Short Sales, Bank Owned Properties and Credit Pulls

A few days ago I wrote about how the purchase offering process is having issues… issues that are especially apparent on Bank-Owned Properties (we call them REOs).

Banks are often requiring that ALL offers be accompanied by pre-qualification letters from specific approved lenders (perhaps even from their own loan department).  In other cases, the brokers representing the properties are interjecting this “requirement” on their own.

This morning, local (and nationally syndicated) radio talk show host, Clark Howard mentioned one of the reasons that these things chap my hide.  The specific reason he doesn’t like them is that the “credit pulls” for the pre-qualifications can actually damage the credit of the offeror (buyer).  It isn’t one or two credit pulls that will likely be a problem (unless one is marginal to begin with)… but rather repeated pulls after multiple attempts to buy properties.

I have worked with buyers that offered on 7 or 8 properties prior to having an offer accepted. There is a tremendous amount of competition for these properties in some instances.  A buyer might get lucky and get a house right out of the gate… or they might have to go through multiple offers on properties and several pre-qualifications before getting an offer accepted.

There is also the fact that the buyer has to deal with the inconvenience of going through pre-qualification over and over. My buyers have already been pre-approved by their own chosen lender, so the pre-qualification is unnecessary.

And there is yet another issue here…  The reason for the requirement is that it gives the specified lender an opportunity to get the loan business.  That would be good, except that on more than one occasion, the specified lender has been nothing but a delay; in some cases unable to follow through on promised rates, and in other cases not being able to match the timelines of the seller that their own lender could meet… resulting in the loss of earnest money (we ended up finding a better house and saving WAY more than the lost earnest money).

I’d love to see this practice stopped…  The problem is that consumers can’t control it.  The properties are good deals, and if someone passes on the deal because they don’t want to have their credit penalized, there will be a line behind them willing to take the risk.

from LaneBailey.com