The MOST important thing you need to know about buying a foreclosed property

I have been the Realtor on the buyer’s  side of several foreclosed properties.  They aren’t the easiest transaction to do.  For starters, you write an offer, send it off to some agent that usually never answers their phone, even during the banker’s hours they claim to work.  The agent then turns around and faxes it to somebody who works for the lender.  My experience is that if you do all this in the summer, the person whose job it is to get the ball moving is on vacation, and a co-worker is doing their own job plus this person’s.  You find this out when you call and get the voice mail message that say something like, “Hi, this is Suzy REO with the loss mitigation department, I will be away from my desk on vacation for the whole time it takes to close the transaction you are calling about.    Please call my co-worker, Stacy Iwillnotreturnacall at 876-5309.  For immediate assistance, Dial 911.”

After that, they send you an addendum for the buyer to sign.  The addendum usually contradicts the contract in several areas.  You have your client sign it, then fax it off to the agent that never answers their phone.  If you are lucky, you may get the addendum signed by the lender’s rep before the closing.  That is a little unnerving for me since you DON’T really even HAVE a contract until both parties sign it.

Before you even get to that part, you have to know what to offer!  This is the science part of the deal.  These lender’s have bought these properties back from themselves at the Master Commissioner’s Sale.  Yep, they were the buyer and they were the seller.  They do that to protect their own interests, which is a whole other blog entry.

What is the most important thing to know when making an offer on a foreclosed house?  You have to hit the PVA to see what the folks who got foreclosed paid for the place.  See, banks/lenders will typically only put their necks on the line for 80% of the purchase price.  The other 20% was either the buyer’s downpayment, a second mortgage or equity line, or was covered by private mortgage insurance (PMI).  So, what # is the lender looking for?  80% of the old purchase price.  They have the PMI to cover them for the back 20%.  Now, there are exceptions to all this, and this is a blog, not a dissertation.  Just know that in general, this is how this goes.

If the foreclosed house sold for $100,000, that means your first offer should be $80,000.  You know the lender is okay with this, but the PMI company isn’t.  The lady who is filling in for her vacationing co-worker will tell you that the bank/lender has approved the offer, but it is pending approval from the PMI company.  They will try to get more from you to lessen their loss.  If nobody else is chomping at the bit to buy the place, hold firm and see what they do.  Often you can get these house for 81-85% of the old sale price.

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