Ronald S. Webster

Prices may look attractive and the subliminal thought of benefiting from someone else’s misfortune may be psychologically appealing, however, that doesn’t mean a buyer should let their guard down when negotiating with a bank over a REO (Real Estate Owned) property recently acquired through foreclosure.

Although banks have a fundamental desire to unload a non-performing asset from their books, buyer beware, banks can be extremely difficult to work with.

Below is a list of ten common pitfalls buyers should be aware of when purchasing foreclosed properties from banks.

PART I: THE PROBLEM

The Home Affordable Modification Program (HAMP) proved to be a failure. In part, this has triggered an increase in the number of short sales. As a result, the short sales process has presented a great deal of frustration as well as challenges to the real estate community due to countless reasons including:

A. Short Sales can be Successful! I am frequently contacted by buyers, sellers and agents who get frustrated halfway through the short sale process. Negative comments start to emerge that only one out of five short sales are successful. The truth is short sales require the determination of an olympic athlete. With hard work and perseverance, banks will approve the vast majority of short sales offers that are submitted with a reasonable contract price.

One of the most difficult questions I am often asked is whether an individual should default on their loan. Strategic default is the decision by a borrower to cease making mortgage payments despite having financial ability to do so. This phenomena can be used as an affirmative negotiating tool to unload properties with no equity or for individuals seeking to modify a loan or qualify for a short sale. According to recent studies Experian (of the National Credit Bureau) a good portion of all defaulted loans today are strategic defaults made by choice rather than out of necessity.

Multiple offers can create multiple minefields. One of the most common issues surrounding short sales many realtors have been encountering recently is how to deal with multiple offers. If the Seller has already accepted an offer, any subsequent offer must clearly be disclosed as a back up offer.

Many buyers are under the mistaken belief that all offers must be presented to the bank. Particularly when those subsequent offers are for a higher purchase price.