Tuesday, July 8, 2008

How to Buy Short Sale Homes, PART 2

photo credit to I Can Has Cheezburger

This is the 2nd in a series of articles about buying metro Phoenix area short sale homes.

Many, many potential buyers in the Phoenix market lately want to look at "short sales", "foreclosures" or "bank owned homes". Often they're not quite sure what these terms mean exactly, but they know the 10 o'clock news (or their brother's cousin's baker's tailor) says short sales are a spanking good deal.

See here for the differences between REOs, bank owned, short sales, foreclosures and pre-foreclosures. Regardless of type, the secret to buying one of these homes is organization combined with an open mind and a lot of patience.

This article talks about buying short sales. Lender owned homes are a different ballgame and I'll address those soon.

One of my buyer clients has been waiting a little over 7 weeks for the bank to answer our offer on their short sale property. One of my sellers waited 2 full months for the bank to answer a Buyer's offer.

This sounds absurd, right? According to the media, banks are drowning in short sales and foreclosures, making write downs and taking losses like the Titanic took on water. Why in the name of all that's green and holy would the banks take months to answer offers?!

Sadly, this is not unusual. I've heard horror stories of waiting 4 to 6 months for a bank to answer an offer, even if it's a full price offer.  The media's right - many banks are awash in properties. But they're simply not equipped to list and sell homes. They're equipped to make and service loans. I hear banks are scrambling to hire & train people who can handle their backlog.

I recently had a conversation with a local agent who interviewed for a position as a loss mitigator with a lender. Sadly, the loss mitigators are paid about $30,000 a year salary, and are expected to work between 12 and 14 hours days, 5 days a week, work every other weekend, and are given 4 days of training. Almost none of them have any experience in real estate or mortgages whatsoever. Many are fresh out of college and many last no longer than their first week after training.

One of the first loss mitigators I ever spoke with (in late 2007) told me flat-out, "Honey, my desk is piled high with over 400 files just like yours. The computer shows I got your offer yesterday, but I won't be able to look at it for at least 6 weeks. Call me then."  She wasn't being rude, just truthful. We've become phone buddies and share polite chit-chat when I call her once a week to ask (ever so politely) if she's got to our file yet. I think she's very nice and I think she liked me, but she still didn't look at our file for 8 weeks.

But the loss mitigator did verify for me on Day 1 that our file was complete and had all the documents she needed including:

  • The Listing Agreement,

  • The MLS printout,

  • The Authorization for me (the Realtor) to speak with the seller's lender,

  • The Seller's hardship letter, 2 years of tax returns, 3 months of bank statements and 2 months of paystubs,

  • The foreclosure notice from local authorities,

  • A letter from me to the seller about marketing activities and recent comps in the area,

  • The Purchase Offer,

  • The HOA Addendum,

  • The Short Sale Addendum, and

  • The estimated HUD-1 Settlement Statement from the title officer.

If we hadn't put all those documents together into 1 submission packet to the lender, we'd have gone to the back of the line. The 8-week waiting period was for sellers and Realtors who got it rightthe first time. Miss a form? You're going to wait longer.

Buyer Lessons

  1. Short sales, lender owned and foreclosure properties are not for you if you must move in by a certain date.

  2. Shop short sales and lender owned homes only if you are OK with lengthy periods of uncertainty.

  3. It pays to hire a Realtor who's politely persistent.

  4. Make sure your document package is complete from the beginning.

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