Wednesday, July 9, 2008

How to Buy Short Sale Homes, PART 3

Photo credit to I Can Has Cheezburger

This is the 3rd in a series 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.

ORGANIZATION - Getting the Offer Accepted
Once a bank answers your offer, things start to happen fast. Very fast. Good organization can literally save a deal.

Just recently on one of my short sale listings, my Seller received multiple offers. After waiting 10 weeks for any answer, the bank gave me several answers all at once. In the space of a couple of hours, the bank's loss mitigation rep rejected the 1st offer because it was too low, said our short sale was declined and started making keyboard clicking noises while he said, "I'm going to close this file."

"Wait!" I shouted. "Closing the file" means (1) me and my Seller get at the end of the 10 week waiting line to have the bank's rep look at another offer, and (2) the lender sends the Seller back to Collections and reinstitutes the threatening phone calls until Seller comes current on the mortgage.

I reminded the loss mitigation rep that we had a backup offer. He checked his file, clicked a few keys on the keyboard, and immediately accepted the 2nd offer since it was high enough to meet his lender guidelines for foreclosure deals. I still don't know exactly who made the guidelines the loss mitigator clicked around in, but I know my Sellers are now happy campers.

Also, note that I, as Realtor, had absolutely no control over which offer was accepted by the bank. I usually like to counsel my Sellers to look at the entire package of an offer when deciding whether to accept it or not. The highest price isn't always the best deal. A higher down payment is better than a lower one. A bigger earnest money check is better than a smaller one. Quicker closing date? Better, usually. And so on. But this one was totally out of my and the Seller's hands.

To make matters more confusing, all this back-and-forth with the lender's loss mitigation rep happened verbally with nothing but a letter changing hands between me and the lender. There was nothing documented in writing for the 2 waiting Buyers. The AAR Purchase Contract states very clearly that all negotiations between buyers and sellers must be in writing and verbal negotiation hold no legal water. But banks are neither buyer nor seller, strictly speaking, and don't abide by the AAR Purchase Contract in any case.

A major factor that saved the deal for my seller client on the case noted above is that I had maintained a detailed Communications Log listing date & time, who called who, who said what, the documents exchanged, and the followup and outcome to each phone call and document submission. I knew I had sent the lender a really complete file and had the chutzpah to ask, "But we have a backup, can't you just look at that now without any more waiting? Please? Pretty please?" His only superpower was organization, indeed!

Another short sale Buyer I encountered made a $75,000 offer on a cute little condo. The bank verbally told me (the listing agent) that they wouldn't even look at any offers below $92,500. Often, banks won't reply at all to offers they don't accept. I told the potential Buyer this, but he insisted the Seller had to reply in writing to his $75,000 offer. Under normal circumstances, that's true. But we're still waiting 4 weeks later.

Buyer Lessons

  1. Banks abide by The Golden Rule - he who has the gold, makes the rules. Don't expect them to conform to any contract law you're used to.

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