Short Sales, Foreclosures, and REO Properties- Are they worth it?

Over the last two years, clients have approached me with the thought of purchasing a property which is advertised as a short sale, a foreclosure property or a Bank Real Estate Owned Property (known as an "REO").   The one thing you need with a Short Sale property and a Foreclosure is time.
 
A Short Sale is a property that is still owned by the Seller and the property is considered to have less value than the mortgage owed to the Bank.  In order to purchase a property that is a short sale, you must obtain approval from the Seller, the bank with the 1st loan and possibly a bank holding a home equity loan on the property.  Many times a buyer will get a great value in purchasing property sold by a short sale, however, it may  take many  weeks or months to accomplish.  If you need to move by a certain date or sell your current home by a certain date this might not be the property for you to purchase, unless you are willing and able to find housing on a month to month lease until the Short Sale is approved, if it is approved and the offered price.
 
A property in foreclosure means that the Owner stopped making mortgage payments and the Bank has started a lawsuit to take the property back.  A Lender may choose to go the foreclosure route instead of the short sale route if the Lender believes the property is worth more than the money owed to it.  Foreclosure actions used to take between 6 to 9 months.  In our current environment it can now take up to 2 years.  The Courts will do everything in their legal power to keep the Homeowner in their home and all avenues must be exhausted before the Courts will allow the Lender/Bank to take the property.  This is a long dragged out process and can be  extremely frustrating.
 
A Real Estate Owned Property, is a property that a Bank has taken over either by Foreclosure or Deed.  The Bank in this situation will close as soon as possible because they already have ownership of the property.
 
Nothing ventured, nothing gained but remember buying a property in foreclosure or advertised as a short sale it is a long dragged out process. You are taking the property "as is", without many of the standard representations.

Article Submitted by Attorney Felicia B. Watson

 
FeliciaWatson@sbcglobal.net

What Happens To Your Deposit Money in CT if You Can't Get a Loan on Time?

When a Buyer makes an offer to purchase a home, the offer is accompanied by an earnest money check, also commonly known as a down payment. 

In the State of Connecticut, typically a Buyer provides the Seller with a check for ten percent (10%) with the signing of the Contract and provides the remaining Ten percent (10%) at closing. The numbers are not set in stone but the more money offered as a down payment the more likely the Seller will accept an offer and the easier it is to be approved by a Lender for a Mortgage. 

The down payment is held in trust in the Seller's attorney IOLTA ( Trust ) Account.  In the Connecticut, if agreed to by the parties, this down payment may be released to the Sellers once the Buyer has obtained his/her Mortgage Approval. 

However, in the last 8 to 10 years, most Connecticut Bar Associations have written into their rules that the down payment funds can not be released until the time of closing.  In the State of New York, it is illegal for an attorney to release the down payment funds before the closing.
 
A question arises as to what happens if the Buyer does not get his/her Mortgage by the deadline.  If the Buyer does not get his/her Mortgage by the date stated in the Contract of Sale, the Buyer's attorney should ask for an extension to obtain the Mortgage Approval.  If the Buyer's attorney does not request that extension in writing, the Seller could be  entitled to the down payment if the transaction does not go forward. 

Also, if the Buyer backs out after signing the Contract, the seller may be entitled to the down payment.  Most Contracts have a liquidated damages clause, which allows the Seller to keep the down payment if the Buyer defaults.  If the Buyer does not qualify for the Mortgage and advises the Sellers in a timely fashion, the down payment is returned to the Seller.
 
However, it is not that easy for the Sellers.  If the Buyer had an extenuating cirmcumstance, i.e. - a death in the family, lost a job after entering contract, etc., the courts will look to these cirmcumstances and not allow a windfall to the Seller. 

Most courts will allow the Seller to be able to keep the difference to make him whole.  He can not reap a benefit from the default.
 
Every circumstance is different.  Keep an  eye on the dates in the Contracts, do everything in your power to meet your deadlines and if you cannot, ALWAYS request an extension in writing.  As a common courtesy most attorneys will allow for a one week extension and in the current mortgage environment more.

Article Submitted by Attorney Felicia B. Watson

FeliciaWatson@sbcglobal.net

How much of a downpayment do you need in order to buy a home in CT?

You may have heard that you need a 20 percent downpayment, a 10 percent deposit,  five percent down, or even less to buy a home. It really all depends on a  number of factors besides your credit-  including your income, your liquidity (or cash on hand), your debt ratio, and what price range that you are looking in.

Years ago, the accepted standard for a downpayment was 20 percent. Prices were also much lower then, and that twenty percent downpayment was a lot easier to attain. We call that percentage a  conventional downpayment nowadays.  At some point a ten percent deposit was acceptable, as long as you paid the bank Private Mortgage Insurance (PMI).  PMI is essentially insurance to cover the bank  in case of a default. When you reach 20% equity and can prove it, you can usually get the PMI removed. For you professionals out there, yes- I am simplifying it for the masses. If and when you have a question about PMI, it's best to contact your mortgage broker or the bank that holds your loan for their policies.

Around twenty or so years ago,  five percent down became an acceptable downpayment, and much more common than one might think. It has been  fairly common ever since. You can also get a government backed loan with as little as 3.5 percent downpayment (FHA). The PMI is necessary for these loans as well, although some loan providers also allow you to opt to pay a one time PMI  fee, instead of monthly, or a combination of the two.

Now that we have the percentages down, you also have to qualify for the loan amount that you are looking for.  Of course, I can give you an estimate, but it really is best to meet  with a mortgage broker  who can guide you in the right direction with the loan amount and type of loan that's best for you. We  post current financing rates here every Friday  and you can check our blog for rates, and you may wish to Contact a Mortgage Broker to get clarity on your particular situation. We happen to like Jennifer Buchanan, among others. See her contact info at the bottom of Every Friday's Financing Update.

If you really think about it, and you were thinking about just renting a home, you may want to consider buying.  In order to rent anywhere, you generally need three months rent to move in. (That's one months rent, and two months security) That number is usually very close, and in some instances MORE than a 3.5 percent deposit. We can always negotiate closing costs, so you may very well be able to buy when you only thought you could rent. Give it some thought.

The rates are historically low, and prices are very good right now. You would be getting in on the ground floor!

If you are thinking about buying and want to browse the MLS, you can do so with unlimited access right here on our site, or if you are ready to look right now, we can get started right away. We 'll get you the best deal whenever you're ready.

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The Next Step of Your Connecticut Home Purchase -The Building Inspection

As soon as your purchase agreement is signed by the seller, it is time to get very busy, and  very quickly. If you don't already have an attorney to represent you with your purchase, get one immediately, and have your agent get all of the paperwork to him/her.

Then you should get that building inspection scheduled right away. The time frame for completion of the inspection is outlined in the binder, and it is the next VERY important step. Whether I represent buyers or sellers, I like to see the inspection scheduled within five days of the negotiated and signed  binder.  No sense waiting a week or ten days. Just get it done. If there are any issues, it is much easier to resolve them in the beginning of the transaction.  If  a resolution is not likely, move on to the next property, and save the seller some grief at the same time.

When it's time to call an inspector, there are a few questions that you should always ask

1. Is the inspection company affiliated with any national organization such as NACHI or ASHI? These organizations require that inspector members subscribe to a strict Code of Ethics. It would say a lot about a company who does not belong to either one of these organizations.
2. Does the inspection and report include a certified pest inspection?  I
3. Is a radon test included?
4. Do you have any customer coupons for a discount?
5. When will the report be ready, and are photos included?

Assuming that all of these answers have been answered to your satisfaction, the next item of importance is your presence at the inspection.
Do not allow yourself to be distracted by anything when the inspector is reviewing and assessing your new home.  I tell my clients to "stick to that inspector like glue", and ask as many questions as they want. You are paying for this inspection. Get the most our of it. Inspectors have a wide range of knowledge and should be able to answer most any questions about the mechanicals and structure of the home. So ask away!

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Should you buy that less than perfect house?

The answer to that question has to, and will be different for everyone. If your opinion of less than perfect means that you don't particularly care for the landscaping, that's one thing. If it means that the house is missing one room for your needs, that's another. So how do you decide if this "less than perfect" house is the right one for you?

First of all, do not let ANYONE, including a spouse, significant other, friend, family member, (or heaven forbid) your agent talk you into purchasing something that you do not want, or are not quite sure that you want.

What are your wants and needs for your new home? Are they realistic within your price range?

When I meet new buyer clients for the first time, I sit down with them and ask them a number of questions to ascertain what is important and what is not so important. I also want to find out what is an absolute "NO",  no matter what. Sometimes, it's hard for a buyer to figure out what is truly important, what they can live with and what would be unacceptable.

A little give and take depending on the importance of whatever criteria you have can be crucial to  finding a great house.  Let's look at a few examples:

You want a remodeled kitchen.

Well, that's fair enough. It can be a major disruption to remodel a kitchen, and that's not even taking the cost into account. Have you looked at the kitchen closely? If the cabinets are in good shape and the color of those cabinets is acceptable, what about changing the hardware and/or changing the countertop? The cost of that can surely be negotiated with the seller (although we wouldn't necessarily tell them that)

You do not want a  house on a main road.

Reasonable, too. By the way, what is your definition of a main road? A road divided by "double yellow lines", one that has a State Route number attached to it, one that has commercial development down the street, or maybe something that doesn't fit into any of those categories? Well, okay... you can't change a location. But if the house sits far back enough, would that make a difference to you? If it doesn't, then don't bother looking at homes on main roads, and make sure that your agent knows your personal definition of a main road.

The walls need painting, the carpet needs replacing, the floors need refinishing, or other  minor cosmetics.

Some buyers just don't want to be bothered with doinf any cosmetic work at all. And that's fine too.
If you knew that a home had everything else that you wanted, but needed the floors refinished in a few rooms, would you still say no to it?  What if the cosmetic work was completed prior to closing with the contractor of your choice ? Would that make a difference?

The house has everything you want, except it has a pool and you don't want one.

Also reasonable. Let me ask you this-  If the pool wasn't there, would you want to buy that house? If so, we can always ask the sellers to remove it. Simple as that. And, yes,  sellers have done it.

What I am trying to get at is that sometimes we want certain things that may not seem so obviously attainable if we don't ask, or try and figure out an easy solution that you can live with.

Certain things can't be solved to your satisfaction. But lots of other things can. Sometimes it takes imagination, but one thing is  for certain. If the house is that close to what you want, there must be a way to make it work. A great agent can make it happen, and I just happen to know someone! You can send me an email and we'll get started anytime you like.
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