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Distressed Property Sales:  Bankruptcy Sales

OVERVIEW: A Seller files for bankruptcy and the Court forces the disposition of the Seller’s assets in attempt to satisfy outstanding debts. These properties are usually priced in line with fair market value, since the listing process usually includes multiple Broker Pricing Opinions and / or appraisals prior to market entry. The Bankruptcy Trustee will be the one who signs the contracts, but final approval must be given by the US Bankruptcy Court before the property can be conveyed.

PAY PARTICULAR ATTENTION:

• Make sure that you allow at least 30 days for closing 
• Make sure that the final court date for the actual bankruptcy hearing is scheduled AT LEAST 3 business days prior to closing (preferably longer) so that the required court-signed documents can be forwarded to the closing attorney in time to be processed for closing.
• Make sure that the closing attorney has specific bankruptcy closing experience.

Buying HUD Homes (US Dept of Housing and Urban Development)

OVERVIEW: HUD properties typically represent the best opportunity for aggressive pricing, particularly if the buyer is going to be an Owner Occupant.   That's because HUD is chartered to foster the American dream of home ownership, so residents are given favor over investors.  Plus, you'll get several "government freebies" like a free appraisal (usually about $350), reduced closing attorney fees, and in many cases $1,000 credit! 

HUD Properties are sold via a modified bidding process, using custom HUD forms which are populated online. HUD requires that a licensed real estate agent who is officially registered/certified with HUD enter the offer.    

If you're thinking about buying a HUD home, your agent should pay particular attention to several things. 

PAY PARTICULAR ATTENTION:

• You should allow 45 days for closing.
• Any extension past 45 days requires specialized addendums to be submitted to and approved by HUD.
• Remember that the Lender will probably have to have the loan paperwork (the "closing package") to the closing attorney's office as muhc as 5 business days before closing!
• Prepare for a cumbersome inspection process if the house is winterized.  You can count on this in Georgia from September 15 - March 15.  During these times only, a fee of $75 will be required to "dewinterize" the property (turn on the utilities for your home inspection)
• Earnest money must be provided via certified funds.
• You MUST use a HUD-authorized agent to make your offer.  This is a HUD policy and there are no exceptions.

Lease - Purchase deals rarely culminate in a closed sale, and the contract process and the move-in/ move-out process can be frightfully messy. Even so...

One of the most common arguments IN FAVOR OF the Lease-Purchase option is that it COULD conceivably prevent the Seller's price from declining further, but the likelihood of that is very slim, since the Buyer would probably opt out if prices deteriorate further during the lease period.   In fact, I can't imagine that it would be an agent's RECOMMENDED course of action for any Seller unless circumstance requires that you leave the property for what could be an extended period. Why?

• Vacant houses can be targets for vandals, squatters, unchecked damage from mishaps (caused by nature or other), etc.
• Vacant houses can be a real pain in the neck and wallet to insure. Ask your insurance provider...many do not even offer coverage for homes that are vacant.
• Your leaving this house means you'll probably need another house--even if you're planning on renting--where you're going. If you're in a cash-strapped position already, money from the lease can stop the bleeding caused by carrying two mortgages (or one mortgage and a rent payment).
• A divorce, a death, or some other traumatic event is creating a compelling emotional reason for you to leave the house.

Whatever the situation, go into it with the attitude that it will MOST LIKELY NOT RESULT IN AN ACTUAL SALE. If you're ok with that, it may be a good fit.

Buying Distressed Properties:  REO (Real Estate Owned) Sales

OVERVIEW: A property has been officially foreclosed so that the Lender, Fannie Mae, or Freddie Mac now owns the property. These properties can be priced significantly below fair market value. However, bank-owned properties typically list (at least initially) at or near fair market value and work their way through a series of reductions to get to any real aggressive pricing state.

PAY PARTICULAR ATTENTION:

• Make sure that you allow at least 30 days for closing, more likely 45 days, from your offer date to the expected closing date.
• Calculate your lender having the closing package in to the closing attorney as many as 5 BUSINESS DAYS before closing! 
• Make sure that you specify that your due diligence period should begin after a WRITTEN acceptance of the offer
• Make sure that utilities are activated for the home inspection and that the contract states that the due diligence period should be extended if utilities are not active.
• Remember, REO Asset Managers / Liquidation Managers / Loss Mitigation Specialists operate at varying degrees of competency and their workloads and case files can be EXTREME.  This means that it may take some time to get their responses.

Buying Distressed Properties:  Auctions

OVERVIEW: Eek! This offers the least amount of protection that you can have in the real estate industry. Consider it a Las Vegas type of event and do not gamble with money that you can’t afford to lose.  If, however, you have cash and are willing to go out on a limb to purchase at a POTENTIALLY good price, do your homework first!

PAY PARTICULAR ATTENTION:

• Do your homework BEFORE you make an offer. If you can inspect the house (frequently not an option), do so. If not, assume the worst on questions about the property's condition.
• The “special in-house financing” is usually littered with up front fees.  When you read the fine print, you'll see that these options are frequently more costly than traditional financing.
• You'll need money.  Closing cost assistance is frequently disallowed
• Again, you'll need money.  Most auction houses require you to pay at least 5% of the sales price to cover their auction services .
• You can get financing, but FHA is usually not allowed.  In cases where it IS allowed, it is usually not RECOMMENDED, since FHA will refuse to loan if the property's condition does not meet FHA standards.

Buying Distressed Properties:  Short Sales

OVERVIEW: A Seller owes more on the property than He / She can sell the property for in today’s market. These properties can be priced significantly below fair market value, but there’s no guarantee that the bank will approve the sale. 

Please take note that "short" does not mean "quick"! 

PAY PARTICULAR ATTENTION:

• Make sure that you allow at least 90 days for closing, especially if there is more than one note on the property. The banks frequently choose to allow the properties to enter the foreclosure process rather than negotiate with any subordinate lenders and lien holders (mechanics, utilities, and HOA are the most common).
• Make any due diligence period subject to written acceptance of the offer.
• This is not the option to take if you must get in a house in a short time frame. 

I recently read another article about how positive thinking affects the productivity and performance of people in their jobs, particularly in a service industry. 

This particular article made me wonder:  It's difficult to think what might be positive about most of the news we're hearing these days.  How exactly are we supposed to find something good about it? 

One of the things you have to do is focus on what you WANT to happen, not what you DON'T want to happen.  Professional trail riders will tell you, "look at the path, not at the trees" because experience tells them that looking at the trees inevitably puts them in contact with the trees (yes, they crash).

With that in mind, look at the path!  Think about all the things that could be happening right now to change your situation in a positive way.  Even if it's the fact that you are more likeable because you are someone who's pleasant to be around, there could be something positive happening.

With regards to real estate, think about this:  more millionaires were made as a result of the depression of the early 30's than in any other time in history.  People who are relocating and selling at a loss may be making it up by saving a bundle on the property they are buying.  Sure, not everyone will be able to participate in this, but MANY will. 

It's nice to have a playful reminder to remain positive, even in times when so many are "visiting the dark pond".  I agree that you have to remain grounded with what is really happening, especially when a full-on Pollyanna attitude does more to underscore negativity in others than it does to lift their spirits, but it won't cost you anything to TRY to be positive.  And smiles are free.

Jackie Campbell
Realtor, The Campbell Team at RE/MAX Results
www.BestGeorgiaHomeSearch.com

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