Monday, December 1, 2008

Buyers May Not WANT Condo Docs for Short Sales & Foreclosures

I was quoted in the Washington Post yesterday for my recommended strategy of NOT asking for condo docs on a foreclosure or short sale.

In the original article here, the author discusses the fact that:
Virginia law requires sellers or their real estate agents to get a presale financial disclosure packet from the association and give it to buyers. Buyers have three days to review the financial disclosures and rules governing life in the association and can back out of the deal if they don't like what they see. In Maryland, buyers have seven days in which to review the documents and cancel the purchase. In the District, buyers are allowed three business days.
The challenge with short sales and foreclosures is that the sellers either can't or won't provide these documents (which come with a charge of several hundred dollars.) This leaves buyers in a tough spot -- they don't know whether there are any problems with the Association's finances, for example, because they never received the packet. Sometimes buyers can pay for the pack themselves, but often Associations won't give them to anyone but a current owner.

BUT, there's an upside to this frustrating situation: Buyers who never receive the packet retain their right to back out at any time up until, and for 3 to 7 days after receiving them (depending on jurisdiction). See my quote here:
Katie Wethman, a real estate agent in McLean, pointed out a way to game the system. "It can be a strategic choice not to ask for the documents," she wrote. "Buyers retain a right of rescission up until, and for three to seven days after, the receipt of the documents. If the buyer is concerned about timing, financing, finding a better deal, or just getting cold feet, they may wish to delay receipt of those documents as long as possible. They may forgo them altogether in an attempt to keep their right to walk away right up until settlement."
So talk to your agent about your situation and whether it makes sense to try to obtain the documents or may come to regret having asked for them.

Scared about taking on a short sale or foreclosure home because of the rehab work involved? Consider purchasing one using an FHA 203(k) loan, described in my blog post here.


FRANK LL0SA Va Broker- said...

I'm glad you added the "up until settlement" part. As you lose your right to back out after settlement.

But you also don't want clients trying to avoid receiving the docs (like dodging their mail) as that might not count.

Katie Wethman said...

Right on both counts, Frank. After settlement you are presumed to have accepted the property. And all parties in a transaction are required to deal honestly and in good faith, so if the sellers made an attempt to deliver the docs as specified in the contract, then you're likely not going to be able to use 'non-receipt' as grounds for voiding.

Anonymous said...

I'm always surprised at the number of agents who try and shirk getting the HOA or Condo documents saying the bank won't pay for it. Every conversation I've had with a settlement attorney indicates that the lenders can not violate VA Law which states it is the sellers responsibility to provide the documents. Documents still need to be delivered per the contract and you are right if they are not it gives the buyer the right to back out right up to settlement.

Katie Wethman said...

Hi Cindy, and thanks for the comment. You're absolutely right that it's required, the frustration is that the buyer's only remedy is usually to back out (I say usually because sometimes buyers can order and pay for the docs themselves). The banks and owners just aren't motivated enough to bother with it, and most don't understand that it's a legal requirement under the contract. I'd rather see the legal requirement have a monetary penalty attached if the bank/seller doesn't comply, but as it is right now, it's kind of a toothless law. Buyers can either accept that they're not getting the docs, or walk away.