Interestingly, the very same day that Craig wrote his post on assisting a buyer with a bank-owned purchase, I was closing on a very similar transaction.
One difference…mine closed. 🙂
It was even the same servicing company (so possibly and even probably the same bank-owner-seller), and also an FHA loan like Craig’s transaction. Two hurdles that Craig’s transaction may or may not have had was there were multiple offers (hard to win multiple offers if you are the only FHA buyer in the room) and the buyer’s lender at the last minute required that a new roof be put on the house, prior to closing, on a house that was only 14 years old.
I have to agree with Craig, it was absolutely grueling. It’s like being Ray Allen playing against the Lakers, but there is no one else on the Court except Ray!There were too many cooks in the kitchen on the seller side, and it was almost as if they wanted you to be late and wanted the transaction to fail. At the point where the buyer’s lender wanted a new roof on the house prior to closing, I honestly think the seller wanted to move to the back up buyer AND keep my client’s Earnest Money AND collect a $100 per day per diem for as many days as possible running through the Memorial Day weekend and beyond. This is why the SELLER should NEVER be ALLOWED to choose escrow! Somebody wise up and make a law about that!
Think about it. If escrow doesn’t close on time on a bank-owned…who suffers? Buyer can lose their Earnest Money. Buyer can pay $100 per day for every day that it is late (to the seller). So how can the seller be the one who chooses escrow, when the buyer is the one with so much at stake, and the seller with everything to gain if the buyer is late?
Of course my buyer clients did close. My buyer did not close on time BUT he also paid ZERO in per diem costs because I forced the seller’s hand to the point that they were in breach. This is not the first time I have done this with a bank owned, but it takes every ounce of my time and energy for days on end. You have to have your wits about you, stay on your toes, and play every single second, day after day, with the devotion of a Ray Allen or Rondo watching every single move and being always on top of your game. One false move…one split second of incorrect decision, is the difference between the client’s success and failure.
In this corner…the seller side…we have:
Agent for seller…Assistant for agent for seller…off-site transaction coordinator for agent for seller – Escrow Company chosen by seller with TWO closing agents, one working only on the seller side and one working only for the buyer side. FIVE layers before you even get near who the seller is, and the seller has at least a few people in between all those people and the actual selling entity/bank.
…and in this corner we have…ARDELL LOL! Kim and Amy helped do a few end runs on what the buyer was doing AT the house, like choosing new hardwood and getting estimates from painters, etc. I handled the contractual and escrow problems and the buyer’s lender issues…including lender wanting a roof ON the house prior to closing. Trust me, it is no easy feat to put a quality roof on quickly on someone else’s house without their permission. …and of course…then the rain came… If we were not ready to close the buyer would have lost his $10,000 Earnest Money and/or all those many days over the very long holiday weekend in per diem fees.
Like Craig, I can’t give a true blow by blow…but it closed and my buyer clients got the house at roughly $50,000 less than the house around the corner in the same neighborhood, that closed at roughly the same time. It was imperative that THIS be the house, as they maxed out at a price just short of what it would cost for all the things they wanted in a home, school and neighborhood. So a bank-owned was likely the ONLY way for them to get all of those things because of the bank-owned discount.
So yes…for many clients, buying a bank-owned is not only best…but sometimes the ONLY way for them to achieve their goal. The number one thing to remember to be successful in a bank owned transaction is The Ball Is ALWAYS In YOUR Court! You cannot wait ONE SECOND for the other side to do what they are supposed to do. You must do their work…yes they were the ones who needed an extension, but if I did not keep writing the addendums, because it was “their job” and not mine, it never would have closed! I had to do that three times. Banks NEVER answer…they never signed the extensions until it closed…pretty much at the same time.
You cannot ask…you cannot wait for them to answer…you cannot expect them to do what they are supposed to do. You have to run that ball across the Court like you are the only one in the room with the power to make it happen! You can’t worry about what’s fair and not fair…you just have to get it done and do everyone’s work , and figure out who has the authority to move it forward and who does not.
In my case the buyer also had all kinds of things besides dealing with the seller side that made it many times harder, even if it were not a bank-owned transaction. That was a bit distracting. But at the end of the day…it was all worth it, because I truly believe I could not easily find a replacement property for those clients in their price range. THAT is why you do a bank owned…because the discounted price makes it the BEST house for that client…and possibly the only one they can afford that fits their parameters. …and, of course, they also got the $8,000 tax credit on top of that. A grueling work load and struggle…but well worth it.
You don’t do it ONLY for the “bargain” of it…you do it because it is the very BEST house for them.
Similar story: Truliaboy gets his house and a puppy.
Great post, Ardell. Potential buyers need to aware that buying REO’s can be an overly complicated process full of uncertainty, but for those willing to accept the risks there are plenty of rewards (in the forms of significant savings). Glad to see there are still real estate professionals out there who put the needs of the clients first and foremost, Ardell.
Alex,
For a very good house in the best school in a great location, the savings are not necessarily “significant”. Only 8% lower ($47,000) in this case. If my client wasn’t already looking for a house, and beat out in a bidding war on the house around the corner just a couple of weeks before this one came on market, it being a bank-owned would not have been a consideration.
In fact, it being a bank-owned made it less desirable for a couple of reasons. But the fact that it became affordable because it was bank-owned, made it the perfect house for my clients. The difference between not affordable and affordable may not be a huge savings…but a huge factor, for sure.
I generally will not work with people who say “I want to buy a short sale or bank-owned property” as their objective. But when we look at all options that fit their objectives, like type of house, school, neighborhood, etc… and “the” house ends up being bank-owned or short sale, then it really isn’t harder than any other house, or doesn’t need to be. There are many sellers who are just as unreasonable as bank sellers. At least with a bank owned…you know what to expect, since they all pretty much have the same terms.
We were very lucky that the bank did sign and return the offer ON the deadline to receive the $8,000 credit. While we weren’t going to make an offer just because of the credit, that this house came along just in time to get it, was another plus.
Congratulations on a “win” earned the old fashioned way: knowledge, hard work, perserverance! I hope your clients will refer you a thousand fold, because you deserve it. This is a good case in point that real estate is truly a job for the pros….
Thank you, Mary. I have to say that I am being surprised these days by agents who truly do not recognize how much work is involved in real estate transactions today.
They don’t want “more clients”…they want more clients AND less work. That combination happens in hot markets…but in this market “work smarter; not harder” does NOT work out well. Everyone must work BOTH smarter AND harder…much harder.
Important to mention here that not withstanding my and Craig’s recent experiences, historically I have not found Bank-Owned seller transactions to be more difficult than the average privately owned transaction.
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Does the buyer have to pay state taxes? I have an addendum from Freddie Mac that says:
TRANSFER TAXES/TAX STAMPS. Seller is exempt from payment of state taxes and tax stamps on deeds,
mortgages and notes (12 U.S.C 1452(e)) and if payment of such state taxes or stamps is necessary to record the deed or mortgage, the tax will be paid by Purchaser and will not be considered part of closing costs.
I haven’t seen that…but I guess anything is negotiable. If you sign that addendum…I’d say you are agreeing to pay them. Sellers pay buyer’s closing costs all the rime…see no reason why that can’t work in reverse if you agree to do it.
I looked on the internet and that is in Freddie Mac’s standard addendum. So, FM claims to be exempt from the tax since they are owned by the fed. But Michigan is suing them for not paying the taxes. Just wondering if anyone has experience with FM in Washington state. If WA goes after the Purchaser for the taxes?
I was just talking to an escrow person today who had a lienholder bank in a short sale say they wanted to “negotiate down” the Seller’s Excise Tax…she laughed. You can’t close the escrow if someone doesn’t pay the tax as far as I know. So there is no closing where WA has to “go after” someone for the tax. It is always paid…at closing. Who pays it is negotiable.
Let’s say the tax is $7,120 and the house costs $400,000. They are saying it is going to cost you $407,120. It’s really a price negotiation. You can try saying you will pay $392,880 for the house and pay the excise tax. Same difference to you really. They just don’t seem to want it to show on their side of the closing statement.
In some States the buyer does pay the Transfer Tax or Tax Stamps (same as Excise Tax really). In some states the buyer pays half and the seller pays half. But that can really just be local custom. Everything is negotiable.
But closing with neither of you paying the excise tax? I don’t think that can Record at the County and close. Ask your Closing Agent at Escrow…but I don’t think it can close. You are not the buyer of the house without signing that addendum and it won’t close if you sign it and refuse to pay the tax. You’d probably be in breach of contract if you tried that, so don’t sign that addendum if you don’t plan on paying that tax.
Call your closing agent and ask what they have seen happening with those. Escrow Companies pretty much see it all. See if they’ve ever seen a buyer cross that out…and get the house.
My son and daughter in law are first time buyers, pre-qualified and placed a full price offer on a bank owned property listed by Bank of America in Michigan. It was a reverse mortgage situation and the homeowner died. After they did all that was asked of them and placed the deposit with escrow, they have encountered a black hole in terms of getting the signed purchase agreement back, the last thing they need to secure financing which they are told, is not an issue. Bank of America says the servicing provider has changed but they aren’t authorized to give any details as to the current servicing provider, we need to talk to the seller’s agent. The seller’s agent said all is well, deal going forward, expect papers after Christmas. It is after Christmas; it is after New Years. Soon it will be after Valentine’s. The buyer’s agent has called daily; the seller’s agent is not returning phone calls. The ball is in our court? What should we be doing apart from saying peace out to this deal and looking for another house which is probably going to be the same nightmare until this inventory clears the system which it does not appear that anyone really wants to happen. I am a commercial real estate attorney and I’ve never seen anything so unprofessional. I remember when we bought our first home — it was fun. This is wrong. And it is not like the house is any real bargain given the significant investment that will have to be made in terms of doing the deferred maintenance and updating required to make it livable. Thanks for any assistance or insight you can provide.
Eldonna,
Sorry for the delay…we are all backed up from “the holidays”, which is why I didn’t respond to your question and why you have to just forget about any work being done on a bank owned transaction for about 11 days. This year was worse than usual because you lose at least 4 days each week because no one is working the day before or after the holiday or on the weekends.
From your rant I can’t tell when the transaction started, only the problems during Christmas and New Year’s holiday time, which is true of all transactions, bank owned or not. When the holiday is on a Tuesday you lose 4 or even 5 days or even the whole 11 days as they are only putting out fires on the couple of days they are “there”…or drinking eggnog and giving each other presents.
I would say by end of month is likely more realistic.
Now here’s the REAL problem. You said: “And it is not like the house is any real bargain given the…” The price has to be worth the pain and it sounds like it is not merely the pain you are concerned about, but the price agreed to. If you have no legal outs, that’s a real problem. If they ask for an extension you can give them an extension in exchange for a price change that DOES match “the pain” it has turned into. But only if the actual buyers of the home are willing to lose the house as the bank usually works with a different buyer if you do that, even if you agree to proceed without the price reduction. They become afraid of you and refuse to proceed. So be careful if you pull that maneuver.
Sorry, didn’t think I was ranting — just telling my story. The kids signed the bank drafted addendum to the purchase agreement and delivered their deposit the day after Thanksgiving. The addendum contained a must close by Jan. 15th deadline. They need the bank signed PO and addendum to get their mortgage application finalized. That is some catch that catch 22. We have since been told that the servicing agent has changed, the property will be re-appraised and re-listed. Yeah, I agree, the price has to be worth the pain and at this point, the pain is an unknown. It is not like decent houses at “normal” prices are out there. Normal people aren’t listing because they don’t want to give their kept up houses away. All this bank garbage has completely clogged the “normal.” It feels like wait a decade or jump into this fray. These prequalified, newlywed kids have offered the asking price, why would the big bad bank be afraid of them and why should the bank at this point be looking for a different buyer when they are the ones who listed at this price and accepted their own offer, except they never signed their own addendum? It is like banks don’t want to clear this inventory. You’ve written the ball is in our court. I’m sure you understand that once a couple has committed to a house and had their offer accepted, it is emotional. I don’t feel that the ball is in our court at all, except to walk. They aren’t looking to pay less, they are looking to get the deal they made done. My inquiry is this — if the ball is in our court, what should we or our realtor be doing to close this deal?
Ball’s in your court means you have to be ready to close even if they aren’t doing what you “expect” them to be doing, and then it closes the day they are ready. It sounds like buyer’s loan is not ready to fund by the deadline. That could and should be a problem. I’m not sure where you are geographically, but waiting for signatures on a bank owned to start the loan process or make application doesn’t make a lot of sense, given sometimes you don’t get that until right before closing. That “catch 22” is problematic, and I make sure before someone starts a bank owned property that they are using a lender who can proceed with the loan without needing those signatures, because not always, but often, it is normal not to have them.
Hope it works out. But if you are saying they haven’t even made formal application for their loan yet since Thanksgiving, and need 30 days or so to process their loan after getting that signature, I would be worried about their losing their Earnest Money.
Let us know what happens, but urge your lender to be ready to fund the minute they get that signed addendum, as that could happen an hour before closing.
Thanks for the clarification. They have made a formal application and have an preliminary approval letter. The bank signed purchase agreement is the only missing component and probably inspection issues which I don’t see how we get to until the seller bank commits to a deal. Thanks again for the heads up on the potential timing problem. I’ve left a message for the buyers’ bank to see if they can assure us they are ready to go based on the assumption/condition of a formally signed addendum which can be delivered to them day of closing and they can hopefully authorize a wire.
I think everyone is clear on both sides of this transaction that the bank is the not ready party and these kids won’t lose their earnest money on top of all of this without a fight hopefully no one wants to have.
Hi Eldonna. It’s hard for me to respond without knowing what State you are in. Sorry if I’m missing something as I’m in the middle of staging a house, but so far you are doing everything this post tells you NOT to do. So maybe if you read the post that will be more clear. In the meantime I hope it works out anyway. Sometimes that happens. But it really depends on who the lender is you are working with and what State you are in and I don’t think you have included either of those pieces of info.