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Showing posts with label title. Show all posts

January 19, 2011

What Can Go Wrong During a Real Estate Deal?

Hi Folks,

   Glad to be back with you, and I hope you're week has been smooth sailing so far !

   Now, to take a look at some things that can go wrong and dampen your spirits, today we are looking at the wide spectrum of things that can go wrong during a Real Estate Sale. For the purpose of this story, I broke this down into 3 categories: Interpersonal Issues, Foreclosure-Related Issues, and all Other Issues that do not fall into the other two categories.

   Human beings tend to fudge things up on their own without much help. "The worst problem I ever encountered in a real estate deal arose from the Sellers trying to be nice people and letting the Buyer stay in the house the weekend before the closing", says Michael D. Caccavo, an attorney in Vermont. As Caccavo explains, " The Buyers got in, found a lot of problems that they hadn't noticed during inspection, and most of all claimed the plumbing, which was mostly galvanized pipe, needed to be replaced with copper. They raised the issues over the weekend, and continued pressing for concessions during the closing, including several long conversations with the realtor who was away on vacation. The closing took 4 hours instead of 1 and the realtor caved and gave back a lot of commission to the buyer just to make the deal happen". Learning a hard lesson, he says, "Never again will I allow a client to let the buyer stay in the property before closing".

   Vickie Smith of Ark Essentials Publishing says that she had a bad experience she bought a home and then the previous owner took over a month to vacate, and she says that during that time, "we were paying the mortgage and he lived there rent free. After two months he picked up his Bully Barn. We should've had some stipulation that he paid $x per day until he totally vacated!". Adam Kruse, a Broker with The Hermann London Group, says that he had someone who had to postpone their divorce at the last minute so the sale of their home could go through before the foreclosure happened, and he says that, "it was a really touchy deal, and we actually ended up closing it."

   Jennifer De Vivo, a Realtor with the De Vivo Team at Charles Rutenburg Realty, provides some things that can and will go wrong sometimes with Foreclosure-Related deals. As De Vivo, says, "Foreclosures cause people to do funny things that can ruin months of work in an instant". De Vivo describes one of the worst stories she has come across: "Once a week out before closing a vandal busted the garage door open. At first it was a dent, but then they came back and practically destroyed it leaving it hanging horizontally. The worst of it was that when I called the listing agent (I represented the buyer), they did absolutely nothing. I took matters into my own hands and pasted no trespassing signs in bright orange throughout the home exterior. My husband and partner went with one of our helpful investor clients and righted the garage door. My buyers were troopers through it all and still bought the home which was in foreclosure and the absentee owner was oversees.

   De Vivo also describes another incident: "We had another incident where we represented a buyer in a short sale situation. We closed on a home on a Friday, and over the weekend the original owner came in and stole the entire kitchen and bathroom vanities, even the toilets! Luckily my partner called the title company on Monday morning minutes before the title had been filed and was able to cancel the deal and get our clients' money back. Whew!"

   As a Real Estate Investor, Jeff Swaney has come across additional issues during Real Estate deals.

   Swaney says that Appraisal problems, which he calls, "the most rare issue from the past" is becoming more common now. He describes this as follows: "The lender orders an appraisal and then rejects their own ordered appraisal due to their underwriter initiated computer based desk top review (also called an Auto Valuation Model, or AVM). The problem for the buyer is that most standard purchase and sale agreements have an appraisal contingency, but NOT a lender initiated AVM value contingency. This means that a buyer would be contractually required to buy the home even if the lender cuts the value and the loan amount. The reason is that the actual appraisal was OK, but the lender did not like it. If the buyer has this situation occur, they must close and pay the difference in loan amounts out of pocket, or they will lose their earnest money. Buyers need to be aware of this possibility and have their agents draft a lender induced valuation reduction contingency in their contract, or they face significant exposure.

   Liens that are filed, but not yet recorded at the local courthouse, is another major issue Swaney has seen. he says that, "There is typically a gap period between the time a lien is filed and when it shows up in courthouse records. Most closing agents will require a seller to sign a gap provision that affirms the seller is not aware of any liens that have not been paid off against the house. The buyer's title insurance policy should discuss this as well. I have been to closings where prior liens were not caught and the title becomes "clouded" causing a delay or cancelling of the transaction.

   Finally, Swaney points to issues with Home Owners Association (HOA) liens, and says that, "For most foreclosures, junior liens are wiped out after the foreclosure auction or lawsuit. The only normal exceptions are property taxes and state and federal tax liens. HOA's get around this provision by simply reassessing the past due liens against the next homeowner. Beware of this because the second most powerful group to fight is the local HOA! You could find yourself as a seller stuck with paying an old (prior owners lien) off if you sell a property purchased at the local foreclosure auction. This can cause transactions to fail as the seller is not willing to pay the past bill and wants to fight the HOA. Good luck doing that. The HOA's know that it will cost you more to fight the bill than just pay it!"

   Real Estate Deals are tough! That's why it is a field that requires determination, guts, and meticulous attention to details...and sometimes a little bit of luck. Any comments? Suggestions?

Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

TAGS: #realestate #foreclosure #realtor #realestateinvesting

August 13, 2010

UPDATED: Buying a Foreclosure? This is a Must Read...

Hello Everyone,

Welcome to Friday !

We have been receiving a lot of questions about foreclosures from people who are asking us specific questions on how the foreclosure market works. In order to paint the best picture for you, we have spoken with some of our peers who are active in the foreclosure property marketplace in one function or another.

Sheriff Sale guru Marc Sherby uses a 10-point checklist to tackle all aspects of purchasing a foreclosure home. His Process is as follows:

1. Do Your Homework (research the liens, mortgages, comps, bid price, etc. before going to the auction). NEVER bid on a property without doing this first. Joanne Cleaver of ForSaleByOwner.com says that it is important to, "Understand the micro-economics of the neighborhood. On some blocks, a foreclosure is an exception. On others, it's the rule. This affects your ability to quickly get good comps when you've fixed up the foreclosure and are trying to resell; this also affects its marketability as a rental." Additionally, Jan Green, an Arizona Realtor, suggests to, "check the health of the Home Owners Association (HOA)" (if applicable), and to, "Check the date of the last reserve study that was done in the HOA, making sure it was within the last year if not 6 months. A lot can change in 6 months in a neighborhood. If it was 1 year, then check the number of foreclosures currently in the neighborhood and ask if more than 10 - 15% are overdue in paying, another hint." She also suggests checking to see if, "there is an Environmental Report available that will disclose information the surrounding area for airports, landfills, soil conditions or other abnormal findings that could pop up."

Alfred Miller President, Private Lending Solutions, LLC, adds that it is important to know, "how long it takes to sell a home in your price bracket", to, "study the sale prices of comparable homes in your area.", and to remember that, "the sale is for the home as is."

2. Set up your support team (real estate attorney, accountant, realtor, Title Company, contractors, insurance agent and so on). Find people you are comfortable working with. Miller concurs, and suggests that you, "Find an agent specializing in foreclosures."

3. Learn the rules for your particular area FIRST. Rules and “conditions of sale” are different for each county and for different types of sales. You can obtain a copy of these rules the Sheriff or auctioneer. Green, who works in the Hot Arizona market, states that, "The deed issued in Arizona for REO's is a "Special Warranty Deed" and not a "Warranty Deed" that is the typical deed in a regular sale. Why is this important? There is no title coverage for past problems with the title prior to the bank taking ownership of the home. And always always buy title insurance to cover the transaction against any liens on the property, no matter the type of financing used to purchase the home." Know your market !

4. Get the list of auction properties. In most cases depending on your area, you can obtain the list of properties going to auction for free. If the sheriff or auctioneer has a website many times the lists are also posted on them.

5. Line up your funds BEFOREHAND. In most cases you will not be able to obtain a traditional mortgage beforehand to pay for the property. This is one thing many people do not realize. Cleaver agrees, and suggests to, "Have lots of cash. Banks will negotiate a little, but they will mainly listen if your money talks loudly.", as well as Miller, who suggests that you get, "Get pre-approved for a mortgage."

6. Go look at the property (before you bid), and try and determine if it is occupied or unoccupied. Green suggests that you, "Knock on neighbors' doors to ask for details about the area. Neighbors can be your best source of information about a neighborhood and can provide the names of others serving on the HOA board.", and Cleave similarly says that you should, "Get neighbors on your side. They are well aware that the foreclosure next door has eroded the value of their own property. Position yourself as as hero, not as a bottom feeder."

7. Know how to bid. Bidding is a psychological game as well as numbers game.

8. Have a plan. What type of property are you looking for and where? Is the area up and coming or in decline? Are you buying as your own personal residence, as a rental, or to rehab and flip? If it’s a flip, what type of buyer will you be looking for? How much money and time can you commit to this project? Know these answers ahead of time because as the old saying goes “those who fail to plan, plan to fail.”

9. “Sit on your hands.” Begin by attending several sales and just watch what goes on. Most sales happen very quickly, usually in just a matter of minutes, so you’ll need to pay close attention. See who the players are and take lots of notes.

10. Get Educated. Many of the people you will be bidding against are auction pros and you’ll need to become one yourself. Reading books, attending training seminars, joining local real estate investing groups, or finding a mentor are just some of the ways you can educate yourself. Additionally, you can check out, "Will It Work In My Town" for some good suggestions, as well.

Green has some additional tips that will be of huge help:

1. Always change the locks immediately upon purchase. REO homes are oftentimes on master keys for other homes in your area. If a home will be vacant for some time, get a security system as the home has a history of being vacant. If it has a pool, make sure it's maintained weekly. Check any other systems around the house to make sure they are being maintained. This way you'll maintain your equipment and have activity at the home.

2. Purchase a home warranty from a company that will cover pre-existing conditions ("hidden defects") for foreclosures.

3. Obtain a very thorough home inspection by a licensed contractor (verify the inspector is licensed, bonded and insured - Lots of home inspectors are not renewing their state licenses in this economy).

4. Check under every sink and water source for past water leaks. If there were leaks and you're still interested in purchasing the home, get a MOLD inspection.

Do you have any additional tips that will help our readers? Please feel free to comment here and let us know.

Have a Great Weekend, and Happy Rent-to-Owning !




UPDATED: Top 5 Blog post for 2010 (For more information, CLICK HERE)