We have a large number of clients looking at the current distressed real estate market as a potential opportunity, escpcially here in Arizona and through out the Southwest. These opportunities have ranged from strategic defaults to the acquisition of prime property for personal and investment use. Many of our most experienced real estate based clients and new investors alike are also on a residential buying spree expecting a huge demand for rentals to follow the next wave of foreclosures that are sure to come when the all the 5 year A.R.M.s written in 2006 mature this year with no realistic hope of conversion to permanent financing. This market is however not without peril and difficulty. For help in navigating these murky waters we turned to Residential Real Estate Expert Lori Noonan, her thoughts and tips are below.
Opportunities abound! Today’s real estate market has provided opportunities to buy residential real estate at a steep discount from prices at the peak of the market just a few years ago. There are buzz words in the real estate market that everyone has heard – REO, short sale, bank owned, foreclosure – these are “distressed properties”. In the Arizona Regional MLS today (2/2/11), 50% of actively listed properties are listed as “distressed” and such properties account for more than 73% of today’s pending sales. So, distressed properties are moving at a much quicker pace than a traditional sale. But, what do you need to know about buying a distressed property?
Bank Owned Properties
- Be prepared to lose a house or two: There is a lot of competition to buy these homes.
- If you are not familiar with REALTOR® lingo, just ask: We use a lot terms readily. If you don’t know what we mean, please ask.
- Choose wisely: Be sure that the home you choose will pass lender scrutiny.
- Read the bank addendum: Bank addendums will super-cede the purchase contract.
- Have your REALTOR® communicate with the title company. The escrow/title officer has experience with the selling bank.
- Be aware of time lines: The bank addendum will have its own set of time lines. Pay attention.
- Seller’s Disclosures are NOT provided with Bank Owned properties
- Have a home inspection: This is always recommended.
- As-Is does not mean NO repairs: Occasionally, a bank will make repairs if it is required by the buyer’s lender. But, DO NOT COUNT ON IT.
- Allow extra time to close: While you may be ready to close, the bank can take days or weeks to sign-off on the closing.
- Do a walk-through on the day of closing: The only way you can prove damage or theft didn’t happen after closing is to go to the house on the day it closes, before the damage belongs to you.
- Change your locks immediately after closing: One key opens hundreds of doors.
Many of the same issues from Bank Owned properties apply here too. And, the deals can be just a good, if not better.
- List price isn’t bank approved price: The bank is getting less than owed, they must approve the final price.
- Be prepared to wait: Banks can and will take 2 – 12+ weeks to make a decision.
- Your patience doesn’t guarantee approval: after waiting for bank acceptance, the answer can still be no.
- Sellers don’t automatically get to short sale their home just because they have a buyer: Seller’s must qualify to do a short sale.
- Each bank makes their own rules: Although streamlined, may banks differ on how to submit for approval.
- Banks are often just the servicer of the loan, the ultimate decision falls on someone else or another company entirely: Even though the “bank” approves the price/sale, there is sometimes another approval that must take place.
- An MIA listing agent isn’t a good sign: Be sure the listing agent or representative communicates.
- Look for an update from your REALTOR®, however meager, every 1 – 2 weeks.
- Often AS-IS, but again, doesn’t mean no repairs: Keep in mind though, that many sellers just don’t have the money to fix anything.
- Short Sale Bank Acceptance has an expiration date: The bank will provide a “close by” date in the written approval.
- Banks need 1-3 days to sign off on the final settlement statement: This can be an issue with your rate lock and the “close by” date.
- Property condition must remain the same.
Trustees Sale/Foreclosure Auction
Buying distressed properties at Trustee’s Sale can be an incredible deal. In Arizona, this is how foreclosures occur; sometimes the sales literally take place on the courthouse steps.
- Notice of a Trustee’s Sale is public information: You can research which properties will be coming up for sale ahead of time.
- Highest Bidder buys the house – no turning back: It’s an auction.
- In January 2011 only 22% of properties that came to auction actually sold: Homes that don’t sell go back to the bank.
- Everyone is welcome to bid, but beware, professionals know their stuff.
- Must have cashier’s check ready for deposit and close deal within 24 hours, cash.
- Property Research must be done prior to Trustee’s sale.
- Don’t buy a junior lien!
- Have you checked title first to be sure it’s clean?
- Tax liens will remain with the property.
- There are services that will do the research and purchasing for you – for a fee.
Words of wisdom: Be flexible, be patient, use a knowledgeable REALTOR®, ask questions. Guest Author Lori Noon is a residential real estate specialist that works in Phoenix Arizona. She can be reached at Long Realty (602) 297-4000 or through her website at www.lorinoonan.com.