Foreclosure & Short Sale Properties
So you’re looking for a bargain. It will not be easy negotiating the minefield of foreclosures, short sales and corporately owned properties. But if you have patience, find an agent who knows the ropes, and you do your homework, you can find a great deal!
Step 1. Learn about the foreclosure process
Learn what a ‘short sale’ involves, and what is meant by a ‘corporate owned’ property. There is a lot of information floating around in cyberspace, but ‘Step 2’ is a quick and easy way to get reliable information.
Step 2. Contact a real estate agent
You need someone who understands the market you are interested in and knows how to navigate through the challenges lurking ahead in the process of landing a foreclosure, short sale , or corporately owned property. Contact us.
Step 3. Contact your lender
Before many agents will begin their efforts, and before a Seller/Lender will even glance at your offer, you must be pre-qualified for the loan amount you are comfortable with and have a letter from your lender stating your qualifications; including a verification of the cash needed for your down payment. Be sure to talk with your lender about the types of programs they have available for properties that may not be in good condition (many foreclosed properties have been abused and will need a lot of work before they are livable). There are programs that will fund the renovations many of these properties will require. Become familiar with them and the set of requirements to secure such a loan. If you do not prepare for this possibility in advance, you may be stuck with paying a lot of cash, out of your pocket, to improve the property.
Step 4. Physically inspect the properties
While it is easy to sit in the comfort of your home or office and peruse available properties on your computer, once you have narrowed the possibilities to ten or fewer properties, get with your agent and go see/inspect the properties. Googlemaps is nice, but sometimes the dog kennel next door cannot be seen or heard via a computer. Nor can the mushy, wet, backyard that flooded during the ‘floods of September/October 2009’ be detected until you walk the property.
Step 5. Make an offer
Know that a ‘corporate Seller’ is not emotional and is not familiar with the property. Patience is a virtue! Acquiring a bank owned property oftentimes takes more effort than negotiating with any other Seller. Be prepared for the classical, ‘Best and Final Offer’ request that will come to you after you’ve already made an offer for more than asking price. Be prepared for long periods of time lapsing between making your offer and getting a response. For most bank employees who have the responsibly of negotiating away these ‘assets’, you are but one offer of many sitting on their desk for this and other properties. Again, patience is needed!
Step 6. Inspect, Inspect, Inspect
Your agent should negotiate a ‘Due Diligence Period’ wherein you can (and must!) inspect the property to your heart’s content and secure your financing. The ‘Due Diligence Period’, however, is a short window of opportunity, so you must be prepared to jump into the fray when the clock starts ticking!
Not only do you want to have a ‘normal’ Home Inspector thoroughly go over the property, you may also want to have a builder/contractor inspect the property to give you a bona fide bid for the work to be done. You need to know what the real costs will be…then be prepared to spend an additional 20% for the unseen costs that lurk behind the sheetrock… For some loan programs, you will need architectural drawings of the renovations planned. For most loan programs, you will need a detailed cost-analysis to be submitted for approval. You want to review the lender requirements during your initial pre-qualification meeting with your lender of choice. During the ‘Due Diligence Period’, you also should have a survey done for the property to insure: a) you are actually buying what you think you are buying; 2) there are no encroachments onto the neighbor’s property, or vice versa; and 3) you get the best title insurance rate and coverage.
Step 7. Inspect Title
Instruct the closing attorney that you want a full title search done on your behalf. In addition, you want Title Insurance for your benefit. Do not be misled that the title insurance you are paying for in your lender’s ‘closing costs’ will benefit you. It does not. That title insurance protects the lender should there be a challenge to the title at any point in the future!
Step 8. Close
Congratulations! Your tenacity and patience has paid off!
What is a ‘short sale’?
Generally speaking, an ‘approved short sale’ is a situation where the current mortgage holder(s) has agreed to allow the Seller/Owner to accept a sales price that is lower than the amount of outstanding debt on the property. Rarely will a lending institution identify their threshold, or amount they would accept, in advance, so these opportunities are few and far between.
A ‘potential short sale’ is the most common type of ‘short sale’.
A ‘short sale’ means the current mortgage holder(s) is willing to entertain accepting a discounted payoff amount to release the existing mortgage. Typically, the Seller/Owner has to document the cause(s) of their distress and have no other assets, and/or the property value has dropped below the amount of the outstanding debt. Negotiating a short sale can be a long and frustrating process. You must have the patience of Job to successfully negotiate and close a short sale.
What is a ‘lender owned’ property?
Also known as ‘bank owned’ or REO (Real Estate Owned), a lender owned property is one that the lender has acquired title by one way or another; from foreclosure, to the owner willfully giving the bank title to the property even though they may not have been foreclosed upon or in the process thereof. Recently, a number builders and developers throughout the country have sent their lender the title of properties they were involved with in lieu of being foreclosed upon.
What is a ‘corporate owned’ property?
A property identified as being ‘corporate owned’ could be one where the Seller/Owner is transferred to a new job location and their employer, or a third party acting on behalf of the employer, takes over the property so the employee (Seller/ Owner) can move to their destination city. Another case of a ‘corporate owned property’ could be a bank owned, REO (Real Estate Owned) property the lender has in its inventory. Lastly, sometimes a lending institution will instruct their listing agent not to identify the property being sold as one that has been foreclosed on, so the listing agent will categorize the property as ‘corporate owned’ in the Multiple Listing Service.