONG. Shorts are becoming harder and harder to close. In the past few months, lenders have clamped down hard, and are choosing to foreclose more often than they used to. I have buyers that made a full price offer on a short, and after almost 3 months of the bank saying, “sorry, you’ll have to pay more”, we are walking away from the table. And do you know what the difference in price is? $15,000! They won’t cut $15,000 from the deal to make it happen, they’d ever so smartly rather walk away and foreclose, and hand $60,000 over to lawyers and handlers, to eventually sell the home we offered $275,000 on, for what I would guess to be about $225,000. I hate seeing great homes sit empty, but I hope National City chokes on that one.

Here are the facts as I now understand them regarding short sales. There are two kinds of shorts which still close relatively easily in this environment.

1) Homes where the loan is just held by one company, meaning there are no seconds or HELOCS (lines of credit), are the easiest to close. This is because only one bank has to make concessions, and in a second loan situation, the subordinate loan often gets next to nothing, as the first has primary dibs on your dough. And you know, they are just a little bit pissy about that. and so they love to play the spoiler and screw up the whole deal, you know, so the first lienholder gets to feel their pain right along with them. That’s pure capitalism, folks.

2) The other decent option is to find a short (such as the one I have listed on Mt. Hope) where the first and second lien are from the SAME BANK, that way, though the second may get very little, the same company gets all the money from the first, and so they are amenable to cutting a deal on the second.

That’s about it. Short sales where there is a first, and a second, and, god forbid, any PMI debt owed, are getting harder and harder to close. I do have access to a specialist that contracts with Realtors (I split my fee with her 50/50) to close even the toughest shorts through insider negotiations from former mortgage specialists with the lenders. Early in the year they could boast a 95% short sale close rate, thought now it is down to 82%, illustrating just how tough it is out there. But my own guess as to the rate of closing otherwise is probably less than 30%. So, if you need to sell your home short, and want to be relatively SURE it sells, call me, and I’ll help you, along with my specialist partner. We collect nothing if you don’t sell, so no risk to you. And if we do sell, we share my usual commission from the bank, at no additional cost to you.

Remember now, just like Grandma used to say, be careful wearing Shorts in the Winter!

POSTSCRIPT: I had to add in this little snippet. Two days after my clients formally left the table in the deal mentioned above, I got a call from the other Realtor, who said the bank now would accept our offer! HAH! I passed it on to my clients, but they are passing. This has also happened in other shorts I have run- often, when you can get nothing out of the lender, it pays to walk away and make them treat you like you matter. Then, YOU get to be “the decider”!