Just want to know how many of you are having problems getting an accepted offer on an REO property when your buyer wants to purchase using FHA financing? 

I recently attended the Five Star Conference in Dallas, and the REOMAC dinners in both Dallas and Los Angeles. What they announced in regards to FHA buyers is certainly not what is happening in market place in Orange,CA.  They (meaning asset managers) stated they welcome FHA buyers and do not shy away from necessary repairs as found by Fha or conventional Appraisers, and,or, Property Inspectors...all within reason, of course.  However, here are just two of many, many, many, true stories and personal experiences.

Prop. #1: REO Listed for $399,000. Property is a disaster. No trash out, no repairs, toilets black and overflowing. Litter in front yard. Certainly a property that is not being properly managed by the listing agent. However, buyers Offer  $330,000 with 10% down, conventional loan, buyer pays own closing costs. 30 day escrow.  Buyer's agent receives a Best & Final. Buyer's offer changed to $360,000. No contingencies and as-is. Offer declined with no explanation (or even proof it was submitted...but that's another blog for another day.) Approx. 15 days later MLS is marked pending. Aprox. 30 days later, property marked sold for $336,000. ($24,000 less) Selling agent is the listing agent.  (There were not other offers on the property, or, if there were, they too were not accepted.) 

Prop #2: REO Listed for $369,000. Property has some very much needed repairs...leaking pool, 3 broken windows, required fencing is down between two houses (code violation for a pool). Commissions offered are 3.5% to the selling office. Buyer offers $340,000 FHA, with $10000 closing costs. Listing agent would not present offer due to FHA financing. The same day price is reduced to $363,900 and put on a HOLD DO NOt SHOW while repairs are made. EIGHT weeks later the only repair made is to repair (not replace) the existing fence and interior painted (even though property is still dirty). Commissions offered still 3.5%.  Another offer is made for $363,000 FHA, $8500 closing costs, 2.5% commissions (buyers agent willingly reduced commission 1% to assist with the $3000 pool repair & other minor repairs, which were under $500). Offer rejected without explanation. Same day rejected price is reduced to $345900 and 3.5% commission. Listing agent "thinks" it was rejected because Asset Mgr wanted an offer with more money down. Aprox. 1 week later property is posted as pending. It has not been reported closed yet.  (When offer first made there were no other offers...agent waited over a week to submit offer, by which time there were two offers...neither were accepted.) (Appx $12,000 net less to lender)

Does anyone see the number of issues in these two scenarios? The biggest flaw I see is the reduction in sales prices, which will reflect on the rest of the neighborhood. With the economy being in its current state, these lenders, asset managers and possibly the REO agents are doing a disservice to THEMSELVES. In my particular area, the majority of loans were made by five big players in the market.  In rejecting the higher sales prices they bring down the neighborhood...many of which have loans they made. DOes it make sense?  Secondly, are they discriminating against FHA buyers? In addition, since when do the listing agents have the right to determine if an offer is submitted to the lender?

What can we do as an industry to be sure FHA buyers are not discriminated against? What can we do to be sure the REO Listing Agents paints the right picture for the Asset Manager? What can we do to be sure the offer even gets presented...mistrust is setting in? Since both of these offers were rejected without a reason, how can we reassure the buyer they can still buy FHA?  Can the govt do anything to assist an FHA buyer to be treated fairly? 

Do lenders need to revamp how they sell their REO properties?

The above two scenarios are just a few of the many examples I could have given.

What do you think?

It is an unfortunate turn of events that we are once again seeing a number of properties come onto the multiple listing service as 'short sales."

For those not familiar with the term, it basically means, under normal selling conditions, there is not enough equity to cover the existing loan, prepaids, and closing costs, including sales fees. The lender is asked to reduce their pay-off amount to cover the differences. The seller receives no cash at closing, but also avoids a foreclosure.

If you find yourself in this position, needing to ask your bank for their approval of a short sale, the first thing the lender will ask for is a hardship letter. One must be very careful if you did a stated income loan when you purchased or refinanced. A stated income loan is simply that, stated. You did not provide proof of your earnings. Think back to that final loan application form your lender so nicely typed out for you to sign with your loan documents. Did you notice the income you claimed? Many did not realize they were qualified based on the highest earning potential for your job decription, not your actual earnings. In many cases this could be considered fraud. So be careful before claiming you do not earn enough to make your payments. 

Secondly, if you are able to get past the income issues, realize the bank will say no if they see large sums of money in your savings or checking account, or a high balance 401K. Chances are, they will say no, based on having liquid money to add to the payments or short sale. Many banks know from the 1990's many sellers had the money to purchase another home, before discontinuing making payments and letting the property go to foreclosure. Sellers did this simply because prices were plummeting...fast and faster. (Case in point, I sold a property in 1989 for $198,000, to be sold again in 1995 for $160,000)

If you indeed do need to sell, the bank will most likely work with you, once they are reminded their investors will be unhappy if they say no. Remind the bank you know it takes three to four months to get a short sale approval. Waiting that long will make their investors unhappier because of the money they will need to invest ... all the costs othey will incur if they need to begin the foreclosure process. Example, additional loss of the monthly payment, appraisal fees,  foreclosure fees, and possibly continuing declining prices.    

For those embarking on a short sale, good luck, work with a professional who knows how to work a short sale, and, is willing to work a short sale. Be prepared for many let downs, before you receive the approval you want. Keep in mind, if you are behind in your payments, the time period to foreclose does not stop, so don't think you are avoiding forclosure by asking for a short sale. Begin early and keep your payments as current as possible.

My Broker recently came back from a Management Seminar and shared the story of One Red Paper Clip. Kyle MacDonald, from Canada has an incredible story on how he traded one red paper clip for a house.  His insight, determination, and skills can be something we learn from. He also has a book out, called, what else, but, One Red Paper Clip.  His web-site is also rather interesting.  There you can see what he traded his red paper clip for.  http://www.oneredpaperclip.com/.

What amazes me about Kyle MacDonald isn't the fact he kept trading up until he eventually traded for a house, but the many opportunities he had for other things.  The energy he has...planting thousands of trees, etc.

Take a look and get inspired.

Thank you for all the great comments...but let me change one point that may make a difference in how you would work with the seller in obtaining his listing.  The seller and 'you' speak the same language, but seller does not speak the same language as the agent they are considering listing with.  Those who said you would not work with the seller...do you still feel the same way?   

Discrimiination is a tough word, and, I am not sure it is meant for this Blog...but here goes! This is my very first blog, ever...so hope you'll go easy on me. I want to know how you handle it when you go on a listing and the seller says, "I"m thinking about listing with so and so because they are ???(a different nationality) They go on to say, "Since most of the area is becoming ???(Pick a nationality of your choice) I think they will have the best shot at selling my home?"   I have been working in these areas for almost 30 years (started when I was 5), and, yes, the areas do change.  I have sold homes to people of many differ cultures and languages, and have never had a problem. But,it seems as if it is becoming the norm to hear this. I recently asked a seller why he felt this way. He said, "because I met with {an agent of the chosen nationality} and they said, only they could sell the house because of the culture that is moving into the area?"  I have had some successes in overcoming this, and failures too.  Advise me!  Thank you.  Hope this blogging turns out to be fun and informative.