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 not...you 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.

Guest Post: Rehabbing Properties Using the FHA 203K Program

Thanks, Cindy Fox of SunTrust, for information on this program which can really help buyers who have found their diamond in the rough! You can find Cindy's contact information at the bottom of this post.

Looking for a bargain in the real estate market?

Have you seen the perfect place for you and maybe your family – but then the inside of the place has been trashed? Or is simply is older, outdated, and in need of updating and/or repair?

Sometimes you just need to see beyond to cosmetic abuse to the eye, and maybe structural deficiencies, and envision a place after tender loving care – and a lot of tear down, build up and sweat has been applied!

So – you have the vision. Great! Now – how to pay for putting that vision into action to bring to a reality that vision?

There is an option for you! The FHA, which is a part of Housing and Urban Development (HUD), has a program that will help finance the purchase of such a dwelling, as well as the financing of rehabilitation of the house.

203(k) - How It Is Different from Conventional Construction Financing

The 203(k) program is a section of HUD’s home financing guidelines and its primary program for the rehabilitation and repair of single family properties. The program was designed to promote and facilitate the restoration and preservation of the Nation’s existing (and aging) housing stock. Most of the time lenders will only lend money to purchase homes that are complete. The condition of the property must meet certain standards. Under normal purchase transactions (or refinance transactions) properties that are complete and meet a certain property condition provide the necessary collateral for the lender to lend with confidence. Additionally, most loan programs require that if there are repairs, or renovations to be completed, this must occur before the lender will release funds to complete the purchase and close the loan.

Under conventional guidelines, when a homebuyer wants to purchase a house in need of repair or modernization, the homebuyer usually has to obtain financing first to purchase the dwelling; additional financing to do the rehabilitation construction; and a permanent mortgage when the work is completed to pay off the interim loans with a permanent mortgage. Often the interim financing (the acquisition and construction loans) involves relatively high interest rates and short amortization periods.

The 203(k) program through HUD was designed to address this situation. The borrower can get just one mortgage loan, at a long-term fixed, to finance both the acquisition and the rehabilitation of the property. To provide funds for the rehabilitation, the mortgage amount is based on the projected value of the property with the work completed, taking into account the cost of the work.

Eligible Improvements: Luxury items and improvements that do not become a permanent part of the real property are not eligible as a cost of rehabilitation. However, the homeowner can use the 203(k) program to finance such items as painting, room additions, decks and other items even if the home does not need any other improvements. All health, safety and energy conservation items must be addressed prior to completing general home improvements.

How the Program Works: The improvements, repairs, and rehabilitation proposals must be part of the loan package and can be prepared by a builder, or a consultant and show the scope of the work to be done. Cost estimates must include labor and materials sufficient to complete the work.

The scope of the work as presented in the proposal determines the amount of the loan. Usually, an appraiser will evaluate the proposal in conjunction with the current value of the property and determine an “after-improved” value which will determine the amount of money available for the repairs and rehabilitation.

For More Information: For more information on eligible properties, how the program can be used, required improvements, how the program works, and the application process, contact Cindy Fox at SunTrust Mortgage at (703) 464-4345, or email Katie (info in right hand sidebar) for more information.