Before my buyers write an offer, I always check the public records available through Realist in MLS. Sometimes I double check this information against that in the title company's plant because the two can differ. I'm looking for conflicting information between the data in MLS and the public records, but I'm also looking at who owns the property, when the seller acquired title and how much the seller owes.
Sometimes, Realist tags the record as bank-owned when the property is not owned by the bank. I don't know why, exactly, but I suppose that happens because the entity in title may have acquired title in the name of a partnership or corporation.
Everybody knows we have a lot of foreclosures going to auction in Sacramento but very few of those homes are coming on the market. Some of those homes are purchased at auction through a trustee's deed or through private negotiations with the banks beforehand at a steep discount, often close to 50% of the home's actual value.
These homes are referred to as foreclosure flippers. The investor buys the home from the bank, makes a few repairs and plops the home into MLS. Getting financing for a foreclosure flipper is difficult because lenders have instituted a 90-day to 180-day seasoning requirement, meaning the seller must own the home for 3 to 6 months before a lender will make a loan to a new buyer.
Generally, in these situations, conventional lenders have been easier to work with than FHA. But most of my buyers have been making down payments in excess of 20%. One such Sacramento home buyer is trying to buy a foreclosure flipper with conventional financing and is putting down 10%. That means the loan requires MI (mortgage insurance). We are past the 90-day mark, thought we were home free. The buyer has golden credit.
Yesterday we discovered that not only is the lender objecting to the foreclosure flipper, but the newest wrinkle is the MI company rejected the file in underwriting. It would appear that MI is following the 180-day guideline for seasoning. The MI company added another layer to this transaction. Fortunately, since we're past 90 days on title for the seller, FHA will accept the buyer. That's because the ratio between auction price and sales price is less than 50% and FHA doesn't follow 180-day guidelines, according to the loan officer.
The loan officer is paying out of his own pocket to convert the conventional appraisal to an FHA appraisal, ordering a rush review appraisal and expediting underwriting. This puts us on schedule to close on time. Whew. There's never a dull moment in Sacramento's real estate market.
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
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Hi Elizabeth! Whew! is right! I'm glad you were able to keep the deal together. Do you know why there is such a "seasoned" requirement? I mean, why do they care?
We have a good amount of these types of sellers in our market. Another lender gave me some sketchy details about 180 day deed seasoning requirements and FHA. I asked my trusted lender and he hadn't a clue what I was talking about. Apparently this is what the other lender was trying to tell me (in regards to MI.)
I am personally trying to tell people that if they want REO in our market they will have to have a minimum (in the bank) 30% to be ready to put down and for FHA 13.5% to put down. I want them proofed because our main problem is appraisals with prices being run up.
Luckily you passed that 90 day mark for FHA on this one! MI in my area is pretty costly so they will probably be better off (payment wise) going FHA (hopefully!)
I think some of the seasoning is being implemented to reduce the opportunity for fradulent loan activity. The reasoning is there is less chance for a wave of bad deals being done shady operators if they have to hold the property for some period of time. That reasoning may not keep a committed group from pulling scams, but maybe the damage can be limited.
Good post, Elizabeth.
Elizabeth: There never is a dull moment with foreclosures. The seasoning period is really aggravating when the listing agent doesn't even understand what loans require it. Granted, anything can change at a moment's notice in this market, but there are still clueless listing agents running around with regard to this issue.
Wow Elizabeth, I had not heard about the 180 day seasoning. I'm so glad I read your blog today because this is yet another wrinkle we all have to be aware of in the event that FHA buyers want to buy a home that was recently bought at trustee sale (courthouse steps in Nevada).
This is great information and worthy of a feature!
Elizabeth, thank you for sharing the information on conventional loans. It certainly does seem the restrictions are more hurtful for the buyers than the investors that purchased. You would think there could be a simpler way.
The thing that gets me is that the banks who foreclose are never willing to repair the property so that a buyer and purchase it with a loan. That leaves only cash/investor buyers. Then the same banks won't lend on it when the cash/investor seller has repaired it to a "lendable" condition and wants to sell it. Crazy rules.
Just as I think I have seen it all a new wrinkle come up. We do have a learning curve that is never ending.
Let's hear it for the loan officer...he "gets it"...the object of the housing industry recovery should not be how many layers of nonsense, pieces of paper,days to wait...spice up...season correctly....grrrrr
We knew this was a foreclosure flipper walking into it, which meant no FHA buyers. The way my buyer was able to snag this property before somebody else wrote an offer was to get preapproved for a conventional loan. Of course, now he gets an FHA loan, which is a better deal all the way around for him.
The loan officer promises that the FHA loan will be approved today. That's really fast turnaround time for my loan officer. He converted what was a conventional loan on Wednesday into an FHA loan on Friday. It pays to work with the pros. Docs will be in title on Monday.
Great job by your LO!
Elizabeth - I just opened escrow on one of these that went BOM because of the issue you described. However, even though we just passed the 90 day mark for FHA, underwriting has issued some conditions on how title was acquired and transferred. It'll work out ok in the end.
Hi Donne: It's been my experience that FHA wants the contract redrawn after day 90. So date it on day 92. And, as long as the flip value doesn't exceed 50% of the value at time of trustee's transfer, FHA will take it. The underwriter may require a review appraisal, but that's about it. Why don't you suggest to the buyer's agent that he / she redraw the contract? That's how I do it.