Hi folks. How often have you had Buyers call you wanting to buy a foreclosure? Usually, when this happens to me it's first time homebuyers who are really just looking for a "deal". Of course many times they also have no money.
When this happens I spend time with them on the phone explaining how difficult it is to purchase a foreclosed property. Not only is it difficult but if it's a "good deal" you are going to need to have strong finances to even have a shot at getting it. Investors buy the "good deals" and they play with cash.
Foreclosures can be a good opportunity to purchase a property below market value but they really aren't for the inexperienced Buyer. If you have no money and need the Seller to pay all of your closing costs, then more than likely, you will NOT get a "good deal" in the foreclosure market. It can be done but you will certainly want to work with an experienced agent and you will want to make sure you have been approved for a mortgage before shopping.
You will also have to move fast. The property will be sold "As Is" with right to inspect. You will want to have it inspected and be prepared to walk away if you are not in a position to pay for repairs. You will not be reimbursed for inspection costs if you don‘t close on it.
Janet Guilbault wrote a post earlier this week about one of the pitfalls of purchasing a foreclosure, the dreaded per diem penalty!!! Unlike a normal purchase, if the closing is delayed the Buyer will be required to pay a penalty for every day the deal doesn't close beyond the contractual closing date. This is usually $100 to $200 per day! And if you can't close it at all......kiss your deposit good bye.
I wrote an offer on a foreclosure property this week for one of my Buyers. The nine page bank addendum, in addition to the per diem clause, also had this little gem in it:
SELLER'S UNCONDITIONAL RIGHT TO CANCEL THE CONTRACT AND/OR ADDENDUM:
AT ANY TIME AFTER THE EXECUTION OF THE CONTRACT AND/OR ADDENDUM, SELLER SHALL HAVE THE UNLIMITED RIGHT AND AT IT'S COMPLETE DISCRETION, TO ELECT TO DEEM THE CONTRACT AND/OR ADDENDUM BETWEEN THE BUYER AND SELLER NULL AND VOID AND NOT CLOSE THE TRANSACTION FOR ANY REASON AND THE PARTIES SHALL BE RESTORED TO THEIR ORIGINAL POSITION AS IF THE CONTRACT AND/OR ADDENDUM NEVER EXISTED.
SHOULD SELLER EXERCISE IT'S DECISION TO NULLIFY THE CONTRACT AND/OR ADDENDUM, THEN SELLER SHALL RETURN THE DEPOSIT AS DEFINED IN PARAGRAPH B(5) TO THE BUYER. HOWEVER, IT IS SELLER'S SOLE DISCRETION AS TO WHETHER OR NOT IT WILL REIMBURSE THE BUYER FOR ANY COSTS, AS OUTLINED IN PARAGRAPH 6(B), OR OTHERWISE.
THE BUYER AGREES THAT SHOULD THE SELLER CANCEL THE SALE FOR ANY REASON THAT THEY WAIVE THEIR RIGHT TO SUE FOR SPECIFIC PERFORMANCE AND/OR DAMAGES AND FULLY RELEASE THE SELLER AS FURTHER SET FORTH IN RELEASE CONTAINED WITHIN PARAGARPH W HEREIN.
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This clause basically states that the Seller can back out of the contract at anytime prior to closing for any reason at all. They will give the deposit back but may or may not reimburse the Buyer for any costs they have paid i.e inspections, survey and appraisal.
The Buyer is obligated to perform under the contract the Seller isn't.
We removed this clause when we made the offer but the Bank refused to negotiate with us if we made any changes on their addendum. So we put it back in and agreed to it.
Fortunately, my Buyer is very experienced, is paying cash and is willing to take the risk to purchase a property 20% below market value. We can only hope that the Bank doesn't find a better deal before my Buyer has a chance to close. We want to close in 10 days to limit the risk. So we'll see how it turns out.
The point of this post is to be very careful when negotiating on Bank owned properties(REOs). Make sure to read every word of that Bank addendum and make sure your Buyer fully understands what rights they are giving up.
Buying foreclosures can be a good way to get a "deal". Just make sure you know what you are getting into. They are not for the inexperienced. In my market you do not have to buy a foreclosure to get a "good deal". There are better and safer ways to buy Real Estate. Find a good and experienced REALTOR® to help you out. Better yet......call Broker Bryant! Any thoughts?
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Bryant Tutas
Broker/Owner
Tutas Towne Realty, Inc
Licensed Florida Real Estate Broker
http://www.brokerbryant.com/
***The content of this blog is solely my opinion***
Reserved Parking For "The Lovely Wife"...TLW...ROAR!
Blog Boy...
I say "Let's throw that clause in the lake"...
We still have Lake access not to mention the fact that we can also throw it in the creek.
Crap floats you know :)
TLW...ROAR!
You all have missed the most important part of buying a home, I cant believe you all missed this.
Realtors are crooks and liers and are like Lawers and car salesman. They can never be trusted unless you have a realestate attorney breathing down their kneck constantly, letting them know they are being watched and monitored.
You wan to talk about ethcis they are suppose to have, gees they dont even have any when dealing with each other.
Realtors should be done away with and they should kicked out of dealing with homes for sale or buyers.
Craigs list and other sites are replacing Realtors, and rightfully so.
The number of homes being bought and sold without Realtors is growing at an amazing rate.
No need to get stiffed thousands by someone who drove you around for a few hours.
It;s just as easy to find your own house to buy or sell online.
We've gotten all of our foreclosure offers through this year, although I think we've had only about 4 or 5 I'm advertising heavily to forelcosure buyers, but they usually end up buying something else. I don't deal much with investors, so our buying pool is different. One of our buyers also got a $2,000 reduction when the home inspection showed that the furnace thermostat didn't work. We keep the home inspection addendum whereby the buyer can void the contract based on the home inspection.
We also got a short sale ratified Friday.
I believe that banks are beginning to move these things along although foreclosed properties have never been much of a problem around here.
I suppose your market is unique because of the low prices.
Last Spring, one of my agents did not realize that it isn't typical to negotiate repairs on foreclosures and she managed to save the buyer $7000 on a $90K deal. Never hurts to ask!
Those clauses that the seller can back out we haven't seen yet.
I'm all for the $100 per diem and we use it. Since I started using the per diem in the Fall of 2006, I've only had one delayed closing and the buy side was charged $300 out of escrow for it. I got sick of explaining delayed closings because of buyers not getting docs to the lender or the lender not getting docs to the title company while my sellers are packed up and ready to move on with their lives. I didn't think the $100 was enough to get people's attention but the attorney's said not to push it. It's working!
BB, I have done a fair number of mortgages for borrowers purchasing foreclosed homes. I have only come across a per-diem penalty one time (partly because often the lender who owns the property takes 3 to 10 days to respond to the purchase contract) nor has the bank owning the forclosure ever cancelled a contract. This may be in part because they trust BofA backing the purchase contract. There is so much pressure from lenders to get rid of property now. Just a couple of month ago, the real estate professionals that I work with had to really negotiate for a purchase price (Banks were playing hard ball). Lately, there seems to be less negotiating. Banks seem to be accepting any reasonable offer. AJ
BB,
Most first time buyers are not fully educated on how a foreclosure is purchased..there are many steps to follow..first in order for the bank to have incentive...they want to see a strong buyers with adequate financing...why would they sell to a buyer with no money down?
It will just pass on the problem to them...too risky...buyers think when they hear the word foreclosure that they will get a great deal which might be true...but the bank isn't going to take every deal unless they feel the risk isn't high and the buyers really can afford it. I recently closed on an REO and the buyer came in with 20% down bought the property under market and did get a deal..but they came in with enough down so to me it was a no brainer. The bank actually had more than 100K of a loss on the amount they had on their mortgage.
Short Sales, Foreclosures and overpriced homes...oh my.
Lately I feel like we are walking through a landmine.
Hey guys. I appreciate you stopping by.
I just listed a couple of REOs so wrote this post for the Google juice. ActiveRain is awesome for that!!!
I have the first position on Google for.
Not bad for one post and one day!!!! Maybe I'll get some bank business from it.
I've seen those contracts before and think that they need to be made illegal! It's hard to swallow that they are SOOOOO one sided....That said, I have had some success in getting the banks to bend at least a little bit on one or two of them. Not so much on some of the other one's that I've written....
Bob Mitchell
ValueList Real Estate Services, Inc.
These per deim penalties are illegal - If you consult a real estate lawyer you can sue the seller, the seller's agent, and buyer's agent. You may have to pay the penalties initially but the practice is completely unlawful - does not matter if you sign a contract - seller's agents are obviously being strongarmed by the lenders - problem is that you can wind up being sued for more than the per deim fees - including lawyers fees and punitive damages. Different states may have different rules but for the most part (in most cases) the seller cannot prove they have $100 or $200 out of pocket expenses.