The Condo Buying Process: Foreclosures

In last week's blog I wrote about the sales figures for September 2010.  Although I already knew that foreclosures and short sales represent a large part of our business today, I was reawakened to that fact by my examination of the sales statistics for condos.  Depending on the region up to 80% of all condo sales were foreclosures or short sales in September, and I don't see that number dropping radically in the foreseeable future.  For that reason, I thought I would share some information regarding the purchase of foreclosure condos for this week's blog.  Below are a couple issues I think should be kept in mind when in escrow to purchase a foreclosure condo.

Addendums

Typically a bank-owned foreclosure will have an addendum to the purchase contract that both buyers and sellers (the owner bank) will need to sign.  The addendum supersedes the purchase contract, meaning that if there is a contradiction between the two documents the Addendum will have precedence.  This is a very important fact because the purchase contract is written by the buyer's real estate agent from the buyer's perspective but the Addendum comes from the bank and written to be advantageous to the bank.  I strongly urge buyers read and understand what they are signing in the Addendum before they actually sign it. 

One other feature of Addendums is that they have passive contingency removal dates.  A passive contingency removal means that as the calendar date comes and goes the contingency will be removed automatically.  In contrast, when dealing with a traditional sales transaction, the buyer (or seller) will have to actually remove the contingency in writing, that it doesn't just get removed automatically.   For this reason it's very important to keep an eye on the calendar with relation to the contingency removal periods on foreclosures.

What do you do when the contingency is about to be removed and you're not ready yet?  Ask for an extension!  This happens a lot, especially for certain contingencies.  Loan and HOA Document contingency periods are two that are typically shorter than they need to be and therefore ripe for an extension.  As long as the extension is requested before the contingency has come and gone and is for a reasonable amount of time (let's say another week) the seller should be okay with this option.  Remember, the bank wants to sell this property or they wouldn't have accepted your offer in the first place, so a reasonable request will probably be accepted.

Repairs

When I'm working with a buyer on an offer to submit on a foreclosure condo I usually recommend that the buyer negotiate hard up front to get the best price.  The reason for this is because after the property is in escrow the seller bank usually doesn't reduce price at all.  Contrary to this, in a traditional sale if the home inspection discovers a few issues the buyer and seller can come back to the table to negotiate what will be repaired or reduced in price.  With a forclosure sale I'd usually not recommend asking for repairs on minor issues.  However, if a home inspection discovers a big problem the buyer should always put in a request for repair and see what happens.  I recently conducted a home inspection on a foreclosure condo and the process found that the entire heating and air conditioning system was worn out.  I got a specialist to give a price estimate and I submitted this to the seller bank for them to repair.  They don't usually do the repair and instead offer money back or a reduced price.  In this instance the bank could see that if these buyers didn't buy the property they'd be stuck with a property with a defective heating and air conditioning system so they accepted a reduced price close to the estimate of the new system.  So again, although a bank usually won't negotiate further on price after an in-escrow price has been agreed upon certain circumstances do warrant further price negotiation.

In today's real estate market foreclosures are still very common.  Please feel free to contact me if you have any questions about purchasing your very own Palm Springs Condo.

Alan Wilke
Condos@PalmSpringsCondoLiving.Com
760-464-6693