Considering buying a Short Sale?

Anyone watching the active listings of homes will see the abundance of  ”Short Sales” available.

So what are they?

• A short sale is where the seller owes more on their home than the current value and they are asking the bank to be ’shorted’ the funds due them.

And what’s the deal…

• Any offer must also be accepted by the Bank(s) holding the loan(s) on the property
  • Banks are slow to respond (could be months and months)
  • Bank must determine if it is in their best interest to do a short sale (is there mortgage insurance on the existing loan?)
  • Bank will determine at what price/value they will accept an offer (could be an amount greater than the asking price)
  • Bank may choose foreclosure over short sale
• It is an “as is” purchase - (no repairs will be done by the seller)
• The seller is not allowed by the bank to contribute any expenses regarding the closing (to pay for a home warranty for example)
• All parties must agree to the terms, buyer, seller, and bank(s)
  • If the seller does not agree with terms from bank - they can cancel
  • If the seller has excessive tax implications that they learn about - they can cancel
• And many more items to consider

And yet they could be a good deal for the person who…

• They sell for near foreclosure prices, and sometimes less
• is not in a hurry with no time frame requirements to meet
• Realizes the “list price” may not be the sales price and is prepared to raise their offer beyond the list price.
• has the patience of Job

Why use your Realtors preferred lender?

The short answer: All lenders are not the same.

I recently completed a transaction where the lender was one my client had been working with. I respect the relationships that are built between LO (loan officer) and buyer. My client had been working with this LO building her credit back up and getting to the savings goals she needed to purchase a home.

As we started he promptly emailed me the LSR (Loan Status Report) a document that is included with every offer filled out by both the LO and the buyer. Soon after we were in contract, all going smoothly…. Everything was great.

Till it wasn’t. The LO was never available to answer his phone, he didn’t respond to his email. I finally had to call his office and get connected with his loan processor. The file had been in underwriting for over a week, we had been told we would get the file back in 48 hrs. I had no idea what the delay was. And with no communication, I was fearful of the worst. The selling agent was anxious too. We were supposed to close in just a few days, and I couldn’t get the lender to communicate!

When he did communicate, he assured me that the file would be out of underwriting that afternoon…. But it wasn’t and not the next day or the next… once the file did come out of underwriting it was to be just 48hrs till the documents would be at the title office for signing, and funds were to be sent at the same time as the docs so there would be no delay. It took almost another week to get the docs, and the funds were delayed beyond that.
Thank goodness the seller was patient. We extended the contract again, and again, again and finally closed.

It takes a team to purchase and close on a home. Each person is needed to do their part, working hard behind the scenes to make the transactions move along smoothly. If there is one member of the team not holding up their part, it makes the whole transaction stressful for everyone.

Communication is key, I don’t care if you prefer to communicate via phone, email, text or any other form as long as you communicate.

In this instance the buyer had her belongings packed in a truck and had fully moved out of her previous home, and had to stay with friends as she was homeless during the delays.

Castles in the Sand

This is a cautionary tale of buying foreclosed homes. The documentation you don’t get when you purchase a home is just as important as the documentation you do. One of the things missing in a foreclosure purchase is disclosure on the history of the property.

… A young buyer found the home of his dreams. He won the bid and eagerly awaited his closing date. In his excitement he would come by the neighborhood, walking his dog, meeting some of the neighbors, and peeking in the windows of his soon to be new home.

His enthusiasm was growing each day, until he peeked in the window of his soon to be castle and discovered the ceiling of the kitchen had fallen and was strewn across the counters and floor. Water was pouring down into the kitchen and upon further inspection into the living room as well.

The beautiful new carpet, the fresh paint, new kitchen and bath cabinets. All ruined…

With this type of news, the neighborhood gathered to commiserate with the saddened buyer. From this gathering it was revealed that this house had had similar issues in the past. In fact when the bank foreclosed, they had to do the same repair, and apparently the source of the water leak had not been corrected by the banks cleanup crew.

Now, the future of this young and disappointed buyer is still not known, but the banks cleanup crew is back again, doing the same job, with less mold to remediate, due to the speed the water damage was reported and addressed….

And the Bank, did they disclose the repairs they had to do prior to selling the property – No –

Will the bank disclose the damage and repairs that are being done today… No

Because when you purchase a bank owned property you are purchasing “As Is”, “Where Is” and you not only do not receive disclosures, but sign documentation that says you can’t sue the bank for any items you discover in the future either.

Home Owners Associations - some not doing so great

Recently, at a continuing education class, the instructor shared some facts about HOA’s. There are currently around 11,500 Home Owners Associations (I am not sure if that is in the state, or in the county I didn’t write that tidbit down) and of those HOA’s 3000 of them are upside down financially.

I was surprised to learn that as little as 15% of properties going into foreclosure in an HOA can cause financial stress to the balance sheet.

With our residential purchase contract, you the buyer, do get to check out and approve during the inspection period, the CCR’s (rules and regulations of the HOA). We are now suggesting adding in that the buyer to also receive the current financial records for the HOA. Knowing what the financial status is of an HOA, you will have a better idea if there are going to be large assessments in the future, does the HOA have reserves, and are they adding to the reserves each month.

Purple Barn - or why I love my HOA

Here in the greater Phoenix Valley of the Sun, we have Homeowners Associations eveywhere.  In fact, McCormick Ranch is the larger Homeowners Association with many (52) neighborhoods with their own associations.

Have a love / hate relationship with your HOA.  There is a reason to keep the broken down cars out of the drive, to keep yards kept up and tidy, and to make sure your neighbor doesn’t have a purple barn…

Housing Market Recovery in the wind

Who would have thought that the out lying areas would recover first.   We are seeing a huge number of homes selling in the outer communities like Queen Creek, Buckeye, and Maricopa.  Some of these towns are showing a 3 month supply of homes.  (the number of active homes on the market divided by the number of homes that sold in the past month.)  That is a huge difference from about a year ago when those areas had over a year supply of homes. 

Since the prices plummeted in those areas, we are seeing prices under 100k for a 2000 square foot home. Once again, the “drive till you can afford it”  is back. 

FHA requires 3 1/2% down payment, and you can ask for the seller to contribute up to 6% to closing costs.  With the first time home buyer tax credits, buying a home is back on the “to do list” in a big way.  

A beautiful view of the Sunset - I’ll pass

With spring in the air, in Scottsdale Arizona summer is around the corner.  With that comes our warm ok hot summer days.

If you are lucky enough to live in the mountains, or in a cooler local during July and August, then ignore what I am about to say.  If you are like me, living here in Arizona all year round, then listen up.

The beautiful sunsets are not your friend.  The way most of the homes are designed here are with the living area, and master bedroom to the back of the house.  If the back yard faces to the setting sun (west) you are not going to enjoy your back yard in the heat of the summer.  In fact, you will most likely do everything in your power to block the sun (and your view) to reduce the heat.

Homes with west back yards have much higher cooling bills during those summer months.

So what direction should you be looking to have your home face?  The first preferred direction is to have the back of your home face South, getting the sun in the winter months and the shade in the summer.   Our MLS even has an identifying feature of North/South.

Some people love an east facing home, so they have a shady back yard and they enjoy the outdoors in the afternoons.  An east facing home, will still have rooms facing west, and those will be hotter than the remainder of the home.

So when considering a home consider your enjoyment, are you looking to live there seasonally, then south or west is perfect, enjoy the sunsets!  If you are going to live in the home year round, then north, south or east is the way to go!

Foreclosures and the Adult Communites

Although there are no adult communities within McCormick Ranch, our initial website is focused on Active Adult Communities and we work with many 55+ buyers.   

We are seeing lots of numbers being published for the ratios of Bank Owned and Short Sale properties in the valley.   We are not seeing those same numbers in the Adult Communities.   Since it is a cold rainy day, I have been playing with numbers and really surprised myself with what I found!

Taking only single family detached homes in the entire MLS for the valley, a total of 41,832 this morning, 10,796 of them were Bank Owned and an additional 9,003 were Short Sales.  Those numbers round off to 25% of the single family homes on the general market are bank owned and another 21% are short sales.  

 

 

BUT when you look at the Active Adult Community 55+ single family homes, there are a total of 2819 on the market.  Of that 2819 only 52 are bank owned and 63 are short sales which works out to 2% of the homes are bank owned and another 2% are short sales.

 

 

HMMMM  kinda makes you wonder.    Our 55+ citizens have indeed saved for their retirement homes, their financing is minimal and their risk taking days are in the past.

There were very few zero down,  or investor homes sold in these communities in the 2005 and 2006 sales surge.    I believe it is the investors who did get in to these adult communities, that are making up the Bank Owned and Short Sale properties.

Deals to be found

Are there deals to be found in real estate?  You betcha.  Sometimes there are amazing ones.  Then there are some you may consider a great deal, and your neighbor thinks otherwise.  Beauty in the eye of the beholder.

Right now we are working with one of our clients in purchasing a foreclosure property, one acre, horse property, no HOA, with a mobile home permanantly affixed, for a grand total of $39,000.

Foreclosures and Cash for Clean Up

One of the challenges with purchasing a foreclosure property, is the cost of clean up.  Many of the properties, are a great value, they are priced right, and are selling.  The challenge is once you have the property, where are you getting the cash to do the repairs and clean up required.

Most of the banks are keeping the power on, with the breakers off to the main part of the house, that way they don’t get hit with a high electric bill.  Then with power to the pool, and landscaping, green pools are not as common an occurrence and tons of dead plants are not in need of replacement in most cases.

But what about the damages and condition of the interior of the home.  Broken floor tile (that can’t be matched any more), grimy carpet that has to be replaced, holes in the walls in need of repair, missing door knobs, do it yourself repairs that are possibly not up to code and safety standards and who knows what else.

Sure elbow grease and a bucket of paint are cheap and go along way.  What about the other issues?

During your inspection period, consider brining in tradesmen who can give you estimates of repair.  Know what the costs are going to be before you get into a home and situation that is over your head.  The bottom line may be greater than you want to handle.

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