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Lillian Wong
Senior Mortgage Loan Officer
14850 N. Frank Lloyd Wright Blvd. 
Scottsdale, AZ  85260
Email:   Lillian@LillianWong.com

 Foreclosed purchase can cost you time By Peter Corbett The Arizona Republic 09.11.09 

They can get bargain prices on short sales or bank-owned properties, but the transactions can take longer than conventional real-estate deals.

Realtors, lenders and real-estate lawyers warn their clients to be patient.

"It can take months to put together a short sale," said Scottsdale Realtor Merrilee Edwards of Realty Executives. "I tell my clients we might get this done in two months or six months, or we might not get it done at all."

Foreclosures can take 45 to 60 days or longer to close and can be clouded by other issues including lower-than-expected appraisals that kill deals at the eleventh hour.

Still, buyers, sellers and lenders are making a dent in the nearly 50,000 Maricopa County homes that are in the foreclosure process. More than 9,000 homes have been sold in each of the past three months, which is close to the sales pace of summer 2005 when the market was hot and prices were rising.

In July, 53 percent of the Valley's home sales were foreclosures and 15 percent were short sales, according to a monthly real-estate report from Fletcher Wilcox of the Grand Canyon Title Agency Inc.

Wilcox noted that short sales are increasing as lenders realize that it can be their best financial option.

"A bank is much more likely to do a short sale if they think that, down the road, the home is going to be worth less," he said.

In a short sale, the lender agrees to take less than the borrower owes on the home.

For example, a borrower owing $250,000 for a home sells it for $200,000. The lender is left with a deficiency of $50,000 that it may or may not seek to collect from the borrower.

In a foreclosure, the borrower is evicted and the lender sells the home at a trustee sale or, if that fails, through a conventional real-estate listing.

"The banks have learned over tracking financial data that short sales will net them about 20 percent more than if the house goes to foreclosure," said broker James Adelman of the Adelman Realty Group.

Short sales are "a way of stabilizing our market and stopping the bleeding," he said.

Negotiating short sales

Adelman's northeast Phoenix realty works with two law firms, the Mackey Law Firm PC and Thomson Conant PLC, to advise homeowners who are in trouble on their mortgage.

Kevin Hardin, director of Thomson Conant's mortgage-mediation group, said those options typically involve a short sale or letting the property go to foreclosure.

"We really don't promote loan modifications," he said, adding that it's usually a temporary fix and a homeowner will struggle again in three to five years when the loan resets.

"People say they want to save their home at all costs, but we tell them that they should save their family," Hardin said.

They can live in rental property for less than their mortgage and, with a short sale, within two to three years can again qualify for a home loan, he said.

In a foreclosure, it can take three to five years to qualify for a home loan, and the clock does not start ticking on that until after the lender-owned property is sold.

In short sales, Hardin said his firm's lawyers negotiate with the lender to accept a short sale and not go after the seller to repay some or all of the deficiency on the loan.

He noted that Realtors cannot legally negotiate a short sale with a lender.

Lender-owned home deals

In any case, buyers in short sales and foreclosures are taking advantage of declining home prices, tax incentives and other federal programs.

For example, a bank-owned Scottsdale home that sold for $460,000 in 2006 is now on the market for $333,500. That is a price cut of 28 percent for a five-bedroom, 3,050-square-foot home, built in 1991, with a pool and spa near Thunderbird Road and 96th Street .

The owner owed $526,562 on the home, the amount higher than the original purchase price possibly because of a home-equity loan. The lender is likely to lose close to $200,000, said Realtor Edwards, who was certified as a distressed-property expert earlier this year.

She estimates it will cost at least $30,000 to refurbish the home with paint, new flooring and other improvements.

In bank-owned deals, potential buyers submit offers that are evaluated by an asset manager. Competing buyers are then given a chance to submit a final offer without knowing what the other bids were, Edwards said.

The asset manager then chooses the best offer based on price and the buyer's financing, with cash buyers being the most coveted.

In the current Valley market, multiple offers are coming in, especially for affordable homes that are well-priced.

"There is a lot of pent-up demand," Edwards said.

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