Purchasing distressed properties—Part 2

Posted on Mar 1, 2017 in MARK WELLS' BLOG | Comments Off on Purchasing distressed properties—Part 2

Last week, Mark Wells addressed questions regarding the purchase of distressed properties. Here, he continues with those questions:

I am buying a distressed property and the appraiser has noted that a number of repairs need to be made to the home to make it marketable and habitable. The seller is balking at doing the repairs and the lender won’t close without those being completed. What do I do?

This is the dilemma of many distressed property sales. You can: 1) Ask the seller to grant you access to the property to do the repairs at your own expense prior to closing, or 2) Try to negotiate with the seller to complete the repairs for you and add the cost of the repairs to the purchase price (financing the repairs into the purchase price). Private sellers are more likely to accommodate you, but an institutional seller (a bank or government agency) will rarely do either. To make the strongest case for your request, get your permanent mortgage fully approved up front by a competent mortgage broker, so the seller knows you can complete the sale once the repairs are done.

What if the seller won’t do either one?

As discussed last week, you could use an FHA 203-K (for non-structural repairs), or an interim construction-type loan where there are
structural issues to be addressed.

The house I am looking at is in good shape, but the seller is having to sell it for less than he owes. Can this be done?

If the seller can make up the difference between what
you pay and what he owes, the sale can proceed like any other; if not, the transaction would be a short sale. It can be done, but only with the lender’s permission and willingness to accept a pay-off of less than what they are owed. Our experience has been that it can take 6–9 months for the lender to make that decision. If you set out to buy a house under a short sale, be prepared to wait for an answer.

I’ve heard there are foreclosure auctions every month. Should I go to one and bid on a house?

Before you do, enlist the help of a competent real estate attorney to determine whether the title is clear to the house you are bidding on, or if it has unsatisfied liens which will transfer to you at purchase. Also, realize that the lenders will usually bid out their own mortgages up to what is owed and take title, rather than let the house sell at auction for less than what they are owed. So make sure you are willing to bid a price above the loan balance before wasting the time and energy of going to the auction. Finally, if you intend to bid, transfer of title must be completed
within 30 days, so your financing needs to be arranged up front, before the auction.

Wells welcomes questions or comments and can
be reached at (864) 235-9596, or by e-mail at
Mark@TheGreatestRates.com.