Short Sale Buyer

A year ago I started working with a woman, Carolyn, who wanted to buy a house. She was a first time homebuyer and excited to take advantage of the first time homebuyer tax credit.

Carolyn fell in love with a house for sale that was a short sale. We learned that there were already other offers on the home. Carolyn had me submit an offer that was above the list price. We waited knowing that it often takes lenders a couple of months to respond to short sale offers. After 2 months we waited some more. After 3 months we waited some more. After 4 months we learned that the bank had approached the sellers and told them that they wouldn’t foreclose, if the sellers would give them the deed. The sellers agreed. Carolyn didn’t get the house.

Early this year I showed Carolyn a house that was advertised as an approved short sale. The listing agent told me that the offer acceptance wouldn’t take as long as usual since the lender had already agreed to the short sale. Carolyn had me submit an offer on February 1st. We waited. We were told that the lender had misplaced the offer while moving their offices from Florida to New York. We waited. We were told that the lender was swamped with offers on other short sales and would get to Carolyn’s offer as soon as they could. We waited. After the offer finally got in the hands of someone who could make a decision, we were told that the original BPO (broker price opinion) for the property was too old. Another BPO needed to be ordered. We waited. Finally on April 22nd, nearly 3 months later, the bank accepted Carolyn’s offer.

On May 12th, one week before Carolyn’s scheduled closing we learned that another lender had a second mortgage on the property and that they didn’t accept the amount of money they would receive after the first lender was paid. We waited while the seller’s attorney approached the first lender about accepting less money. Yesterday, May 28th, we learned that the first lender won’t accept less money. The only way the sale can close is for Carolyn to pay an additional $9,000.

So Carolyn has a lot of thinking to do this Memorial Day Weekend. If she walks away from the sale, it will be too late for her to qualify for the first time homebuyer tax credit for another house. If she accepts the new terms, she’ll have to pay an additional amount that’s more than the $8,000 tax credit. Unfortunately, Carolyn’s experiences aren’t unusual in the world of buying short sales.

Last Wednesday I sent an email to Go Homing telling them to stop publishing my blog content and remove all of it from their Go Illinois REO site. Go Homing is an online bidding site for REO (real estate owned) also known as bank owned or foreclosed homes. Go Homing is part of Altisource Portfolio Solutions.

I made it clear that they do not have permission to publish my blog content, but since last Wednesday they have continued to publish my new content as shown below.

Gomer Homingway did not write Edgewater’s 60660 median condo price up 1%. I wrote it.

Go Homing has published several of my blog posts in their entirety on their Go Illinois REO site. The only differences are that they remove my name as the author and at the end of the complete post they provide a link “Go to the Original Source of this Post”.

Go Homing has several sites that are publishing other Realtors’ blog content. Such sites include:  Go Arizona REO, Go California REO, Go Colorado REO, Go Florida REO, Go Georgia REO, Go Michigan REO, Go Nevada REO, Go Ohio REO and Go Texas REO.

I certainly have no problem with other sites linking to my blog content or even quoting parts as long as I’m given credit for my work. Since Altisource Portfolio Solutions is a big enough company to be traded on the NASDAQ (ASPS), they surely can afford to hire people to develop content for their web sites instead of harvesting the blog content of individual Realtors who never agreed to blog for them.

I have alerted other Chicago Realtors who’s blog content is being published by Go Homing. I will now start contacting Realtors who’s content appears on the Go Homing REO sites for other states.

Some bankers don't always make good decisions

So instead of taking my buyer’s very attractive offer (there were multiple bids), the bank chose to become the owner of the house and lose even more money. Now that they own the property they are responsible for paying the property taxes, utilities and maintenance. At some point, they’ll put the property back on the market.

This makes no sense to me, but it isn’t the first time I’ve seen a bank make a decision regarding a short sale or foreclosure that made no sense. A couple of years ago a bank insisted that my buyer pay to have a foreclosed house rewinterized after having the plumbing checked even though it was July! Another time a bank made such unreasonable demands in the contract for a foreclosure that my buyers walked away from the deal.

As a former employee of a large, global corporation I understand that corporations have to follow procedures. However, they can get so caught up in avoiding liability and managing risk with their procedures that they miss their primary objective of making a profit (or at least minimizing losses). Foreclosures and short sales can be good deals, but be prepared to deal with the illogical.

Thinking of buying a home that needs work such as a foreclosure or short sale, but not sure how to finance the purchase and renovation costs? Consider an FHA (Federal Housing Administration) 203(K) loan. Today’s ChicagoTribune.com has a good article on the loans, “Old loan program finding new life“, by Mary Ellen Podmolik.

One of my buyers recently discussed a FHA 203(K) loan with my mortgage consultant, Michael Polera, after considering a home with a roof that looked like it had been pressed inside a waffle iron.

While there’s lots of paperwork and you’ll need to get estimates for the work needed, the loans only require a down payment of 3.5%. If you have the patience to wait for the approvals and for the work to get done, it can be great way to buy into a neighborhood you might not be able to afford otherwise. Contact me for more information on these loans!

If you’re a first time buyer wanting to take advantage of the $8K tax credit and get a deal on a foreclosure or short sale, but you haven’t already made an offer, you’ve run out of time. To qualify for the $8K tax credit, you must close on your home purchase by November 30th at the latest.

That means you need to be under contract (have a signed contract with a seller) by October 1st, if you’re using conventional financing. If you’re using FHA financing, you need to be under contract by September 1st. If you go past those dates and an unexpected delay arises, you could risk missing the November 30th deadline for the tax credit!

Either way this gives you less than 2 months to get a reply to your offer from a bank or lender, not an unusual amount of time. I have a buyer who put in an offer on a short sale over a month ago. At the time the listing agent informed me that the first offer had been submitted 2 months earlier. So it’s been over 3 months since the first offer and no response from the bank yet!

You may have missed out on foreclosures and short sale bargains, but don’t miss out on the $8K tax credit! Contact me now so we can get you in your new home before the end of November and get you the tax credit you’re entitled to!

Even Chicago’s wealthiest aren’t immune to foreclosures! Today ChicagoRealEstateDaily.com reported that Amcore Bank has filed a foreclosure lawsuit for almost $16M on a 400 acre estate and horse farm in Barrington Hills. The couple who own the estate bought it for $19.3 million in December 2006 making it the most expensive Chicago Metro Area home purchase that year.

The estate includes a 10,000 square foot house, guest and staff quarters, barns and a ½-mile race track. For the full article read, “Foreclosure suit hits most expensive local home of ’06“.

To see luxury homes currently for sale in the Barrington area click here.

I had an interesting question yesterday from a new buyer about the costs of buying a foreclosure. She asked who was responsible for compensating the Realtors when it’s a bank selling the property. Compensation works the same way regardless of who the seller is. If the foreclosure is listed with a broker, the bank pays the listing broker when the sale closes. The listing broker pays part of their commission to the brokerage representing the buyer (the co-op commission).

However, there are often additional costs when buying a foreclosure that aren’t obvious. Banks typically refuse to pay for a plat of survey when selling a house. A plat of survey showing the lot boundaries and where improvements are located is required when a house is sold in Illinois and typically paid for by the seller. Costs vary, but I would budget $450.

Banks often insist on prorating property taxes at 100% instead of the 105% which is typical in the Chicago area. Since property taxes typically go up each year, buyers end up paying more for their part of the taxes for the year they buy in.

Foreclosure inspections can also end up costing more. When I represented a woman who bought a foreclosure last year, the bank refused to pay to have the house dewinterized (unwinterized?) so the plumbing could be tested. She had to pay which cost her around $100. I wrote an offer on a foreclosure a couple of weeks ago and suggested to my buyers that they include a requirement for the bank to have house dewinterized prior to inspection. They did and the bank was agreeable, so not all banks behave the same way.

At the start of this year I wrote my first blog post on foreclosures and short sales, “Short Sales are Anything But“. The post explains how the process of buying a foreclosure or short sale can take much longer than normal since some banks can take weeks or even months to respond to offers.

Some of my buyers who purchased foreclosures this year were fortunate to receive responses to their offers within a few days. More recently, another one of my buyers was was fortunate to get a response to her offer on a house in Des Plaines 11 weeks later. 5 days before the listing agent called me back to say that the offer was accepted, my buyer was laid off. If the bank had responded in a timely manner, the sale could have closed before my buyer lost her job. That would have been a tough break for my buyer.

Instead, the bank lost out selling one of it’s foreclosures since it was so slow to respond.

Normally when you buy a home in Illinois the sellers must provide disclosures about their knowledge of any defects or safety issues. However, such is not the case for foreclosed properties. Since the seller (the bank) didn’t reside in the home, they aren’t obligated to complete disclosure reports such as the Illinois Association of Realtors Residential Real Property Disclosure Report shown below.

Banks not only disclose nothing about the properties they own, the typically require buyers to sign addendums agreeing not to hold the banks responsible for any defects found after the sale closes.

Also consider that the previous owners who weren’t able to make their mortgage payments probably weren’t maintaining the home as it should have been since the money wasn’t available.

Thus, home inspections are especially critical for foreclosed homes. If you’d like a suggestion for a good home inspector in the Chicago area, email me!

Recently a couple of my clients made an offer on a foreclosed home in Arlington Heights. The lender who owns the home required that buyers be prequalified by them. The buyers called one of their loan representatives and shared their income, credit and assets information. My buyers were extremely well qualified and the loan representative made it clear that he would love to do the mortgage for the purchase.

Unfortunately, the loan representative went too far and also implied that if my buyers used the lender to finance the purchase that they could get a better deal on the home purchase! Tying a mortgage to a home purchase is illegal.

A lender financing the purchase of one of their properties isn’t illegal, but I don’t think it’s a smart choice. In such a situation the company who owns the property will also be the company who hires the appraiser for the loan. Remember, this is the mortgage company who made the bad loan in the first place!