Some Sacramento buyers looking for bank-owned REO homes are finding it difficult, if not impossible, to make an offer on a bank-owned home. Because not every REO lender will sell to them.
How can that be, you may wonder? Aren't banks eager to dump their foreclosured homes as quickly as possible? Why would an REO bank refuse to sell a home to an able and willing buyer?
John and Mary, let's call them, sent me an email asking to see a bank-owned home in the Alhambra corridor in Midtown Sacramento. This was a property I had toured several weeks ago, so I knew it had no electricity, which meant we couldn't see it after 4:30 because it would be too dark.
I pulled up the listing in MLS to check that it was still available because many of the really REO hot deals fly into escrow within weeks, if not days, of listing inception.
The confidential comments to agents clearly stated the bank will not sell to a buyer who was obtaining financing, meaning the bank will consider offers only from all-cash buyers. This foreclosure wasn't on the market long enough for the bank to reconsider this requirement either.
I explained to John and Mary that they were not candidates for this home because they were not cash buyers. Stands to reason since the second floor was gutted (health and safety issue) and the first floor was not much better; it was a definite fixer.
Not only do some banks refuse offers with financing, some of the homes are unsuitable for FHA financing as well, unless the buyer is willing to take out a Streamline K loan. And those loans carry higher interest rates.
The fact is homes in Midtown Sacramento are much older and can carry deferred maintenance, which reduces market value on those bank-owned homes. Some are for sale under $200,000, which makes buyers' eyes bug-out.
"But you don't understand," Mary replied, "I want to buy this home. And I want to buy it tonight." I apologized to them. Would they like to see a couple other bank-owned homes in that vicinity? No, they did not.
If John and Mary had been willing to meet with me to discuss their purchase options, I am certain I could have helped them to buy a bank-owned home, and they would be in escrow by now. I do it every week. Bank-owned homes and short sales are my specialty. But some buyers believe they will get a better deal by driving around town and calling listing agents who don't answer their phones. I can't help the foreclosure buyers who don't want to be helped.
Photo: Big Stock Photo
The Short Sale, by Elizabeth Weintraub, coming from Archer Ellison in January 2009.
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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.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
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Elizabeth, when the banks own the homes, lets face it, they make the rules. He who has the gold, makes the rules.
with the repairs you list this home may not even qualify for a streamline 203 - there are timelines with them that this house may be impossible to meet - not to mention the costs of these repairs. You are right though - and you know because you were honest with them - they may be back - with a story of being lied to
Elizabeth: It's hard to st reasonable expectations about the REO market with buyers. They hear far out tales of victory and deals beyond belief on the news. They expect the banks to give up market value because they've heard banks are desperate. They don't understand why cash offers are beating them out. And they don't understand why auctions are not great deals. I can't wait for this REO nonsense to work it's way out of our market.
You could not be more correct...it is sometimes heartbreaking for buyers to learn that a home they have set their hearts on is not something that they can obtain under their current lending scenario. Unfortunately, many buyers will shoot the messenger.
All you can do is tell it like it is. If they don't want to be helped there is nothing you can do.
You are absolutely correct: it is impossible to help buyers who do not want to be helped.
I have a solution, don't work with buyers who want to buy foreclosures!
Hi Gary: Banks are playing hardball right now, too. But their ball doesn't quite hit the fence when the home has been on the market for more than 60 days.
Hi Thesa: Well, see here, ya got your Streamline K and ya got your 203K but there is no Streamline 203.
Hi Chris Ann: I work with a lot of foreclosure buyers right now. Some have got a clue and some don't. But I had to laugh about the auction comment because I did work with a buyer last spring who simply could NOT understand how a home could be offered at an auction for many thousands less than its actual REO price. I tried to explain those were teaser rates, that the bank had reserve pricing and it would never ever in a million years sell at the opening bid, but . . .
Hi Erin: Buyers who want to shoot the messenger end up with a lot of agents who won't work with them. :)
Hi Terri: That's all I ever do . . . just tell it like it is . . . and you know the major benefit of that? Apart from it's the right thing to do? You never have to remember what you said because it wasn't a fabrication.
Hi Michael: Hey, if I didn't work with foreclosure buyers, I'd have lost half my business this year. As it is, I'm having a gangbuster year.
I don't know these folks circumstances, but I recently had a client in their shoes looking at a similar property for investment. They bought it after getting an equity loan on their primary, are currently doing the repairs and then will refinance and pay off the second on their primary. Just a thought.
I asked them if there was a way they could pay cash, and the question was met with a cough. :)
Yep - It wasn't that bank feared the buyer couldn't qualify for a loan. . .They likely knew that the house wouldn't. However, on one REO fixer property a buyer of mine viewed, I was shocked at what a new lender was willing to accept on a new FHA loan. You couldn't have gotten an FHA loan a couple years back, with the property having as many issues, which weren't going to be repaired during the course of the escrow. It's a Brave New World in home buying.
Yeah, Myrl, the new FHA guidelines are much more flexible than they were a few years ago. For example, pest completions are no longer required. Well, unless it's in the contract. But even then, if the seller won't complete the pest, a properly worded addendum to the contract can remove it and keep FHA happy.
But FHA does want the home to be habitable. And habitable doesn't mean curled up in a dry corner in a sleeping bag.
Elizabeth - I closed one Friday, where we did just such an addendum! I had written in the contract that the buyer would pay for a termite report and clearance. There was actually little needing to be done, and it was mostly Section II stuff, so we wrote the addendum stating buyer wouldn't require clearance to close escrow, and the FHA lender was fine with that.
Ha. Myrl. See?
Can't wait to see you on Tuesday!
Elizabeth, you are very insightful and clearly are helping people with REO's in your area. Love your comments associated with the impact of the aged homes, deferred maintenance etc. FHA buyers get all jacked up to party with no place to go on these. Love reading you Elizabeth. I'm coaching a new agent in your area and he needs to read you as well.
Best of 2009 and thank you again Elizabeth.
Frank D'Angelo
Minneapolis, MN