So you want to buy on the Courthouse Steps?

colorful road curve

We just attended a class dealing with Trustee Sales in Arizona, given by a real estate attorney specializing in this portion of the law and a Realtor who is on the steps every day.

We took away a lot of information, but facts that directly apply to you as a buyer are what we will mention here. First the purchase money: you will need a certified check for $10,000.00. That will be verified as you sign up to bid. You will need to make the balance of payment for the property within one business day ! If you fail to make the payment by the end of the following business day after the auction, you lose your $10,000.00 earnest money.

This eliminates all bidders with loans, unless you are to be an investor non-owner occupant and want to deal with one of the unlicensed short term “hard money” lenders at up around 18% with 20-30% down.

The starting bid is stated and it is usually the amount of the first mortgage plus $1.00, but it can change up to the moment of the actual auction. Bids are usually increased by $100 each bid.

Next most important is that you are buying the property totally and completely “as is”. That is the physical as well as the legal condition. You do not get title insurance with the purchase, you may have to evict the current residents. You may have additional liens on the property. You may not have legal title to the property. You may not be able to inspect the property. It may be pristine or it may be destroyed.

There will be bidders representing investors or investment groups who are buying 5 to 100 homes at a time! Definitely the big league.

Incidentally the current (Jan-May 2012) sales numbers show that the winning bids are an average of 31% above the opening bid and 64% of the original loan amount. 80% of the sales are postponed from their original sale date and 60% additionally are postponed on the day of auction! Of those 40% remaining, 56% are purchased by 3rd party buyers.

Our conclusion is that everyone should visit the Courthouse Steps once, just to get a feel for the pace and intricacies of the auction. BUT that to participate as a buyer or as an agent of a buyer is a mistake and could be an expensive mistake. There are Realtors whose only activity is to bid on those steps every day. They have entire teams of professionals working for them, checking bank records, checking with not 1 but 2 title companies, doing Comparable Market Analyses on the property, estimating repairs and establishing a top bid. It is definitely one of those things that we are accepting as “out of our area of expertise” and we will be happy to connect you with confidence with a Realtor whose entire business is centered around Trustee Sales.

Purchase and Remodel a home with only 3.5% cash out of your pocket

Today I attended a class on the FHA 203 K loan.  It has always been one of those things that sounds really good but is practically impossible to get done.   But I met a team of peeps all working together and getting the FHA 203k loans closed and people into their beautiful homes.

One of the challenges in todays market is that so many of the homes (foreclosures and short sales) are in poor condition.  Having items and issues that need repair in order to get a loan on the property; and with both short sale and foreclosure properties being “As Is” transactions, and no repairs being completed by the seller, getting a loan approved, funded and closed can be like pulling teeth without any Novocain.

In comes the FHA 203K team!

Together, a lender who will complete this type of loan; the home inspector, termite inspector, general contractor, HUD inspector, and a handful of other people that together know what is required, are working in unison to help people purchase these distressed properties, make the needed repairs and do some remodeling and updating at the same time.

How does it work?

The home buyer finds out what they will qualify to purchase.  Working backwards from there, if you qualify for 200,000 and you are going to put 20-35,000 into repairs and remodeling; look for homes priced around 160,000.  At the same time you have the home inspection, also bring in the general contractor and maybe the HUD inspector too.  Find out the cost for what is needed to be repaired and what you would like to have remodeled.  The cost of repairs and remodeling are rolled into the final loan amount. At closing the general contractor gets in the house and makes the repairs and remodeling, a few weeks later the home owner gets to move into their beautiful newly re-done home.

This takes an experienced team, a well oiled machine and fantastic communication.  I am glad to know the players! and to have been invited to join the team and help a few more buyers get into their dream home.

Castles in the Sand

This is a cautionary tale of buying foreclosed homes. The documentation you don’t get when you purchase a home is just as important as the documentation you do. One of the things missing in a foreclosure purchase is disclosure on the history of the property.

… A young buyer found the home of his dreams. He won the bid and eagerly awaited his closing date. In his excitement he would come by the neighborhood, walking his dog, meeting some of the neighbors, and peeking in the windows of his soon to be new home.

His enthusiasm was growing each day, until he peeked in the window of his soon to be castle and discovered the ceiling of the kitchen had fallen and was strewn across the counters and floor. Water was pouring down into the kitchen and upon further inspection into the living room as well.

The beautiful new carpet, the fresh paint, new kitchen and bath cabinets. All ruined…

With this type of news, the neighborhood gathered to commiserate with the saddened buyer. From this gathering it was revealed that this house had had similar issues in the past. In fact when the bank foreclosed, they had to do the same repair, and apparently the source of the water leak had not been corrected by the banks cleanup crew.

Now, the future of this young and disappointed buyer is still not known, but the banks cleanup crew is back again, doing the same job, with less mold to remediate, due to the speed the water damage was reported and addressed….

And the Bank, did they disclose the repairs they had to do prior to selling the property – No

Will the bank disclose the damage and repairs that are being done today… No

Because when you purchase a bank owned property you are purchasing “As Is”, “Where Is” and you not only do not receive disclosures, but sign documentation that says you can’t sue the bank for any items you discover in the future either.