HUD Moves to Speed REO Sales HUD Secretary Shaun Donovan has  nnounced a temporary policy that will lift the 90-day waiting period to obtain Federal Housing Administration (FHA) mortgage insurance for the purchase of a foreclosed home. FHA research has shown that acquiring, rehabilitating, and reselling foreclosed properties often takes less than 90 days. The temporary waiver will allow FHA borrowers to purchase HUD-owned, bank-owned, or properties resold through private sales as soon as they hit the market.

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• Inspection – As with any real estate purchase it is important to have the property inspected. Since banks are selling these properties ‘AS-IS/WHERE-IS’ it’s even more important. Most real estate professionals will recommend that the inspection be done by a qualified inspector and/or contractor. If there are significant problems with the condition of the property this needs to be addressed in the offer and can be used to negotiate a lower price or more favorable terms for the buyer.
• Title Search – Since the property has gone through the foreclosure process, it is important to review the title work. Have a qualified title company review the title to ensure that there will be no delays with bank delivering clear title. Also keep in mind that the previous owner was under financial distress and other liens may have been placed against the property. Again, whenever possible, try to have this done before making the offer because it will affect the value of the property.
• Negotiate – Be prepared to negotiate to get the best deal possible. Having done your homework and being armed with an inspection, list of needed repairs, title work, current market condition and comparables, will enable buyers to make a stronger case for a lower price or more favorable terms from the bank.
• Financing – Have all your financial documents in order before making the offer. Know where your weaknesses are and have the appropriate documentation available. This will give you an edge over others and impress upon the bank that both the buyer and their offer are serious.

Be sure to select an agent that you feel comfortable talking to and working with, especially if you are new to this process. Be sure to provide them with information about yourself and the types of properties you are interested in purchasing. This will put them in the best position to help you find that perfect property at a great price.

AS-IS, WHERE-IS -REO homes are sold AS-IS, WHERE-IS, meaning there is no seller’s disclosure regarding the condition of the property. This puts the burden of inspecting the property directly on the buyer. If the buyer finds significant problems with a property and can make a strong case for the needed repairs they are usually able to negotiate a lower sale price. But remember it is up to the buyer to uncover these problems in advance because once the sale is final there is no recourse.

Selling Price – Bargains are out there but do your homework. Know the sales price of other homes in the neighborhood. If you are going to make a low offer be sure to have a strong case to support your offer.

Financing – Banks will look closely at financing. Lenders are looking for qualified buyers and do not want to lose time working with a buyer who cannot qualify for and ultimately close the loan. When possible, take the time to get pre-approved before making the offer. To insure that potential buyers are truly qualified, some sellers require that all buyers using financing as the method of payment, be pre-qualified through the seller’s designated lender. The buyer may obtain financing through the lender of their choice.

Contingencies – Offers with the least number of contingencies are typically favored, if not expected. Banks who are dealing with a large volume of REO properties on their books may not want to deal with contingency heavy offers. If the bank accepts an offer with contingencies, that takes the property off the market, they may lose another, more appealing offer from a more qualified buyer. Many simply will not consider the offer. Whenever possible, try to keep all contingencies to a minimum. Banks consider offers with larger deposits to be more secure. The more cash a buyer has invested in the property the less likely they will be to default on or fail to complete the sale as agreed. It is not uncommon for a bank to require deposits to be non-refundable.

Earnest Money Deposits -Banks consider offers with larger deposits to be more secure. The more cash a buyer has invested in the property the less likely they will be to default on or fail to complete the sale as agreed. It is not uncommon for a bank to require deposits to be non-refundable.

3) Patience -
Banks are usually ready to act quickly on a good offer. However, a response could take as little as 2 days or as long as 2 weeks and unfortunately sometimes even longer. Be ready to wait it out. Do not assume that banks are willing to sell cheap. If you are going to submit a low offer, you need to be ready to make your case by having photographs and repair estimates in writing.

4) Persistence -
Be ready to “Negotiate” and be sure whomever you’re working with is willing to go to bat for you. Don’t be afraid to ask for a better price and favorable terms. If you’ve done your homework and have the information available to back up your case; you just might get a lower down payment, a lower interest rate, more generous concessions toward closing costs, or a lower purchase price.

The information offered on this blog is intended for informational purposes only. Be sure to consult with a real estate professional, attorney, or financial consultant before taking any action.

– Local Brokers that specialize in REO. Many local real estate professionals have relationships with banks and lending institutions and are the first to know when a property is about to come onto the market as an REO. Banks count on these local professionals to provide them with current market conditions in the area and local knowledge for getting the property listed and sold quickly.

– There are a number of independent Internet sites that group REO listings by location/region and many other criteria. Because there are a large number of properties coming onto the market as REO, these lists can be quite large. Most offer pictures and details about the properties. However, many are not able to group properties by neighborhood so be prepared to develop your own systems for grouping these listings. Also, be sure to consider how current is the information on the site it and if the information is updated frequently.

– Contacting banks directly is another option. Keep in mind that each bank handles REO properties differently. For example some lenders have searchable databases on their Internet site which list REO properties but many smaller lenders have someone on their staff tracking properties. Larger, national lenders have departments called loss mitigation which handle their REO properties. Because of the large number of REO properties on the market today the process can be overwhelming. This is where it is wise to work with someone who specializes in REO properties. Since they are dealing with these properties on a daily bases they are familiar with what is available, when new listing usually come out, and how to find the details quickly.

I am certain that this will be of interest to anyone considering buying or selling a property as a Short Sale and to any agents who do Short Sales.

One reason that many real estate agents are less than enthusiastic about short sales is that, too often, a commissionectomy may be involved. By demanding a certain amount of net proceeds, the lender effectively cuts the commission that had been stipulated in the listing agreement. (To be sure, since March 1, 2009 Fannie Mae has prohibited its servicers from cutting short-sale commissions below 6%; and, as of August 20, Freddie Mac announced the same policy. But not all loans are held by those agencies.) Brokers and agents should be pleased, then, to learn of a recent court case that awarded a broker’s commission when a lender sought to cut it just before closing.

Thanks to the legal department of the National Association of REALTORS® (NAR) for bringing to our attention the Iowa appellate court case of Stewart v. All States Quality Foods. In that case, All States’ lender, Highland Crusader Offshore Partners (Highland), was calling the shots on the short sale.

Broker Larry Stewart and Iowa Realty Commercial had a joint listing agreement of a property owned by All States. The listing began in August of 2001, and was extended a number of times thereafter. At some point Larry Stewart Realty became the sole listing agent. The agreement called for a commission of 10% of the first $500,000 of gross sales price.

In January of 2003, Stewart found a tenant for the property. The tenant took a five-year lease on the property and also obtained a right of first refusal in the event All States received an acceptable offer during the lease term.

By May of 2006, All States’ financial difficulties became such that its secured lender, Highland, sent a representative, Harold Kessler, to wind down the business of All States. Shortly thereafter Stewart, who still had a listing, received an offer of $120,000. Under the direction of Kessler, the All States manager signed a counteroffer of $140,000 which was accepted. Stewart prepared a net sheet showing proceeds to the seller of $105,982. On August 1 the tenant exercised its right of first refusal and agreed to purchase the property for $140,000.

On August 24, Stewart informed the seller and the lender that the tenant was ready to close. At that time, Highland, the lender, indicated for the first time that it would not accept net proceeds of less than $130,000. Even though Stewart offered to cut his commission by 10%, the lender would not budge. The sale fell through.

Stewart filed suit alleging breach of contract and intentional interference with contract. He claimed he was owed a commission because he had provided a ready, willing, and able buyer. The trial court agreed. Highlander filed an appeal.

The appellate court affirmed the award. Highlander knew of the listing contract and the commission amount. It certainly had the right to ask Stuart to cut his commission, the appellate court confirmed, but not after the fact of the counteroffer. At the point of counteroffer Highland should have disclosed that they would not release the lien for less than $130,000. By not disclosing that, they misled Stewart into continuing to work on the transaction. The court found that “Kessler and Highland Crusader were engaged in a ‘two-step process’ of first securing a purchase price and then squeezing out as much net proceeds as possible.

Now, this case doesn’t mirror the facts of every short-sale commission squeeze, nor does it have authority outside of Iowa. Nonetheless, it presents a commission-reduction scenario that is similar to many short sale situations. Moreover, it may suggest a strategy that will be found useful by attorneys representing brokers and agents who have had the squeeze put on them. nced the same policy. But not all loans are held by those agencies.) Brokers and agents should be pleased, then, to learn of a recent court case that awarded a broker’s commission when a lender sought to cut it just before closing.

Thanks to the legal department of the National Association of REALTORS® (NAR) for bringing to our attention the Iowa appellate court case of Stewart v. All States Quality Foods. In that case, All States’ lender, Highland Crusader Offshore Partners (Highland), was calling the shots on the short sale.

Broker Larry Stewart and Iowa Realty Commercial had a joint listing agreement of a property owned by All States. The listing began in August of 2001, and was extended a number of times thereafter. At some point Larry Stewart Realty became the sole listing agent. The agreement called for a commission of 10% of the first $500,000 of gross sales price.

In January of 2003, Stewart found a tenant for the property. The tenant took a five-year lease on the property and also obtained a right of first refusal in the event All States received an acceptable offer during the lease term.

By May of 2006, All States’ financial difficulties became such that its secured lender, Highland, sent a representative, Harold Kessler, to wind down the business of All States. Shortly thereafter Stewart, who still had a listing, received an offer of $120,000. Under the direction of Kessler, the All States manager signed a counteroffer of $140,000 which was accepted. Stewart prepared a net sheet showing proceeds to the seller of $105,982. On August 1 the tenant exercised its right of first refusal and agreed to purchase the property for $140,000.

On August 24, Stewart informed the seller and the lender that the tenant was ready to close. At that time, Highland, the lender, indicated for the first time that it would not accept net proceeds of less than $130,000. Even though Stewart offered to cut his commission by 10%, the lender would not budge. The sale fell through.

Stewart filed suit alleging breach of contract and intentional interference with contract. He claimed he was owed a commission because he had provided a ready, willing, and able buyer. The trial court agreed. Highlander filed an appeal.

The appellate court affirmed the award. Highlander knew of the listing contract and the commission amount. It certainly had the right to ask Stuart to cut his commission, the appellate court confirmed, but not after the fact of the counteroffer. At the point of counteroffer Highland should have disclosed that they would not release the lien for less than $130,000. By not disclosing that, they misled Stewart into continuing to work on the transaction. The court found that “Kessler and Highland Crusader were engaged in a ‘two-step process’ of first securing a purchase price and then squeezing out as much net proceeds as possible.

Now, this case doesn’t mirror the facts of every short-sale commission squeeze, nor does it have authority outside of Iowa. Nonetheless, it presents a commission-reduction scenario that is similar to many short sale situations. Moreover, it may suggest a strategy that will be found useful by attorneys representing brokers and agents who have had the squeeze put on them.

· Inspection – As with any real estate purchase it is important to have the property inspected. Since banks are selling these properties ‘AS-IS/WHERE-IS’ it’s even more important. Most real estate professionals will recommend that the inspection be done by a qualified inspector and/or contractor. If there are significant problems with the condition of the property this needs to be addressed in the offer and can be used to negotiate a lower price or more favorable terms for the buyer.
· Title Search – Since the property has gone through the foreclosure process, it is important to review the title work. Have a qualified title company review the title to ensure that there will be no delays with bank delivering clear title. Also keep in mind that the previous owner was under financial distress and other liens may have been placed against the property. Again, whenever possible, try to have this done before making the offer because it will affect the value of the property.
· Negotiate – Be prepared to negotiate to get the best deal possible. Having done your homework and being armed with an inspection, list of needed repairs, title work, current market condition and comparables, will enable buyers to make a stronger case for a lower price or more favorable terms from the bank.
· Financing – Have all your financial documents in order before making the offer. Know where your weaknesses are and have the appropriate documentation available. This will give you an edge over others and impress upon the bank that both the buyer and their offer are serious.

Take the time to have the property inspected by a professional can payoff in the long run. When purchasing any kind of real estate, the current condition of the property determines the value. Having a professional look at the property and provide a detailed, itemized list of repairs will help the buyer assess the value and make a better offer. If you are offering less than the asking price, having a detailed list of repairs from a third party will help make the case to the bank.
Also, having sufficient time to acquire standard financing will give the buyer more options in selecting favorable financing terms. Buyers who are able to be pre-approved for finaincing increase their chances of closing on a great deal. Keep in mind that the closing process is accelerated and has strict a time line which must be followed.