How to buy a Foreclosed/ Bank Owned Property

Thom guides the buyer through the combination of Disney Theme Park and Cambodian mine field that is the process in buying a foreclosed home in Bend, Oregon. Yes, there is a lot of good, and really it is the only way to buy right now, but I think you need to know about the tough stuff as well.
So, you want to buy a foreclosed/ bank owned property, eh? Well, you’ve come to the right place! (He says as he peeks around, then opens his trench coat to display a good dozen listings that look too good to be true.)

The truth is, if you are letting me help you find a home, that’s mostly what I am going to show you. Unless you don’t care about money, and then I have some fantastic plots of land 475 feet under Lake Mead I’d like to talk to you about. Right now, nothing comes close to foreclosed homes as far as value for the buyer- certainly not conventional homes, which represent the very top of the current market, and which are generally priced 20- 40% higher than the foreclosed home next door. Short sales are often even worse, because the price you see on a short sale rarely is the price you will pay (it’s most often higher, sometimes a LOT higher), and short sales generally take 90 days to close, and to make matters worse, during that ninety days you most often have zero idea of whether or not you will ever get the home. It takes the banks a long time to respond on shorts, and the entire time you are waiting for them to answer you (weeks to months), the house is still on the market, and offers are still being accepted. It is not uncommon for buyers to sit and wait, all the while becoming more and more attached to a home, only to find sixty to ninety days out that someone else has made a better offer. Bye- bye dream home, and hello pissed off buyer.

Foreclosed properties, however, combine the best aspects of both conventional sales AND shorts. Like shorts, they are priced far under the rest of the market. It is my belief at this time, owing to improved economic numbers that come out almost daily (have you seen the stock market this month? how about durable goods orders? how about new home sales? how about home resales? how about same store sales? how about Bend home sales? how about oil prices? I could go on and on, but all of these are up in the last months, not just the market itself- these underpinned the market’s rise), that foreclosures represent the coming bottom in home prices, a bottom that I think will arrive sometime in the first days of Summer or waning days of Spring. But, if you get my point, foreclosures are already representing early Summer numbers, and quite often numbers so low we will never see them again. And the difference between a short sale and a foreclosure is that the price you see on a foreclosure is the ACTUAL price, not a BS number made up by a Realtor. I was at a Principal Broker’s meeting last week, and many of them want to do away with short sales altogether, as they believe they represent false advertising and set us up for bad things to come. I do not disagree.

Bank owned properties, like conventional sales, do NOT take 90 days to close, and once a deal is reached (often within days to a week), they are marked PENDING, and cannot be shown to other buyers like shorts can, AND they can close as fast or faster than a conventional sale- (30-45 days in the current lending climate.) Let me put it this way, if I was buying a home right now (you have no idea how much I wish I could- but my debt to income ratio is too high for the new standards- usually around 30%, then there is the self employed problem, etc…), I would ONLY look at foreclosed properties. Besides that, as many as there are out there, they will be gone before any of us even knew what happened, and we will all be looking back, wishing we had known they would disappear so quickly, just as we wished we had known the downturn was coming.

Sounds pretty good, right? Well . . . there ARE banks involved, after all, so how could they be perfect? Is there anything less perfect than a bank, ANY bank in 2009? I think not (I’m looking at YOU, CHASE, you pack of weasels). So, let me tell you about the negatives.

FIRST, we get no signatures on offers, or counter offers, until a deal is reached. This can be disconcerting to those who are control freaks, but we will have quick and regular communication from the bank, often communicated verbally or by a brainless computer to the agent on the other side. So, this one is really just an annoyance.

SECOND, and this is the big one, once you get past the standard right of refusal for a) a loan you could not get or did not like, and b) a bad inspection, both of which you can still pull out after, provided it is within the time limits specified in the contract, once you get past those? Yep, you get the house, or you lose your earnest money, and sometimes damages as well. All banks on foreclosures make you sign a really nasty addendum that makes lawyers nervous, saying that you cannot sue them for anything once you have blown through the inspection and the loan process. They are all sold as-is, so it is the buyer’s responsibility to be sure that as-is works for them. Really, this is just a grown up way of doing business, unlike the hand-holding that often accompanies traditional real estate sales. It’s put up or shut up time, essentially. They don’t want to waste their time with a buyer who is wishy washy. And who would?

THIRD, they won’t fix anything. It is paramount that you get the best inspector you can find, and for years we have queried our clients as to whom is the best, and we have a list from 1st choice to last. I will of course always recommend Mike Wilson, the first on that list. But several others are good if he is too busy to get it done in time. So, as-is, really means as-is. We may be able to get them to reduce the sales price based upon a poor inspection on a house that you still want to keep going with, however, so be sure to let me know immediately, as we usually have 7-10 days AFTER SIGNING to pull out or whine, based on an inspection.

FOURTH, they won’t listen. Now, this is a much worse category with short sales, because there they won’t even listen to you throwing your money at them, much less your desires and wants about this or that problem with the property, or the fact that you think it’s basically a tear down, or that you’d really like them to replace the carpet before you reach a deal, or any of the things you can often push for with a regular sale. REMEMBER, YOU ARE GETTING IT FOR WAY UNDER MARKET VALUE, so they aren’t going to play that kind of ball. The only chance we have for those sorts of caveats is the one I mentioned above, the post-inspection period. That’s it.

FIFTH, there is an icky little thing called a PER DIEM. What this means is that if YOU, THE BUYER, go over the closing date for some reason, usually because your loan guy can’t get it done, (Please think about using Carl Salvo if you want as close to a trouble free, well informed, HONEST process as you will ever see- he saves me trouble, pain, and sleep, and he saves you trouble, pain, AND money), then you owe the bank some extra money at closing. This can be $50 per day, or $100 per day. Either way, it is trouble. And they will neither rescind this stipulation, nor will they pay it if THEY go over. Not exactly fair, but a cost of getting a great deal. Hey, I said they weren’t perfect. But they still are the best thing going out there. SO, the key with this one is that you check with your loan guy and be sure he can get it done in the time allotted. If he doesn’t, at least he gets yelled at, not me! Happy

Now, you will get a Special Warranty Deed at closing, which is basically the same as a traditional sale. Only, as they have never been to the property nor lived there, it is a Special Warranty Deed, not a General Warranty Deed. This really is just a name thing, with no real troubles ahead for you in reality. And, your title insurance policy that you pay for at closing insures you against some creep coming back later and saying he has title. Guess what? He doesn’t. And even if he could prove he did, the title insurance would pay him off, or for your home, or whatever remedy is necessary. But these are so rare as to be akin to the Dodo.

The last major thing to tell you about foreclosed property sales is that you can’t be that guy. You know the guy, the one who think he is going to get everything at a huge discount, or he’s walking away? Now, we all have a little of that guy in us, but it’s important to keep him on a short leash during a foreclosure negotiation. Foreclosed homes are, again, WAY BELOW MARKET VALUE, so they are rarely going to go more than 10% to at the most 15% lower than the listed price. We can offer lower to try to get bargaining position, and I always recommend we do to start, but it is important to get real about how much you want the home after the first counter, because they will often not continue negotiations unless you quickly get in the ballpark. The other minor thing to note is that the best ones go very, very fast. Often under two weeks on the market. If I have been working with you on foreclosures, you have probably heard me say, “Whoops, that one’s gone”, at least once. It is not uncommon for me to pull a batch of 5-10 homes one week, only to discover the next week that 2-3 of them are outta here. So, find what you want, get serious, and move fast. The deal you get will be worth it, especially a few years down the road.

So, if I haven’t scared you away with my usual, full disclosure style, and you want to check out some foreclosed/ bank owned homes, email me at Bendbrokersrealty@gmail.com, or call me at 542-480-7554. Let’s go get ‘em!