Defective Drywall Update

March 2nd, 2010

There is some progress to report in the ongoing issue of creating some recognition of the legitimacy of this issue in homes mostly in the Southeast US, in particular Florida.  As I have posted before, I bear witness to the fact that these homes are not liveable with the sulfer gas being emitted.  I have found myself nauseated after just a few minutes of being in one.  Yet, there has been a reluctance for any public agency to actually acknowledge a criterian for defining a home with defective drywall.  I have speculated this has been an effort to control the inevitable flow of class action lawsuits once this issue is clearly defined.

The U.S. Consumer Product Safety Commission (CPSC) is still studying the effects of exposure to the drywall as well as what should be done about it.  In January the CPSC issued an update report that did not really have much in the way of news, but offered reassurance that the issue was still being researched.  The CPSC indicates they have 2,822 incidents of this defective drywall reported across 37 states.  From the numbers I have read in Florida alone, I believe a lot of people are not reporting this issue due to the fear that some insurance companies have reportedly dropped coverage when learning of this issue.

More significantly, HUD and the CPSC announded new guidelines guidelines on how to identify the presence of metal corrosion, as well as other indicators of problem drywall in homes. The guidance takes into account visual signs of metal corrosion, evidence of drywall installation in the relevant time period, and the identification of other corroborating evidence or characteristics. Click here to review the entire press release.

HUD and the CPSC’s two-step guidance requires a visual inspection that must show blackening of copper electrical wiring and/or air conditioning evaporator coils; and the installation of new drywall (for new construction or renovations) between 2001 and 2008. To view the full text of this guidance, click here.

Homeowners who believe they may have problem drywall should immediately report to the CPSC by calling 800-638-2772 or logging on to www.cpsc.gov/cgibin/drywall.aspx. For further information on defective drywall please visit the CPSC’s Drywall Information Center.

This is progress.  Standards had to be established.  Upon review, these seem fair and appropriate.  We are closer to admitting there is a problem.  How to solve it?  A year and half ago I felt ultimately some type of class action suit would produce a fund that would be controlled by government and funded by private industry.  I still think this approach is likely but the potential biggest culprit is a company from China.  I do not think they will participate.  Why should they other than a concern for what is right.  I do not anticipate that to be relevant in their decision making…do you?

 

 

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Are The Banks Following The Law?

February 19th, 2010

Short sales…everybody has them on their mind these days.  The incidents of short sales are going to be more volumnious in areas where the real housing bubble burst.  Florida has a real demand.  Indiana’s is not quire as common.  The reason…ot that many people in Indiana ended up losing 25% or more of the value of their homes.  Short sales in Indiana should, by reason, be easier to accomplish because in all likelihood they do not involve as much money.

I am not sure how many people who get involved in short sales in Indiana are aware that last year consumer protection legislation was signed into law by Governor Daniels.  Indiana H>B> 1176 contains provisions that became law in July 2009 requiring mortgage servicers to acknowledge and respond to short sales within certain time frames.

This law requires creditors, servicers, or creditors agents must acknowledge written short sale offers within 10 business days and the servicer must accept or reject a borrower-submitted offer no later than 30 days after receipt of the offer.   If you enjoy reading the actual law, here is a link to the language.

I have read this and could dribble on about questions that come to mind for me and no amount of research I am able to do seems to provide answers.  The two primary questions is the requirement that the written offer qualifies as a “qualified written request” under RESPA (Real Estate Settlement Procedures Act”.  The second is does this law allow for counter offers in the post 30 day period.  It would seem not.

I will update this blog as I discover these answers.  It may be that, like many laws, they have been left to interpretation and ultimatly the courts to decide.  Nevertheless, the most important thing to know is how to file a complaint if your short sale request is ignored in Indiana.   There is an on-line complaint form that can be filed with the Indiana Department of Financial Institutions (DFI). The DFI uses the complaints to track and establish patterns with certain lenders and use regulatory authority to investigate the complaint.  Additionally, the Homeowner Protection Unit of the Indiana Attorney General has enforcement authority over the complaints. When completing the form, the complaints should be filed with the DFI, and the field that the Homeowner Protection Unit should investigate marked (Field #18 on the Indiana complaint).

So, in your experience, has the implementation of this law helped? 
 

 

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Preparing To Make An Offer On a Bank Owned REO Property?

February 15th, 2010

No matter how many times I write this, there will continue to be agents who will ignore the advise given and submit their offers in a way they believe is right.  One thing I have learned in over 15 years working the REO niche is that what you think is right is irrelevant.  If you want to sell a bank owned home you follow the instructions, to a T, that are provided.  It also won’t hurt to take the following few tips and incorporate them into your way of preparing and submitting an offer. This applies to Realtors or buyers who want to submit an offer directly. 

Write Your Offer As If You Are Only Going To Get One Chance To Submit It.  Chances are, that is all you are going to get.  If there is a counter offer it will usually be made to the offer on a few terms related issues.  We find most offers are reviewed based on net to the the seller, and if it is not acceptable, the offer is ignored.

Make Sure The Proof of Funds Provided Makes it Clear that the Buyer has the Ability to Perform on their Offer.  This means if it is a cash offer provide a bank statement with bank letterhead and dated in the last 30 days.  The account holder needs to match the buyer.  If financing, the letter from the mortgage company needs to not have a bunch of contingencies.  It needs to be on a mortgage company letterhead and identify the borrower to match the buyer, the program used, the amount they will borrow and a proof that the down payment and closing costs required exist.  I hate to say this because some of my best friends are mortgage brokers and they are struggling today, but a direct lender statement is sometimes a benefit.  If it is a broker, best that they are legitimate with a history of successful business practices.

Submit The Offer In One Electronic PDF Document.  We have an email address offers@wilmothgroup.com that the offer can be submitted to..or you can fax.  Fax has issues with legibility depending on the machine used.  We are now seeing some asset managers rejecting offers because they are not legible.  If you do not have a way to scan the proof of funds and combine with the offer..find somebody who can.  This type of request is now considered a common business practice and you really need to create your own system to process in this manner.

Expect a Confirmation Within One Business Day to the Same EMail Address or Fax Where you Sent Your Offer.  Please do not send the offer and call and ask if we received it. Frankly, we don’t know until we clear out our receiving systems-something we tackle roughly every two hours.  If one business day has come and gone, and you do not have a confirmation, then email offers@wilmothgroup.com and explain that you have not received a confirmation and you have allowed one business day.  We want to know this and will research immdiately.  Please also understand that an offer submitted on Friday afternoon, Saturday or Sunday, will not be able to be submitted until Monday so you are not going to have a confirmation until Monday.

Consider How Competitive Your Offer Is.  A lot of buyers have the idea that a bank owned home can be purchased for 30-50 cents on the dollar.  This is a misunderstanding they have gained primarily by subscribing to somebody who calls themselves a guru and following their step by step plan to make millions in distressed property.  I want to be kind but it has been this way forever.  Banks do not sell foreclosed properties in the open market for these types of discounts.  Bulk packages in the millions of dollars are sold at discounts to note value that sometimes go this low.  The kind of properties we sell are priced based on a review by two brokers and one appraiser.  A price is determined by the bank based on these reports.  The values submitted by these parties take into account condition.  These properties are selling and the reason is they are priced correctly initially.

Don’t Prepare A Narrative To Submit Explaining Why The Price Offered Is The Right Price For the Bank to Accept.  How can I be kind?  Nobody will read it.  Nobody will care.  All parties on the selling side know that the windows have to be replaced and the roof is leaking.  We already took that into account when we came up with the asking price.

Be Patient and Prepared.  If you are a Realtor, please prepare your buyer for how the REO transaction proceeds.  The offer response deadline on a purchase agreement…..ignored.  It means nothing.  The deadlines are set by the seller.  You may wait a week to hear your offer is the one they wish to accept and you will have two business days to complete the execution of the banks addendum to the purchase agreement.  The bank addendum is a document that will be required to be executed by the buyer if their offer is accepted. It clears up various terms issues for the banks purposes and makes it clear the property is being sold the way the bank agrees to (as-is etc.)  So, buyers need to be prepared for not really having control over timelines….but the need to perform within them.  If not, banks today are just cancelling deals and not even letting the old buyer re-contract. 

It is a black and white business.  Not a place for those expecting room for emotion and empathy.  Prepare your buyers and your offer so that the experience can be a positive, professional one.

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Right Idea Just Not Implemented Correctly

February 2nd, 2010

In the last couple of weeks great sounds of celebration have been heard in the real estate investing world based on a change in rules from the FHA.  New rules have opened up FHA borrowers to the properties for sale by investors who have acquired a foreclosed property, and then made repairs to make it habitable and to FHA standards.  In the past, there was a 90 day rule that added costs for investors and made it less likely one of these properties would be available for an FHA buyer.  This rule change can be such a big deal becasue today FHA is the home lender of choice, with approximately 60% of all owner occupied homes being financed with loan and a FHA guaranty.

The issue I have with this improvement in the rules is that there is a 20% cap on the difference between the investor’s acquisition cost of the foreclosure and the price paid by the new buyer.  I know what those friendly to capitalists folks running our government were thinking.  “Wow..I sure would like to make 20% return for such a short term investment.”   Obviously, they still have not visited a foreclosed home.

Lets just start with the basic idea here that an investor, who buys an as-is foreclosed home is taking some pretty serious risk and should get some return for the risk.  It is not unreasonable to consider 10% is the low end of the risk-return ratio that makes this investment make sense.  So, this leaves 10% of the acquisition price for rehab to make the home eligible for an FHA buyer.

Most of you already see where I am going at this point.  Very few foreclosed, REO homes, only have 10% of cost in their budget for repairs needed to qualify.  It will be a rare property where this formula will work.  The folks at HUD have the right idea, but all I can figure is they really do not believe an investor should be allowed a 10% return for this risk.

Take a look through our website www.WilmothGroup.com and look at the properties for sale.  We only put on the decent pictures, leaving many of the really ugly defects to be inspected with the eye.  With the right investment, most of these houses can be a home again.  It will likely take investments much greater than 20% and an investor would be crazy to not demand some return for their risk.

This idea shows progresss toward removing the roadblocks to capitalism that can solve a lot of our nations problems.  Unfortunately, a zebra does not change its stripes and the concern that somebody might profit seems to have interfered with implementing the rule so it truly can have a positive impact on FHA borrowers and neighborhoods languishing in foreclosed, vacant properties.

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New Fannie Mae HomePath Sales Incentive

February 1st, 2010

Purchasing a Fannie foreclosure just got more enticing for your owner occupants!

 

Fannie Mae Offers New Closing Cost Assistance and Appliance Incentive for Homebuyers

 

Fannie Mae is offering a 3.5% incentive for buyers who purchase and close on a Fannie Mae-owned home between January 28 and April 30, 2010. Buyers purchasing properties listed on HomePath.com that are closed within this period may receive up to 3.5% of the final sales price for:

 

·         Closing costs;

·         The purchase of new Whirlpool® appliances by Fannie Mae; or

·         A mix of closing costs and appliances, at the buyer’s discretion, up to the maximum 3.5%.

To be eligible for this incentive:

·         Offers must be accepted on or after January 28, 2010;

·         Property sales must close before May 1, 2010, and;

·         Buyers must be owner-occupants (investors are excluded).

 

The incentive reinforces the organization’s commitment to stabilizing communities and assisting buyers. For more information about this incentive, visit www.HomePath.com, read the press release on fanniemae.com, or contact a Fannie Mae listing broker.

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The Best Financing For Your REO Offer

January 27th, 2010

bank_img.jpgIt really has become an important part of the offer process….what is the financing the proposed purchaser wants to use?  Certain lower priced offers are accepted just because their financing is considered better.  Better generally means more likely to close.  Again, we return to one of the realities of bank foreclosures..leave the emotion at the door.  This is why it is very difficult for the first time homebuyer to be trying to purchase in this arena.  In fact, if I am a buyers agent, I would make sure any owner occupant buyer of a foreclosed property can check their emotions.  If not, I would just have them read some of the realities I present in this blog regualrly.

In order of what a bank will consider the best financing to the worst:

Cash-Kind of obvious and not really a type of financing.  It eliminates all the financing related issues, such as appraisals and mortgage company delays.  Quicker closes and less headache make cash offers king.  Often a lower priced cash offer will be accepted over a much higher priced financed offer.  Remember what I said about emotion?  Cold hard cash rules and the fact the buyer is homeless and the house is right next door to their parents will hold zero value in having your conventional loan offer accepted over cash.

Conventional Loans- The next best because it generally reflects a higher downpayment and better credit worthiness.  These are key factors in avoiding some type of mortgage declination after having issued a pre-approval letter.  It also importantly means their appraisal should not have a bunch of work requirements.  As-is means as-is and unless it is a major surprize issue (a stolen air conditioner comes to mind) the bank is not going to make repairs so that a buyer can complete a financed purchase.  Conventional financing eliminates a high proportion of that risk.

FHA Financing with No Request For Closing Costs- Two issues here.  Very few bank properties pass FHA appraisal requirements.  Primarily because FHA appraisers use this guideline of habitability and it seems most foreclosed homes have some issue that can be picked on by an appraiser that does not fulfill this guideline.  At least this particular buyer has the cash to get through a closing, providing some hope that if for some reason the bank would decide to fix the leaky kitchen sink faucet, the buyer has enough cash to get the closing completed.

FHA Financing With Seller Requested Closing Costs- Seriously, if your buyer needs to use FHA (with their lower credit standards and low downpayments) and still needs the seller to make a credit for closing costs..I would look elsewhere than a foreclosed property.  The biggest issue is that most of the time the game played here is the price of the property is increased so the seller gets the same net as they would if they were not paying closing costs.  The banks won’t play that game and to make your chances worse, they will likely find a better financed offer by just holding on a while longer.

VA Financing- A wonderful opportunity for those who have served our country..but not a good choice to use for bank owned properties.  The appraisals and condition requirements are even more stringent than FHA (this is because the buyer is not putting any money down and the lender wants the property to not require any repairs or costs to the buyer).  The closing costs requested to be paid are even higher than FHA and we already discussed the issues associated with bumping a price to cover this adjustment. 

These are all general guidelines.  I have seen REO homes sold with VA financing…the planets need to line up just right!  But they do occassionally.  You just need to understand that you are playing the game with a hand tied behind your back as you go down this list for the financing offered.  The market is competitive today…you need to be also.  Financing proposed is the second most important term of a purchase offer (just behind price).  My point is I have seen it be the most important and price the second.  It happens.  Be prepared.

 

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Buy A Foreclosed Home With $15,000 for Rehab From The Government

January 18th, 2010

Its funny that this Market Stabilization program offered through the Indiana Housing and Community Development Authority has been around for almost nine months, yet I see it not being used often by buyers of foreclosed homes. It could be the limits of the geopgraphic areas (rather large actually) or the requirement you stay in the home for 10 years to receive forgiveness of the $15k.  The $15k can be used for a downpayment, closing costs or rehab, but with a low downpayment loan to purchase the home of 5% or less, the $15k makes sense to use for rehab.  One other requirement-the home needs to be a foreclosure.

The money is granted via a second mortgage on the home that is forgiveable, after 10 years.  A refinance of the first mortgage is going to cause problems for this second so you want to lock in today’s low rates with this program. 

The process of learning if a home is eligible is simple.  Go to this page and enter the address of the home you are considering.  The other significant qualification issue is income eligibility.    The limits seem generous enough..in Marion County a five member family with income under $84,360 will qualify  You also have to work with a participating lender and the Indiana Housing and State of Indiana website indicate you have to check with Indiana Housing to find one. 

A worthwhile program to consider for you or your buyers interested in foreclosed homes..

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Multiple Offer Procedures Changed

January 12th, 2010

Due to the number of properties that are now receiving multiple offers, it has become impossible for us to keep the MLS Realtor Comments timely with regard to the status when a property moves into a multiple offer status.  Subsequently, we are no longer publishing this information in the MLS. 

I understand the buyers and their agents like to know how many, if any, additional offers there are on a property.  First, our sellers do not authorize this type of disclosure until the time they give permission.  Each bank has different procedures for handling and now we are going to handle all offers in a uniform process.

We are not going to try and figure out for anybody considering making an offer if we already have offers.  It is just not practical.  I can tell you we have no offers, and by the time you tell your buyer, we could have three.  Then, I have had the experience of the agent coming back and saying “you told me there were no offers”.  I’d like to respond..”did you think time was going to stand still while you and your buyer tried to figure out your offer?”  No, I am too polite for that.

Did I mention the part about the seller not authorizing us to disclose the existence or status of other offers?

So, when your email is ignored, or you receive a simple reference to our FAQ when you ask, be warned.  Apparently this status of other offers is expected by all parties now before proceeding with one of their own.  You will need to communicate to your buyer that they will find out when they actually submit an offer.  What a great way to get them to sign the Purchase Agreement!

See also:

Are there any offers?

Multiple Offers

Multiple Offer Forms

 

 

 

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Clues As To Why Your Offer Was Rejected on a Bank-Owned REO

January 5th, 2010

contract.jpgLets take a second to explore one of the more common questions I am receiving today…why was my offer not accepted?  I hear this from cooperative agents, and even worse, their clients who contact me.  I hate when that happens as you will see the answer often lies in what their agent did not do for them.  I do not want to go there with somebody else’s client so I have to avoid the question or send them back to their agents.

Here are a few of the more common reasons offers are not accepted:

Not Completing a Purchase Agreement Correctly-Or At All!  Not sure what happens but some agents think because these are bank owned homes, and there will be an addendum that muct be executed, that little details like financing contingencies, dates to close, and inspection requests are not important to detail in the purchase agreement.  Even worse, lets just leave every blank blank!  Tip-if it does not apply enter NA (Not Applicable) so there is no doubt what you are trying to propose.

Offer is Not Submitted Per The Instructions- Between the Realtor remarks in the mls and the info posted at www.BuyWilmothREO.com, we lay out the correct way to submit any offer.  If a proof of funds is required, and what exactly that means is available in writing for your review, but you still submit one that is from a bank account one year ago…I am sorry but you are telling us alot about the way you will execute a REO sale.  Banks don’t want to mess with people who can’t follow instructions.  They just as soon keep the home  on the market looking for somebody who can.

Be Specific in Your Offer- It is really simple..the bank is looking at a net sheet to determine the best offer.  Neither the listing agent or the bank knows what the concession is worth that just says “Seller to pay Buyer’s closing costs” or “Seller to provide an XYZ Home Warranty”.  So what?  Tell us how much is the concession in dollars, not even percentages.

Your Offer Is Presented In Such A Way That The Impression Is You Have Never Done This Before.  Lets start with emailing an offer..with each page its own jpg file of 1mb and a total email sent with 20 files at this size.  Is there anything that screams louder than this is an agent who is not ready to work with bank owned properties?  Do you think we just have somebody in our office waiting to open one attachment at a time and print and then collate?  No, we will send that offer back and guess what?  Your Hotmail account will bounce it because it will not accept a 20mb email and then you wonder why your offer was not accepted?  This is just one example. 

Here is a clue..even if this is your first bank owned property…do everything you can to make it look like you do this everyday.  It is by far the best thing you can do to give your buyer the best opportunity to purchase the home.

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Cold Facts About Winterization of REO Homes

December 29th, 2009

WinterImage1.gifIn the Indiana part of our market, we have this weather pattern called winter that can cause as much damage to a vacant home as about any problem on a large scale.  To see a home with burst pipes from the expansion of water when it freezes, and the resulting escape into the home when the pipes thaw, is a sad site indeed. It is even more memorable to then see the items in the home freeze over as if they are being kept in a freezer for all eternity, 

Banks, wisely,  wish to prevent this damage to their properties so beginning in mid September, every new property we bring in is taken through a process called winterization.  This process continues being administered until on or about April 1.  The idea is to protect the home from any freezing. 

Despite the heat being on in a home, or the likelihood of a freeze being nil, the banks will order a winterization in order to avoid any chance that a system fails (furnace and no heat) or the storm of the century arrives in April. 

Interestingly, the problem is not just based in the fact it is cold.  The bigger issue is that the home is vacant and the water in the systems is not getting moved around..so if you go back to third grade science, you understand how when mixed with cold, this water freezes.

And then expands..bigger than the pipes circumference.

The process of winterizing a home looks like this.  By the way, for many reason this is best left to a company with the expertise (and the insurance) to protect your property.

    • winterization.jpgThe water is shut off at the house and at the street.

    • All faucets are fully opened to drain the water out.
    • All toilets flushed
    • The water heater is drained and the gas is shut off at the water heater
    • Air is blown into the pipes forcing all water out of the pipes.
    • Anti-Freeze is poured into all drains, toilets etc. Please note, this is NOT the anti-freeze used in your family car. This is the non-toxic anti-freeze used for winterizing RV’s and Marine vessels.
    • Tag all areas where the anti-freeze has been poured with a big sign informing anybody who looks at the fixture that winterization has been performed.  Toilets get some type of covering, usually tape or saran wrap,covering the bowl. 

De-Winterization and Re-Winterization

After an offer is accepted on a home that has been winterized, the buyers normally wish to perform an inspection.  We have several concerns with this process and document our procedures in our FAQ section of our website.  As a buyers agent, it is important that your buyer understands this process before making an offer so that they are prepared for the possible additional expense.  The other issue that happens frequently is the home inspector is not informed of the fact the home is winterized and shows up to do the inspection.  This also costs the buyer in a wasted trip charge.  Worse are the inspectors who offer to handle the dewinterization on the spot.  This will not be approved as we have to utilize our vendors in this process.  If an unapproved person handles a dewinterization, we will hold all parties liable for any resulting costs or damages (yes that includes the buyers agent who may have not been there when the buyer told the inspector to proceed).

This is a very important area for Buyers Agents to get involved and follow the procedures correctly.  It is obvious when showing the property that this problem exists so start researching what to do before proceeding with your buyers offer.  Make sure the buyer understands the process also. 

Please review the link above to our procedure for handling dewinterization.   Be prepared to explain this issue to your buyer.  For a significant part of the year it is an issue for bank owned properties in cold weather climates.

 

 

 

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