Want to buy a foreclosure or short sale property? I know you are out there. I also know that many of you are under the impression that since the bank owns the property, they want to dump it and they will accept anything for an offer. In some instances you might get lucky, but chances are you could get burned. Your idea of an offer might be way off the banks targeted business plan.
Yes, I said business plan. When you are buying a foreclosure (bank owned or REO) property or short sale, you are dealing with a business. For a short sale, you have the homeowner and the bank or 3rd party. The bank has a plan to get the most for that property as it impacts their bottom line. The bank is losing money on this deal and they are not happy about it, nor are they willing to readily accept really low offers or incomplete offers.
Where is your Realtor, and are you listening to their advice?
Here are a few other things to take into consideration when buying a foreclosure of short sale property.
- Time: Do you have time to wait? It can take several months before settlement.
- Condtion: Most are distressed in poor condition. Do you have the resources to repair, update or make the home habitable?
- Risk: How would you feel if you lost the property to someone else or could not close because there was a title issue?
Here are a few examples of some of the pitfalls of buying foreclosed or short sale properties:
A young couple finds a foreclosure and decides to purchase the home. They went through the process of submitting and receiving an accepted offer, completed home inspection, received signed purchase and sales agreement, placed money in escrow and waited for closing. 
Bank kept requesting extensions for the closing date and buyer complied. I heard it was extended three times. They were advised (by an attorney) that everything was fine and that it would happen soon. They were even "allowed" to start cleaning up the property... afterall it was almost theirs, right?
Wrong, two days before the closing date the bank sold the note to another bank. What?! If they wanted to purchase the property, they would have to start all over again, once the property became available and that can take several months in our area. Buyer lost property, time and money. First time homebuyers read this again - you have a deadline for that $8,000 tax credit.
Another example:
An investor purchasing a multi-family which was an "approved" short sale. They went through the whole process with offer, inspection, signed purchase and sales agreement, money in escrow - waiting for closing.
Communication lines were flowing between both agents, sellers attorney and the bank.
Closing date is approaching and according to all parties, they are on target to close as agreed in the contract. Great, a success story... but wait... the same bank that was under contract with the buyer foreclosed on the property. Buyer lost property, time and money.
If you are thinking that this is one Realtor's dramatization, think again. This is happening far too often and many of the buyers are first time homebuyers. If you think you might get lucky purchasing one of these properties that is your choice. Please know, that there are risks, and even with a signed contract there is no guarantee that you will win the prize and take ownership. That you may or may not have legal recourse if you lose the prize. Even if you have legal recourse, do you have the monetary resources or stamina to fight a bank? They have lawyers on retainer and/or staff.
In the pool of available homes, there are a number of foreclosure, short sale, and privately owned properties. Make sure you know the potential risks and benefits of buying a foreclosure or short sale property. Your best deal might be the privately owned property. Weigh your options and go in with eyes and ears open and a professional Realtor like me to help you through the process. This is a major purchase for many of you, cover your assets.
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