Today Hot Property is starting a new feature we’re calling Tell Us Your Real Estate Story. We’re looking for true tales from people buying, selling, or just trying to hang on to their homes. Send a photo of your house and share a bit of what you’ve learned during this slump to firstname.lastname@example.org. We’ll publish it on the Web site. Realtors’ stories are welcome too! I’ll kick this off with my own recent tale:
After months of serious searching I closed Thursday on a home I’m planning to rent out. I paid $125,000 for a house that sold four years ago for $355,000. If you’re thinking about buying a bank-owned home I’ve learned a few things. One is that good ones go fast so if you see something you like make an offer. Avoid foreclosure auctions. The houses all need a lot of work and you don’t have time to do proper inspections. Also, the houses at the end of the auctions sell for a lot less than the ones that start off the day because buyers leave. I got outbid early in one auction. Later the same day my friend picked up a three-bedroom home in the close-in Los Angeles suburb of Van Nuys for $163,000 that sold a few years ago for $500,000.
I’d been looking for months in my neighborhood of Los Angeles and while prices had come down I wasn’t seeing anything that was likely to produce positive cash flow, even with a sizable down payment. I made an offer on a short-sale—a home in which the owner is trying to sell it for less than what he owes—but withdrew it when the listing agent didn’t present my offer to the bank. Stay away from short sales because they involve too many decision makers. That property is still on the market.
I widened my search to suburbs of Los Angeles that were a train ride into town—in case gas prices bounce back—and that were places that had jobs and would likely still have job growth in the future. Through Realtor.com, I found a cute two bedroom, one bath Spanish-style bungalow listed for $129,000 in Ontario, California and I made an offer for $123,000. The bank that owned it asked for a counter offer. I came back with $125,000 and they accepted. These are photos of the front of the house and the living room.
Even if you’re pre-approved for financing, it’s a huge struggle to get a loan right now. I have near perfect credit, no debt, cash in the bank and a job. I was pre-approved for hundreds of thousands of dollars but when it came time to get the loan it was a bear. My old bank, Bank of the West, wanted to charge me five points to get a loan. That’s the equivalent of paying $5,000 up front just to borrow $100,000. A Wells Fargo mortgage rep said their bank wasn’t “competitive at loans under $100,000.” Why they only want to lend more I don’t know. LendingTree.com promised to find me five offers in 48 hours. Two days later, they said they couldn’t help. They should change their advertising slogan to: When banks don’t want to compete, you lose.
Ultimately an independent mortgage broker—Mitch Ohlbaum of Legend Mortgage in Los Angeles—found me a loan with an institution I’d never heard of called Provident Funding. I had to put in more than I planned—a 25% down payment. I’m paying a higher interest rate, 6.2%, and one point in fees. Had I said this was an owner-occupied property I would have gotten a better deal. I also would have qualified for $8,000 in federal tax credits, but lying about such things is mortgage fraud.
Provident, bless them anyway, put me through a ringer. Bank statements, tax returns, notarized interspousal escrow instructions. At one point I was actually scraping and painting a house that I didn’t own because the lender wanted to see some damage repaired. I was out about $1,000 for inspections and other work before I was even sure I was going to get the loan.
The bank that owned the property wasn’t much fun either. On bank-owned properties they ask for a really tight window for you to waive your contingency for inspections—seven days in my case. They also wanted a commitment from me that I’d pay them $100 a day if I didn’t close on the day we agreed. This created all kinds of stress—and requests for waivers—on my end. I would definitely not agree to such terms if I was doing it again.
Bank-owned properties are commonly sold “As Is” meaning the bank won’t do any repair work. They are interested in getting rid of them however, and ultimately the bank paid over $5,000 for a new sewer line, termite abatement and other repairs.
I say bank owned, that’s only sort of true. US Bank was the servicer of the loan. The house was actually owned by a pool of mortgage investors. The previous owner had been foreclosed on. A neighbor told me he was a commercial painter who’d lost the house in October when his work slowed. I do feel sorry for him, but given how much he paid, he’s probably better off. He was probably shelling out $4,000 a month to live in the house. My payments—taxes, insurance, everything—will be $750.
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.