Tag Archives: real estate

Don't give Buyer the steering wheel in short sale

shortsaleRecent, real-life case: Buyer makes offer on house being sold as a short sale. In the offer, buyer refuses to put down any earnest money and wants authorization to negotiate directly with the seller’s lender.

So the seller would be out-of-the-loop in negotiations with his lender to try to unwind the single biggest (failed) investment of seller’s life. And he is supposed to trust a complete stranger with negotiating a way out of the mess. This buyer also added, “Don’t worry, not  many people know about this technique yet,” as if the buyer talking with the seller’s lender direct was an ancient secret passed down on a piece of paper to Moses right after the ten commandments.

My client said no to this proposal. I can’t think of a single reason why a seller in a short sale would let the buyer negotiate directly with the seller’s lender. It’s just a bad idea.
You are much better off having an experienced attorney or real estate agent, who is working for the seller, handle the details with the lender.

This buyer above was an investor with an out-of-state phone number. Investors are now jumping into the short sale game. They form an LLC and make multiple offers on short sale properties, often with no earnest money. They make very low offers. Most offers are way, way below the asking price; many times up to 40-50% below asking price. Some investors don’t even make a written offer, but want an option agreement.

This gives them an option to buy the property if they can beat down the price enough with the lender. They can also walk away from the option at any time.

If you are facing a short sale of your property, here’s some steps that you need to take to get things rolling:

1. Prepare a hardship letter explaining why the payments can’t be made.

2. Put together recent pay stubs and a list of assets.

3. Ask your agent to print out the listing history and pricing history of the property.

4. Give your attorney or realtor written authorization to deal with your lender and send it to the lender.

5. Make contact and find out who will be the “negotiator” with your lender.

6. Ask the lender to order a Broker Price Opinion (BPO) right away so that you will know how much the lender thinks the house is worth.

7. Be very courteous, gentle and kind to the negotiator. If you steamroll him or her and tell him war stories about your years of short sale experience and how “It’s always done like this…” you will go to the bottom of his or her very large pile of cases.

8. Prepare a closing statement showing the amount the lender will net and be careful not to underestimate anything because the figures are hard to change once they are approved.

Most of all don’t trust negotiations with your lender to the buyer.

So you want to buy a foreclosure?

So you want to buy a foreclosed house? They are everywhere and everyone and their brother wants to buy one. But are you sure you can bear the pain of buying a foreclosed property?

While the purchase price will be low, buying a foreclosed property is not for the overly picky, the perfectionist or someone who thinks the “customer (i.e. Buyer) is always right.” There are several different categories of foreclosures like “short sales” and buying directly at the sheriff’s sale, but here we are talking about buying a foreclosed property from the lender that foreclosed the loan. These are called REO (Real Estate Owned) properties. I call them a big headache.

Positives

Get a good price.

Usually closes quickly.

No one living in the house to evict.

Negatives

It will take 2-3 weeks to get the Seller to sign the contract.

Can’t schedule home inspection until the contract is signed.

Utilities are turned off when you go to do the inspection.

If property is well and septic, no test is furnished.

Many attorneys handling REO sales do not respond at all—to ANYTHING. Not to the attorney approval letter, the inspection requests or requests of any kind. Multiple calls and emails to get any response from them are the norm. (Codilis and Associates and Pierce and Associates, however, do a great job and respond quickly by email.)

Once you get the utilities turned on and do the inspection, most Sellers will not give you credit for repairs. (Some will give you credits, but only a small percentage.) Just recently, one drew a big X through the attorney approval and inspection letter I sent and faxed it back to me.

No survey will be furnished. You have to buy it.

Usually, the Seller buys title insurance for the buyer, but mot always, so be careful

If you are buying a recently foreclosed condo, under a relatively new Illinois law, you, Mr. Buyer, can get stuck with 6 months of the old foreclosed owner’s condo dues. Nice surprise.

One Chicago area attorney who handles REO closings does not attend closing and fed-x’s the deed to closing. Then he will not sign the closing statement until his client approves it. So you need at least two days to close. Forget it if you want to move in at closing!

If you close “late” you pay a penalty of $100/day or so. If you close more than a few days late you may lose all your earnest money.

How to do it right

Be patient. Don’t buy a foreclosure if it will drive you crazy.

Make the contract subject to attorney’s approval. Many do not have this provision.

Make the contract contingent on your professional home inspection (after the utilities are turned on). If the contract does not allow this, I would not buy the house. It’s that simple.

If the property is well and septic, conduct a well and septic test even if you have to pay for it and make the contract contingent on it passing.

If you are buying a foreclosed condo, ask in the 22.1 disclosure form if there are any back dues owed the association and ask under the attorney approval clause for the Seller to pay all condo dues to date of closing.

Good luck (you’ll need it).

6/4/08: The newest trend: Bank/Seller refuses to “de-winterize” (turn the gas, electric and water back on) making it impossible for the Buyer to do a proper home inspection. Or, worse yet, Bank/Seller forces the Buyer to de-winterize the property, at his or her expense, and makes the Buyer sign a rider taking responsibility if the Buyer wrecks anything in the de-winterizing process.

Real estate disclosure by trustee or executor

For the last year, any executor or trustee trying to sell real estate faced a big problem: There were no buyers.

Now, the real estate market has improved a little so there are some sale contracts finally.

A common question is “Do I (the executor or trustee) have to fill out the property disclosure?”

The answer is NO. An executor in a probate estate, or the trustee of a living trust, does not need to complete the real property disclosure. Here it is in writing if you don’t believe me:

(765 ILCS 77/15)
Sec. 15. The provisions of this Act do not apply to the following:

(1) Transfers pursuant to court order, including, but not limited to, transfers ordered by a probate court in administration of an estate

(3) Transfers by a fiduciary in the course of the administration of a decedent's estate, guardianship, conservatorship, or trust.