Earlier today I read a blog by Bill Gassett titled Buying a Bank Owned Home that focused on the process of purchasing a foreclosed property. In his blog he made a statement that I thought would go very well with this blog which I had planned on writing earlier.
In his blog he stated "Buying a foreclosed home however, is not for the timid at heart and there are many things that buyers need to be aware of going into a REO transaction." That statement is very true, and anyone who plans on purchasing a foreclosed property would do well to take it seriously.
I am in the process of doing a Connecticut Housing Finance Authority (CHFA) VA Loan for a young man that is purchasing a Bank Foreclosure. When I was Pre-Approving him for a loan on this property, I tried to prepare him for the frustrations that he would most likely encounter along the way, and his Realtor did the same. Neither one of us did it in a way to try to discourage him from purchasing the house, but wanted him to fully understand some of the things that tend to happen with these transaction. Well what has been happening to-date has even surprised and frustrated us. This transaction is proceeding more like a Short Sale than a Bank Foreclosure.
It all started before the bank even agreed to accept his offer. The Realtor representing the bank contacted my Borrowers Realtor and proceeded to inform her that the bank would not accept his offer because it was a VA backed loan and that VA would not allow for the transfer of title within six months of the bank foreclosing on the property (flip rules). This Realtor when on to tell her that he had to go FHA or Conventional in order for them to accept the offer. My Borrowers Realtor contacted me right away to inform me of this, and to ask me to Pre-Qualify him for a FHA or Conventional Loan. I told her that I would be happy to do that, but that this bank and Realtor were wrong about that being a VA condition. I also told her that even though the Borrower would qualify for a FHA or Conventional Loan, that his monthly payment would be substantially higher, because now he was going to have PMI included in the payment.
She asked me to contact the other Realtor and I did. He wanted me to give him something in writing showing him the VA rule that said that transfer of the property could occur within the first six months after foreclosure. I told him that it would be hard to do since no such rule existed, and that instead his bank needed to show me the rule that says that transfer can not occur. He knew that he could not produce that, so he agreed to accept a letter from me on my company letter head stating that VA did not have such a rule and that the property could be transferred. I typed up a letter stating that, but I went one step further. I had my Underwriter e-mail one of the VA Underwriters asking the same question, and I provided him with a copy of the response stating the same thing that I was also in my letter.
OK we waisted about three days with that, but everything seemed to be back on track. We were told that we would know if the bank would accept the offer withing two days. Well a week later we still had not heard anything, but finally the Borrowers Realtor got a phone call saying that the bank had signed the contract, and that we would have it the next day. The next day turned into two weeks, with several phone calls asking where it was.
We now had the contract and we should be all set, no you guessed it, we were not. We were just coming to the end of winter and the house had been winterized. The bank needed to de-winterize it in order for the Borrower to be able to do a Home Inspection and for us to an appraisal. Again we were told that this would be taken care of right away, but right away seems to mean three week, because the bank just de-winterized the house yesterday.
Now anyone that is familiar with VA Loans knows that the Lender does not assign the Appraiser, the VA does, which means that the Appraiser does not respond with the same sense of urgency as the Appraisers on our list. So this means that we will now most likely have to wait another two weeks to get the appraisal in, since VA gives their Appraisers up to ten business days to complete the appraisal.
It is a good thing that this is a CHFA/VA Loan, because the rate lock on it is good for 120 days, or we would be at risk of the rate lock expiring just as the appraisal is coming in. We are about six weeks into this and who knows what else this bank is going to drag its feet on.
I have to give this young Borrower a lot of credit because he has been handling all this remarkably well. Either he has unusual patience, or the Realtor and I did a better job than we though, preparing him for all of this. It is crucial that we take the time to educate Borrowers/Buyers about what can happen when dealing with foreclosures and short sales. If we don't then we are going to find ourselves putting in a lot of time on a deal that will end up blowing up in the middle of a transaction.
Borrowers/Buyers need to know that things like this can happen, and would be well advised to read blogs like this one and Bill's to help them understand what awaits them. The resources for this type of information is at our finger tips here on ActiveRain. Use these resources, they are free, and save yourself a lot of headaches by doing so.