The Phoenix Area Foreclosure Experts

FHA rules on foreclosure purchases

Craig Bohall, Suburban Mortgage

Most professionals are aware of the FHA “90-day rule” to guard against home flips. If you are not aware, here is the word for FHA guidelines:

• FHA requires that a) only owners of record may sell properties that will be financed using FHA-insured mortgages. B) any resale of a property may not occur 90 or fewer days from the last sale to be eligible for FHA financing.

Plain English – If the buyer is buying a property and the seller has been on the deed less than 90 days FHA will not insure the loan for the buyer to buy the property (IN MOST CASES).

So are their exceptions to this rule… OF COURSE!

• Sales by HUD Owned property
• Sales that a seller acquired in an inheritance
• Sales of properties purchased by RELO companies
• Sales of properties by state and federally chartered financial institutions.

This last one is the most widely used exception. Many lenders are not even aware of the exceptions and simply tell clients to wait 90 days from when the seller was on title.

Professional lenders who have done their research are able to learn how FHA will give them the exceptions with the correct documentation and proof. This allows the buyer to purchase a home that was foreclosed and is owned by a bank within the first 90 days after the bank is the owner of record.

Also if the big bank is the owner but the contract is being written by "XYZ management company” who does all the contracts for the big bank… BE CAREFUL.  The sale must be by the owner of record! In other words you may have issues with XYZ company signing the contract when they don’t own the property.  Again check with a professional who has done many of these transactions so that you don’t get into trouble.

Be careful, you can’t submit a contract at the 60-day mark and expect to close after 90-days. FHA says that the contract must be dated on the 91^st day! NOT BEFORE.   Having said that, some good lenders have received “exceptions” on REO properties because they fall into the exceptions section of the FHA code.

FHA will give this exception when the current owner is a “federally or state charted financial institution.” Wells Fargo and Bank of America, Countywide are examples of banks that fall into that category.  Freedom Mortgage Corp LLC or John Doe’s Mortgage corp. LLC may have a license but not be chartered.  They will not authorize exceptions when the current owner is a:

• Private lender
• Non Federal or State Chartered institute
• Investment Group
• Private owner
• Company that buys up foreclosures and re sells them to the public

How could this affect you?

There is a whole lot more to know than that you love the home and you can get it for a great price. Working with a professional realtor in this market is a must unless you are a glutton for disappointment.

You must insure the seller is the owner of record for 90 days if you are using an FHA loan to buy the home. (some investors are adopting this 90 day period on conventional Fannie Freddie loans as well )  If not, you will have to wait until their ownership has seasoned 90-days. Fortunately, that doesn’t mean 90-days “on the market.” In other words, most lenders take between 5-30 days to get a property released to the listing broker. Make sure you check the tax records before submitting an offer and use professional realtors and lenders who have been around the block many times on these types of deals.

Sunset or ... you decide

Sundays are favorite picture days because I do not work on Sunday. This picture was taken in Rocky Point from El Capitan Restaurante. The sun was setting over where JJ's Cantina is located, just beyond the small set of mountains (more like hills) in the distance. I like this picture because you can almost see an orange ring around the setting sun.

So ... I couldn't resist. I ran this picture through Adobe Photoshop 5.0 to see how much of the sun I could really see. I darkened all the highlights. You be the judge:

 

I know He keeps His eye on us ...

Negotiations -- Short Sales part 10

Here are some highlights about negotiating a short sale in the Phoenix / Tempe area in an easy to read format:

• Every bank has it's own personality and approach when it comes to short sales
• Be patient, yet persistent with the lender
• From the lenders perspective, a short sale saves many costs associated with the foreclosure process: attorney’s fees, eviction procedure, delays from borrower's bankruptcy, damages to property, and costs associated with resale
• Your job is to convince the lender that it's in their best interest to approve the short sale by accepting less money now
• No matter how good your offer is, always expect a counter offer
• Don’t be discouraged, respond to the counter offer
• Ask open-ended questions directed to the mitigators about their opinion of the validity of the BPO
• Ask if they agree with the agent’s assessment and why
• The idea is to keep the mitigators talking and drawing information about the BPO
• Expect that the lender will accept between $10,000 and $20,000 less than what they say they will accept

The Brokers Price Opinion -- Short Sales Part 9

The most important fact the bank needs to know is: How much is the property worth? Most banks hire a real estate broker/agent or appraiser to evaluate the property. This evaluation is called the brokers price opinion or BPO. The BPO is one of the largest hurdles you need to clear when perfecting your short sale negotiations. Your goal  -- after submitting your initial package to the lender -- is to get them to order this evaluation.

Make sure you let the lender know that you would like an interior BPO and not just a "drive by" evaluation. As we mentioned in Part 7, put this on your cover sheet when sending the package to the Loss Mitigation Department. If the lender states they already have a BPO be sure to ask them how old it is. Let them know, depending on how old it is, that there may be  "issues" regarding the interior of the property.

The agent will call you to set up an appointment once the BPO is ordered. If you can fit it in your schedule, meet the agent at the home and feel out the situation. Explain the seller’s circumstance and why they can’t sell the home for what it may be worth. Share your comps and opinion of the properties value. However, do not be pushy with the agent/appraiser. They are professionals and may not take it lightly if they perceive you are trying to tell them how to do their job. Ask them questions and develop a rapport. Some will actually tell you what evaluation price they are going to submit to the lender. This is a huge bonus for you.

Most lenders will not tell you the ACTUAL amount of the BPO. If they do, don’t be surprised if it's higher than the agent/appraiser's opinion. Lenders have been known to "stretch the truth" to get the most money for their investor. Whatever you do, don’t say “The agent told me it was worth $$$,$$$." This only leads to confrontation and violates the trust the agent/appraiser placed in you.

Many short sales never occur because the BPO comes in too high. Don’t get discouraged, instead ask the lender if you can submit a third party appraisal for their review. Many times the lender will reduce their original price based on a 3rd party appraisal. Of course, this will cost you or the seller more money. However, it can prove to be profitable if it helps to get the sale closed. Keep in mind that once the lender receives the BPO (and perhaps the 3rd party appraisal), that's when the real negotiations can start!

Common Mistakes -- Short Sales Part 8

This is a short post, but hey ... everyone get busy at times.

Four common Short Sale Mistakes:

1. Sending in a low-ball offer that you know the lender will not accept.
2. Not being thoroughly familiar with the short sale process itself. Lenders are busy and they don’t have the time to explain the process.  Show them you know what you are doing.
3. Not knowing what is actually owed on the property. You will have to work harder to make this deal work if there are several loans. Always know the financials of the property before submitting an offer.
4. Forgetting that real estate is a cycle – its always gone through boom and bust cycles and always will. In other words, be persistent and thorough with your loan mitigator, but do not be pushy or try to convince him/her that your situation is an emergency and demands their immediate attention (at the cost of their other files). Be polite and friendly, yet firm, and you will get better results.

We'll talk more about BPO's in the next post.

Loss Mitigation Department -- Short Sales part 7

Call the Loss Mitigation Department and ask how long the approval process will take once a complete package is received by them. Find out their fax number to send in all the information we discussed in Part 5. Be sure to include a fax cover page stating that "this is a NEW SHORT SALE PACKAGE."  Also state on the cover page that you would like them to order an interior BPO, or Broker Price Opinion (this is an advanced form of a comparable market sales report). The more complete the package, the greater your chance for success. Additionally, the Loss Mitigation Department will be more likely and willing to work with you.  You have ONE opportunity to impress the lender with a strong, complete and well organized short sale package!

Once you have sent in your package, you will usually need to wait one week before calling back and asking which loss mitigation specialist is handling your file. When foreclosures are at a peak, the Loss Mitigation Department at the bank is busy ... if not highly overworked. These loss mitigators each usually have between 80 to 300 files on their desk at one time. The loss mitigation specialist will be your contact on this file for the duration of the sale. Remember, you need to get the specialist to want to work with you. Give them as much information as possible. This will help them with the file and will ultimately help your client.  Show the mitigator you know what you are doing by sending them a complete package and by being organized. Also, let them know you understand they are busy, and that you appreciate the valuable time they are spending to negotiate with you.

The next post will cover 4 common mistakes.

Upgraded warranties

Kathryn Lansden, Home Warranty of America

I am proud to announce HWA's new options and additional coverages for 2008!
The new OrangePlus option covers unknown, improperly matched or installed systems and more!

Our new GreenPlus option replaces covered appliances with ENERGY STAR qualified products! We're the first in the Nation to offer a green option.
Go with the nationwide leader in home warranties and one that cares about your peace-of-mind and the environment.   

NEW! ORANGEPLUS – $75 (BUYER COVERAGE ONLY)

• Covers code violations/permits up to $350
• Covers removal of defective equipment
• Increases professional series appliances to $2500
• Covers unknown improperly matched and/or installed systems

Please see contract for details.

NEW! GREENPLUS – $75 (BUYER COVERAGE ONLY)
Replaces standard items with ENERGY STAR Qualified Products.

• Dishwasher, refrigerator and clothes washer
• Heating system replacement with 90% efficiency model
• Water heater replacement with tankless water heater

Please see contract for details.

$325 GOLD PLAN – $55 SERVICE FEE

• NEW! Coverage for unknown pre-existing conditions
• NEW! No waiting period for rust/corrosion
• NEW! Tankless water heater
• NEW! Instant hot water dispenser
• Heating system/furnace
• Cooling system/air conditioning
• 13 SEER equipment upgrade
• And much more!

$380 DIAMOND PLAN – $75 SERVICE FEE
Includes all Gold Plan coverage plus

• NEW! Kitchen refrigerator with ice maker ($35 value)
• Washer/dryer package ($85 value)
• Roof leak repair ($50 value)
• Premium coverage ($60 value) Freon recapture, plumbing fixtures, faucets shower heads and arms, interior hose bibs, toilets, water heater problems caused by sediment, plus over 20 more items!

13 SEER MODIFICATION OPTION AVAILABLE – $50

• Covers up to $500 in modifications resulting from the replacement of 13 SEER equipment upgrade & transition.

Happy Easter Sunday!

Sundays are "favorite picture days." My selections have a religious connotation to them since this is Easter Sunday.  I took both these photos last August in Salt Lake City. My favorite part of this picture is how the light dances through the water, especially near the top.

I really liked this picture of the Latter Day Saint Temple because it looks like a postcard taken by a professional (ahhh ... well, perhaps except for the reflection off the glass seen on the right-side, middle of the temple). It was taken from the top floor of the Joseph Smith Building.

HAPPY EASTER! Many blessings to you and your families.

Multiple Offers -- break out the crystal ball

"Back in the day," (circa 2004-2005)  when multiple offers were as common as 100+ degree days in Phoenix, it was a lot easier to be the highest bidder for a house. I would write the following clause on all our offers: "buyer to pay $1,000 more than the highest offer received by the seller." Of course, there were more details that went along with that clause, but they won't be discussed here. Home sellers seemed to eat it up. So was I part of the problem with home prices appreciating like mad? Well yes, I was ... in my small corner of the world. The only things I can say in my defense are: a.) my buyers really wanted the homes and it was my job to get them, and 2.) I stopped doing that when it became apparent that prices really were getting ridiculous.

Fast forward to today. Multiple offer are back. Are we insane? Well ... NO! REO properties are being priced so low (even when compared to pre-boom days) that it is easy for clients to get excited again. So what do you do when the listing agent says these dreaded words ... "we have received several offers on the property"... ? Well:

1. you share the comps (including REO's that were both "acquired by" and "sold by" banks)
2. subtract 2 more years of depreciation and continuing REO deals (let say 10% for each year ... this is a guess)
3. subtract repairs
4. subtract a little more (because you want to get the best deal for your clients)
5. subtract a little more (because you never want your client to be upside down)

... and then you dust off the infamous clause: "buyer to pay $1,000 more than highest offer received by the seller." For those who are faint of heart remember this: the seller still has to send an addendum stating what your "highest price" will be. If the price becomes too high, the buyer doesn't  sign the addendum and the next highest bidder can have the house. Additionally, a buyer has a 10-day inspection period in which they can be released from the contract. Possible reasons include: "we don't like the neighborhood after driving through it at night," or "there are too many needed repairs," or "the HOA is too tough."  In other words the buyer is not locked into a price that is deemed unreasonable.

This is an effective strategy to get a home your buyer wants. But guess what? Banks do not seem to like that clause. I have tried it on several occasions and each time was told to "submit only your highest and best offer." So what do you do when your client says "so ... how much should we offer?" Well, I refer back to the 5 steps mentioned above. Then I remind them we want to guard them against future depreciation. Then I ask them "what does your gut tell you?" This works sometimes, but not too often. Usually my question is followed by their question: "what offering price will it take to get this house?"

Does anyone know where I can buy a reliable crystal ball?

Sellers wake up - buyers can buy for MUCH LESS than your sales price!

Just another typical day looking at foreclosures deals for my clients. What distinguishes these homes from others on the market? How about  a sales price that is $20,000 - $50,000 less than the "non-distressed" properties currently for sale in the same neighborhoods! REO's need carpet replacement, paint, overall cleaning, and yard work. Is the effort worth the price? Absolutely! Have a look at these four properties, 2 of which my clients are making offers on -- for even less than the current REO asking prices.

All four of these homes:

• are between 1,900 and 2,400 sq ft
• have 4 bedrooms and 2 bathrooms
• are between 4-8 years old
• need carpet and paint

The list prices for these homes ranges from $175,000 to $210,000. Granted, the $175,000 was listed low to attract multiple offers. Before these homes were reclaimed by the lenders at the public auction, each sold to the former owners in the range of $240,000 - $270,000.

This information is not going to surprise anyone who has been paying any attention to this market. This information should serve as a reminder to "non-distressed sellers" that they should either take their homes off the market or lower their asking prices. A person who is ready, willing, and able to buy -- when given the choice of similar products -- will buy at $88 per-sq ft ... but not at $120 per-sq ft. Reducing the number of homes for sale will contribute, at lease in a small way, to helping us find the bottom of this market. I can still remember nine years ago when the average number of homes for sale in the MLS was about 20,000 (instead of 50,000+).