I was looking at a “funny” video that has been going around the internet about foreclosures. In truth, it’s more real than funny. Someone, who obviously is very familiar with the way foreclosures work, has identified the core issues with foreclosure home sales. Take a look at the video below:
What Home Buyers need to know about foreclosure sales:
- Let’s start with foreclosure listing agents. In my experience, it is very rare to get an agent that will actually service their foreclosure listing. Most will not return any phone calls and quite a few will not even respond to home buyer’s offers. Somehow, there’s a total lack of courtesy and professionalism. Pick up the phones, will you? This REO market will not last for long and you guys are getting a bad rep.
- Foreclosures are being assigned in blocks. What does that mean? Most banks will assign 20 to 25 home listings to a foreclosure agent at one time. These lenders do not seem to care that most of these agents do not have the staff or the systems in place to not only service these listings appropriately, but to get the highest possible price for the property. It’s all about moving inventory.
- Approved for a home loan already? Think again! The foreclosure agents will insist on a home buyer getting approved with their lender prior to submitting an offer. Be prepared to submit your financial package and proof of funds all over again. Be prepared for your credit to be run time and time again.
READ MORE: 5 tips to improve your FICO score
- If you are an FHA or a VA buyer in an entry level category, you are pretty much dead in the water. I have a home buyer who has gone above and beyond to get his finances ready, get fully FHA approved and is willing to put in some muscle into fixing up a home. He is in the $200K to $225K range – which we know is the low end for Pasadena homes. We have been writing right and left and can not get anyone to respond to us. Why? The lenders do not want to deal with FHA buyers. There are so many investors with all cash or huge down payments and conventional loans that an FHA buyer is the lowest man on the totem pole.
READ MORE: FHA Loan Info
- FHA has many restrictions – the lenders also understand that FHA loans have way more restrictions than a regular conventional loan. If the paint is peeling, the seller (bank in this case) has to repair that. If there are some repairs that need to be done, REO sellers are responsible for them. It doesn’t matter if an FHA buyer is willing to repair the home on his own nickel. The government says NO. Also, most FHA buyers are putting down 3.5%. FHA requires 2 appraisals for such a low down payment. A big NO NO for the REO lenders and their assigned real estate agents.
- Transaction Timing – it seems like the REO agents want you to jump through the hoops in getting the contract in and allowing them an unlimited amount of time for a response. If you are a buyer, it might take a week or longer to get a response from the lenders Asset Manager. The answer is always, well the asset manager didn’t have time to review your offer. When the response comes, the home buyer should be able to move immediately to respond or else lose the deal.
- Foreclosure home buyers are pretty much signing all their rights away! Yes… it’s true, the lender will give you an addendum to sign that will take away any right that you potentially had in your offer contract. No signature, no home for you! Remember Seinfeld’s Soup Nazi?
- Let’s talk about paperwork and the deposit check – should you be so lucky as to get your offer accepted and decide to go forward and sign everything it has to be returned, usually to an out of the area agent in person, in hours. One time, we had to drive to Beverly Hills from North Pasadena with threats of (as my client was stuck in traffic) giving the home to a back up buyer if the paperwork is not received in 10 minutes. Give me a break!
Finally, is it really that bad buying a home foreclosure? Yes… it can get to be pretty darn uncomfortable. Can you get a good deal? In many instances – YES.
However, if you are an entry level home buyer with government financing, prepare yourself for a hard road ahead.