Buying Phoenix Foreclosures

How to make an offer on a Fannie Mae home

This is a post about how to make an offer on a Fannie Mae-owned (foreclosure) home in metro Phoenix, Arizona where I’m a licensed Realtor. If you’re reading this from out of area, or long after Summer 2011, please consult a professional in your area.   Need a metro Phoenix-area Realtor? Contact me!

To make an offer on a Phoenix-area Fannie Mae home at present, you need at least the following forms, completely filled out:

  • REO coversheet
  • Owner Occupant Certification
  • Notification to Listing Agent
  • Fannie Mae Real Estate Purchase Addendum
  • AZ State Purchase Offer/ Contract
  • Agency form
  • Loan PQF

I submitted a Fannie Mae purchase offer this morning for one of our buyer clients -- it was 28 pages long!

Several of these forms you get from the Listing Agent (that’s the seller’s Realtor). The Loan PQF (Pre-Qualification Form) you have to get from the Buyer’s loan officer, and it must be dated within the past 1 to 8 weeks or so.

Currently, Fannie Mae is requiring that the Buyer complete their Fannie Mae Real Estate Purchase Addendum. That’s a fairly new requirement; it used to be buyers didn’t fill in that form at all but rather waited for Fannie Mae to send it once the buyer’s bid had been accepted. Be careful with this form! It has a couple really vital “trigger dates” in it, and the Buyer has to fill in those dates. A trigger date is my term for a date that other contract deadlines count from. For example, the inspection period counts from the Acknowledgement Date which is different from (but closely related to) the Effective Date. Fill in the wrong dates on these blank trigger date fields and you can seriously screw yourself up.

Another thing to be carful with on the Fannie Mae addendum – the form uses the terms Settlement Date and Expiration Date interchangeably, but never use the term Closing Date, which I find utterly stupid. The way the government’s attorneys wrote the form, if the closing doesn’t happen on the Settlement Date, the deal expires, per the Expiration Date. But the addendum doesn’t say what happens then! Does the buyer lose their Earnest Money? Does the deal just close on the next business day? Who knows! The Addendum doesn’t say.

Oh, and don’t forget to specifically ask for the Fannie Mae Incentive of 3.50% of the purchase price from the Seller to cover some of the buyer’s closing costs, by adding that request to your purchase offer. If you don’t ask, you won’t get the closing cost assistance! You also have to know when Fannie Mae’s offering that incentive; they don’t do it all the time.

Confused yet? You’re not alone. If you’re a buyer or potential buyer in the metro Phoenix are in Summer 2011 you’re bound to run into Fannie Mae homes. Fannie Mae’s got so many homes for sale these days, it’s like shooting fish in a barrel.  As the commercials say, “Don’t attempt this at home alone kids!”  

You really need an experienced Realtor working on your behalf when you’re trying to make an offer on a Fannie Mae home. The paperwork is just so confusing and Fannie Mae keeps changing the rules about which forms they want and how you have to fill them out.  Hire a Realtor!

Need a Realtor? Read all about Heather and Chris, authors of this site and experienced Buyers’ Agents.  Then contact us and hire us; we’re happy to help.

Phoenix not in Top 10, but investors still buying here

Inman News reports on "The 10 Best Markets for Real Estate Investors" and here's some takeaways from that report:

  • Tucson is in the Inman "top ten" best real estate markets for investors, but Phoenix is not.

  • Investors usually pay cash for homes (61% compared to just 20% of owner-occupant buyers who pay cash

  • Most investors plan to own their investment home for about 10 years, and 52% say it's likely they'll buy another property soon

  • Investors are optimistic about the future of housing: 77% say "now is a good time to purchase real estate."

You can view Inman's full report here:

Real estate is local, so let's see what's going on in metro Phoenix...

Valleywide MLS statistics show that investors are buying in metro Phoenix, and they're buying a lot of homes. The Cromford Report shows investors are purchasing 24% to 26% of Valley homes sold so far in 2011.

Nationwide, Inman says distressed properties account for 40% of existing home sales, but you can see in the chart above that metro Phoenix area stats are much higher: investors bought 64% of all metro Phoenix area homes sold in May. (6,316 distressed sales out of a total 9,845 homes sold in May 2011).

How's buyer demand in metro Phoenix?

In a word: healthy. Check out this chart, also from the authoritative Mike Orr at the Cromford Report which shows that February 2011 was the third highest buyer demand month since January 2001. Only June and August 2005 -- the peak of the peak of the market -- had more homes sold.

[caption id="attachment_9173" align="alignleft" width="300" caption="Feb 2011 second-highest sales volume for Metro Phoenix since Jan 2001"][/caption]

Are you thinking about buying a home? Either for yourself or as an investment? Contact us before you do anything! We've been helping buyers and sellers in metro Phoenix since 2004, before the boom and bust brought our market to it's knees.

We know how to find and negotiate the best possible deal for you, and our customer service is top notch. Check out what our clients say behind our backs and give us a shout when you're ready to chat with a professional Realtor.

Do buyers of bank owned homes pay for back owed HOA dues?

Image ID 1279316 by StockExchange user Yello-dogGot this question from a current buyer client:
Hi Heather:

Silly question, we are not responsible for back HOA fees, are we?


This isn’t a silly question at all. The short answer is “no”. The longer answer is below. Keep in mind I’m talking about buying a bank owned foreclosure (“REO”) home in the metro Phoenix real estate market in April 2011. Consult a residential real estate professional in your area.

1) Whatever HOA dues the former owner of the home didn't pay are not the new buyers' responsibility. Those unpaid dues follow the former owner, and the former owner is financially liable for them. HOAs have the rights to sue former owners for those unpaid back dues, but in reality many times the HOA won't get that missing money back. (huge thank you to our colleague Dean Ouellette for catching my former error here by saying the old dues get wiped out by foreclosure).

2) The selling bank customarily pays all HOA dues owed from the date they took ownership until the date you close your purchase.

3) The dues for the month in which you close will be pro-rated with seller paying for days they owned the home, and buyer paying for days they will own the home. Note that closing day is allocated to the buyer, meaning the buyer pays for the HOA dues for that day.

4) Note though that HOAs usually require 1 to 3 months pre-paid HOA dues at close, and there are transfer fees as well (usually $100 to $500) and then there is sometimes another fee called "Capital Contribution" which is essentially a payment into the HOA's Reserve Fund (savings account) which is usually another 1 to 3 months.

Buy Phoenix foreclosures 30% below market!

Riffing off what Chris posted yesterday

In Phoenix, the winter tourist season is here. Every year this means a new wave of newbie real estate investors who are convinced that you can buy investment property in metro Phoenix for 20% or 30% below market value. Here’s the real deal…

I’ve been helping investors in the metro Phoenix real estate market since before the boom of 2005-06. This is my fulltime gig and I’m a happy workaholic, so I feel reasonably sure you can trust me on this. Don’t trust me? Trust my clients, who talk about me behind my back.

As of 2009 through 2011, there is no way to purchase property on the open market for 20% or 30% below market value. It simply cannot be done.*

Why? By my count of the last 12 months, banks were involved in 64% of metro Phoenix property sales.  One national estimate puts Fannie Mae and Freddie Mac in charge of 80% of American real estate.

**Metro PHX homes sold, Feb 2010 to Feb 2011:

# of Sales% of total sales
Total Sales91,425100%
REO sales38,08341.65%
Short Sale or other pre-foreclosure19,36521.18%
HUD homes6570.72%
Total sales involving banks58,10563.55%

With 6 of every 10 Phoenix-area homes sold involving banks at some level on the seller side, the banks are so huge they move the market. In fact, in metro Phoenix right now, the banks are the market. Whatever prices banks let their homes sell for is the new market value.

This is just Econ 101 from your freshman year of high school.

  • Thousands of buyers + thousands of sellers = happy, healthy, free market economy. Market values float up&down according to supply and demand.

  • Thousands of buyers + handful of sellers = lopsided marketplace where sellers rule and the price they want is the price they get.

Banks aren’t colluding to fix home prices. At least I don’t see any evidence of that (finding evidence of that would be waaay above my pay grade). But banks do have a bottom line on every home they sell and they stick to it without fail. I’ve seen banks turn away an offer for $61,000 when their bottom line was $62,000.

Sometimes, a few investors get lucky and find homes that need paint, carpet and a few handyman repairs and are then worth 15% or 20% more than the purchase value (but closing costs eat up as much as 12% of that ‘profit’). Almost without exception, these buyers go directly the foreclosure auctions and pay cash. The auctions aren’t designed for rookies. I hear they’re literally throwing elbows down there. Our brokerage has an agent who will go to the auctions with you. Contact me for his info.

If you’re an investor who still insists that a “good” Realtor can find you a property for 30% less than market value, please don’t call me. I’m a very good Realtor, but I’m not a magician.

Buying a foreclosure is hard

Sometimes buying a bank owned REO foreclosure home is well… hard.  Sometimes it’s very hard.

It’s not that the homes are sketchy (sometimes they are).  It’s not that the homes come without any disclosures of condition (they do). It’s not that the seller won’t guarantee anything during or after the sale (they don’t). It's not even that there are always multiple offers (although under $150,000 in Metro Phoenix in Winter 2010 there are often *are* multiple offers).

Often, the problem is that you can't contact the darn agent who works for the bank. They’re either overwhelmed with too many REO homes from the bank, or they’re … otherwise… missing in action.

Video created using software available at

Bank owned home for $11,000?!

Yep. You might remember my periodic series The Highs and The Lows? This is a definite low.

Within the past 30 days, some lucky buyer got a bank owned REO foreclosure house for $11,000. It was a 2 bed, 2 bath home built in 1947, located in Avondale.

11k EF

11k EB

11k KIT

So my Canadian friends and other out of town investor buyers…  when you call me and ask me about $10,000 and $20,000 houses in “nice” neighborhoods, know that this is what you’re buying.

Metro Phoenix is like every other town. It’s even like the town where you live Mr. or Mrs. Investor Buyer. The really, really cheap real estate is really cheap for good reason. In “nice” neighborhoods you pay nice prices.

Not all banks are utterly moronic

Last December our buyer clients found a house online that they loved in a big way. It was priced at $2,195,000 and their budget was $1,800,000 max. It was a short sale, headed for the foreclosure auction block in 2 days.

We saw it in person. They fell in love. I checked the tax records:  seller’s mortgage is held by a local savings and loan.

Bam! Foreclosure auction. House goes back to the bank.

I get on the horn and call the savings and loan in Scottsdale. The receptionist puts me right through to the guy in charge of selling the S&L’s foreclosed homes. Right through! The guy! I nearly fell off my chair.

He & I talk; he says send an offer. We help our buyer clients write up an offer and we send it over.

Long story short, about 60 days later our buyer clients moved into their dream home. Which they got for about 18% less than the true market value. And the savings and loan sold a foreclosure property without paying two Realtor’s fees or any landscaping & pool maintenance fees. Happy, happy all around; win-win for everybody.

All because someone at a bank answered the phone, in person and was ready to act when opportunity knocked. Wouldn’t it be nice if more banks operated that way?

Thinking about being a landlord?

If you’re thinking about becoming a landlord, The Landlord Protection Agency website is a great resource for you. Besides offering a chat forum, advice and free legal forms, they even have a funny Excuse of The Day feature where website members post their tenants’ most ridiculous excuses for not paying the rent on time. is another site that was recommended to me by a friend who’s used it over the years to run credit checks on prospective tenants.

Disclaimer: Both and offer free legal forms. I don’t and can’t vouch for the accuracy or legality of their forms. Please consult with an attorney or Realtor in your own state.

Scary Condo Statistics

Image ID 752193 by StockExchange user xmje43p

52% of condos* for sale in the metro Phoenix MLS which are priced under $75,000 are in some stage of foreclosure (they’re listed as either “short sale” or “pre-foreclosure”).


Here’s a handy chart for the visually oriented. “SS” equals Short Sale and “PF” is for Pre-Foreclosure.

List Price $75,000  & Under List Price
All condos for sale now
Condos for sale now that are SS/PF1,024

52% of total

39% of total
SS/PF units sold since 1/1/10
Months waiting on seller’s lender to OK the deal4.1 months waiting4.9 months waiting
Absorption rate of SS/PF9.7 months20.66 months

What does all this mean?

If you’re trying to buy a short sale or pre-foreclosure condo, patio home or townhome, you’re going to wait about 4 to 5 months between the time you make the offer and the time the seller’s lender approves the deal. If they approve the deal. It might be worth your while to look for properties that aren’t short sales and try to convince those sellers to come down a little in price. It’s so much more convenient to buy from someone who’ll actually answer you in hours or days, not months! Decide how much of a premium you’re willing to pay for a quicker answer, and someone with whom you can negotiate repairs and who pays for a home warranty, prior to closing.

If you’re trying to short sell your condo, etc., you’ve got a lot of competition. Have your documentation in order (for your lender, explaining why you need/deserve a short sale) and have a backup plan. Maybe your backup plan is talking to your lender about a loan modification instead of a short sale or outright foreclosure? Maybe it’s making plans for where you’ll live when time is up? Whatever it is, you’ll have 3-5+ months to create it.

Image courtesy of StockExchange user xmje43p

Disclaimers: data pulled from the Arizona Regional Multiple Listing Service on Monday March 30, 2010 at 11:20am local time. Data believed accurate but cannot be guaranteed. *In this post, “condos”  includes properties classified as apartment style/flat, patio homes and townhomes.

Update: Home Buyer Tax Credit

It looks like the fat cats in Washington, D.C. will pull it together and extend the home buyer tax credit. But it's really anybody's guess. Here's a Facebook message I sent just a few minutes ago to a friend who asked.

Q: Will the tax credit be extended?

A:  My gut says probably. Handing out money during a recession is ultimately good politics, no matter what the Tea Baggers say. But it's getting awfully slowed down in Congressional Committee. There's so much political noise about healthcare legislation and (today) noise about the local elections in VA and NY.

If they extend it, I just hope those old fat white men in DC are smart enough to make it retroactive so there's no gap between the old credit ending Nov 30 and the new credit beginning. It would suck HARD to close on Dec 3 if the old credit ends 11-30 and the new one begins 1-1-2010.

There are actually 2 different bills, both stuck in Committee. HR 3760 and S1230. You can track progress at - do a search for "Home buyer tax credit" and you'll see them both.

Links: Bloomberg News, November 2 ;

FHA Game Changer

Aug 5, 2009, 11:56 am. This just in, from one of our favorite lenders – mortgage broker Kevin Reiser of AmeriFirst Lending:

The FHA loan game is going to change completely. Mortgage giant Taylor, Bean & Whitaker just lost their FHA funding accreditation. They are:

  • the 3rd largest FHA lender in the US

  • the nation’s largest FHA 203k lender

  • the largest FHA funding source for mortgage brokers in the country

So what?  This is big setback for mortgage brokers and will change the game completely for buyers seeking FHA funding. Now those buyers must increasingly turn to bankers (rather than brokers) for their FHA mortgage funding. Brokers won’t be able to fund your FHA mortgage anymore, unless they get a different funding source than the biggest Big Boy out there.

Updated 7:05pm, Wed Aug 5:

How Big Is TBW? -- "Taylor Bean was the 12th largest U.S. mortgage lender in the first six months of this year, according to Inside Mortgage Finance, a trade publication. Among originators of FHA loans, Taylor Bean was the third largest in May, with a market share of 4%, according to the publication. Only Bank of America Corp. and Wells Fargo & Co. were larger." (quoted from Calculated, link below)

Calculated Risk reports on TBW - (excerpt/quote) the suspension was put in place because "TBW failed to submit a required annual financial report and misrepresented that there were no unresolved issues with its independent auditor even though the auditor ceased its financial examination after discovering certain irregular transactions that raised concerns of fraud."

Mortgage News Daily reports on the TBW situation - The snippet that caught my eye was this, "Regrettably, TBW will not be able to close or fund any mortgage loans currently pending in its pipeline." Yikers! If you're a home buyer using an FHA loan to purchase, and you're in escrow right now, and you used a mortgage broker to get your loan, call him or her immediately to find out if TBW was the broker's funding source! Your escrow might get very wonky, very quickly.

NPR reports on TBW - (excerpt/quote) "HUD wants the executives barred from conducting business with the government for 18 months."

TBW is a Florida based company. Local paper The Orlando Sentinel's report on Taylor Bean Whitaker -  They named Bank of America and Wells Fargo as financing alternatives, as did several other sources.


Last week I came across a home – listed for sale in MLS – that might take the cake as the worst listing ever.  Fortunately I had my camera with me.  :-)

I’m not going to count things outside the sellers’ control against them, such as the run-down neighborhood, the functional obsolescence, or the busy street nearby.  Pictured below are the things the seller had control over..

(and I saved the best for last, so scroll all the way through.)


Yes, that’s the carpet which greeted us at the front door.  If you don’t recognize it, that’s because they stopped making carpet like this in 1982!


I didn’t think I liked the carpet, until I saw the linoleum in the kitchen.  Then I got dizzy & wished for more carpet!  So I thought I’d stop looking at the floors…


Faux brick AND wood paneling.  Wow, what a bold design statement.  But what’s around the corner to the right?


yikes, I’m speechless.  and I didn’t have the courage to actually touch it, otherwise I’d tell you what kind of material that was.  OK, enough of this train wreck, let’s go out back.


Hey, not bad.  Good sized lot, well-built storage shed in the corner, block wall.  But it looks like there’s something on the gate – I’d better get a closer look…



Geez, if only the gate wasn’t damaged so I could read the whole message…

The problem with this house is that it would cost more to make the house somewhat habitable than the house would be worth, even after the renovations.  So nobody is going to buy it – it basically has zero value.

Maybe the best thing to do is to show a little charity – maybe leave the gate open and give the crack heads someplace to stay?  I’m just brainstorming here...

Your still in shock Realtor,

Chris Butterworth

More on Landmark Towers

WOW! I’m still getting truly awesome comments from readers over at my old blogsite about the Landmark Towers. (one-half of this blog used to be at

I hadn’t paid attention to the old blogsite’s comments in a while and did I ever miss out! I’m reprinting all the comments here. They're in order from oldest to newest.

- - - - - - - -

Submitted on 2009/02/07 at 12:24pm by Mike

Rented out a place on the 17th floor for over 2 years (Oct 2006-Dec 08) at Landmark. I only had the constant issues with the water. (They turn it off for a few hours at least once/month). I know some lower units were water soaked a few times and there were some units with AC issues.

Prices here have come crashing down…..but the HOA fees have skyrocketed up with less services. I really didn’t care for the valet service & actually preferred the setup they have now in taking your own car down.

The prior post about the light rail is true (and I lived on the south side of the building). On the positive side, I guess you don’t need to invest in an alarm clock clip_image001[4] ) It had no bearing on me moving on, but it is quite loud (hearing the horn/announcements/and the rattling on the tracks — which I believe comes around the curve by Camelback/Central)

I think buying here is a losing proposition. You see all the availables for a reason.

Submitted on 2009/02/10 at 12:28pm by Dave

I toured the building looking at units. To me they are priced well. As far as the HOA, again, it includes nearly everything. The noise? Doesnt bother me, that is one of the reasons I WANT to live downtown.

The bottom line is the HOA reserves, legitimacy of winning the lawsuit, the occupancy, and the projected costs. All of these items are easy to accumulate and should be transparent to all homeowners and those looking to purchase.

Additional costs happen in life, however a massive hit is not something anyone can endure.

Submitted on 2009/02/16 at 4:10am by Liz

I’ve lived here 2+ years, and it went from a great place to live to a miserable place to live. Yes, the train generates noise: I don’t mind it a bit – I feel like I’m living in a city. Yes, the water is turned off at least once a month: an inconvenience, but tolerable. Yes, we’ve lost MANY amenities but the HOA fees are still too much, even with electric inclusion; but I’m willing to put up with that… What is completely unbearable is the exceedingly rude staff from City Property Mgmt; it has destroyed this place.

So I had to laugh when I read the following:
“It is possible to get the front desk day-shift woman on your side and then she’s sweet as candy. Start out by acknowledging how hard she works, then ask her questions about the job.”

So now we have to butter up some incredibly rude woman and stroke her ego so that she will quit being rude to our guests, stop gossiping about and telling boldfaced lies about residents to other residents as well as guests, and to quit acting as if she were the warden and the residents were her prisoners?

And to make matters worse, all other front desk personnel know absolutely nothing about anything… Why? So that if a resident needs anything, even a simple question to be answered, they can only be “helped” by the daytime shrew. And help is the last thing you will ever receive from her.

Submitted on 2009/02/22 at 11:51am by Keith

This thread is fantastic.

For the last week, I have been looking at these properties online as a prospective buyer reading opinions everywhere and this by far the most information I’ve found.

Is a good rule of thumb here the higher the better? I don’t know what the elevator is like but I’d figure less noise and possible water damage as you go up.

I’m amazed the front desk woman has a job based on the stories I’ve read on this site and others. What’s the deal? She’s a more common complaint than the HOA fees.

The HOA fees are exorbitant but heating/cooling/etc included is somewhat understood. One could only hope they drop as certain issues are remedied.

I read that the individual tenants have limited control over their own condo’s temperature. Is there any truth to that?

Submitted on 2009/03/11 at 3:40am by “Prospective Buyer”

I just wrapped up a tour at Landmark today and viewed roughly a dozen properties, all of which seemed to be in good-excellent condition considering the asking price.

I was lucky enough to speak with 2 residents here and they provided me with nothing but great reviews about LT; one of them just happened to be a resident of LT for 2 years and has lived on 2 different floors. However, they did acknowledge the ongoing issues regarding the pipes and water temperature/pressure. My boyfriend was able to confirm this when he turned on a few faucets in each unit and noticed inconsistent water pressure each one, as well as hearing noise coming from the water pipes. I also heard good things about the staff, although I don’t know whether they were referring to the residential staff or the HOA management. All I know is that a woman named Vicki is incredibly helpful and sweet.

I’ve been trying to find out as much information about LT and have come across very conflicting reviews. My parents are in the market for an investment property, which I plan to live in, and would love to hear more about LT, so please keep up with the comments and articles!

Other than this blog, this was the only website that I could find with reviews on LT.

I hope this helps and look forward to future posts on here!

Submitted on 2009/03/17 at 2:24pm by Kathye

I am also a prospective buyer who is interested in purchasing at LT. I noticed many units on the market, and the prices are at a low. I have not been over to the property to check it out. I have seen many pictures. It looks like a cool place. Is there any resident that would like to give me tour? I am not ready to contact a realtor yet. I would love to see the views from the balcony and ask a few questions. I’ll provide the beer or wine!

Submitted on 2009/04/30 at 3:09pm by Cindy

I am currently in the process of purchasing a 6th floor unit. I had it inspected two weeks ago and no water damage or pressure issues were found. In fact, the inspector said the pipes in this particular unit were nearly brand new. Not sure about the rest of them, though! clip_image001[6] The AC blew me away. All in all, the inspector said it was in great shape and was himself a bit enamored of the place.

I love the bustle of downtown and can sleep through a tornado so bring on the city sounds! I love the north view, the light rail and the gorgeous mountain backdrop. They represent a harmony of nature and technology working together for me. And for Chrissakes I won’t die before it’s paid off! Given what is included, the HOA fees still seem reasonable *enough* to me, and not having to even deal with those little things makes my life easier.

Does anyone know the approximate % of the building that is occupied? I now seem to see the same units over and over again, so I’m assuming most people are staying put that are there.

This site is great, thanks to all for the great research! clip_image002[4]

Submitted on 2009/05/19 at 9:48am by Cindy

Well that is an interesting question. I am still going through the loan process with my unit and yesterday the relator called and said they were raising the HOA fees $800 a month for 8 months to pay for a new air conditioning unit. On top of the $581 I will already be paying. However, that includes air/heat, garbage, cable, water, etc. Everything except internet and electricity, which is about 20-30/mo depending on which side of the building you live on. It is less on the north side because it is cooler. I am needing actually at this point to rethink this because I can’t afford what will basically be $1,622 a month for 8 mos.!!!

HOA fees vary depending on your unit. Mine is a 2 bed 1 bath. If anyone knows anything else, especially someone who is already living there, please contribute!

Submitted on 2009/05/21 at 11:54am by Mario

I am also a perspective buyer at the Landmark. It sure would be nice to have solid info from someone on the hoa board post something on this site to concerns about 800 dollar increases over 8 months !!! Getting scary…..6400.00… 8 months? Can anyone comment?

Submitted on 2009/05/29 at 3:55pm by Cindy

I called the HOA directly about this and spoke with the Accountant. My realtor called and told me this so I obviously was very upset. The accountant said that the issue with air had been addressed and if anyone would know about such a ridiculous increase it would be her. I am going forward with the purchase. That is what I have so far, but I’ll be sure to update if anything changes.

Want to search for downtown Phoenix condos, including Landmark Towers and others? Click here.

Foreclosures: Read the Fine Print

Buyers should read the fine print on bank addendums very carefully before agreeing to complete the purchase of a foreclosed (“REO”) home.

I’m reading a bank’s REO Addendum now and I’ve got 2 problems with it.  1) It removes the buyer’s financing contingency after the “Financing Commitment Date.” 2) The actual Financing Commitment Date is left blank.

In part, the bank Addendum says
. . . If Buyer delivers written notice to Seller that … financing has been declined (a “Notification of Decline”) prior to the Financing Deadline, then the Agreement to Purchase shall become null and void and the Deposit shall be returned to Buyer. If Buyer fails to deliver to Seller either a Commitment [i.e. full loan approval] or a Notification of Decline prior to the Financing Deadline, then Buyer shall be deemed to have waived the foregoing contingency and the Agreement shall remain in full force and effect without any such financing contingency.

If that doesn’t sound scary to you, keep reading to see why it IS scary.  If you already know how to read and interpret legalese, you know where I’m headed: caveat emptor.

What’s a Financing Contingency?

In a standard purchase contract, the buyer’s purchase is contingent on getting a mortgage.

If the buyer’s loan application is denied at any point in time – up to and including closing day – the buyer notifies the seller in writing “my loan was denied” and she/he gets his/her earnest money deposit back.

The buyer goes on his merry way. Or maybe it’s his depressed way. But at least it’s not his “poorer because I lost my earnest money” way. (there can be extenuating circumstances, but this is the gist of the contract language)

What’s Wrong With This Picture?

Back to the example above – remember, the bank’s REO Addendum removes the buyer’s financing contingency after the passing of the “Financing Commitment Date,” which is left blank.

What Does This Mean?

I can see this potentially going very, very badly.

  • IF my buyer client is denied her mortgage loan,

  • THEN we inform seller in writing “loan denied” and say “please give us back buyer’s earnest money.”

  • IF bank doesn’t feel like giving earnest money back because they’re bleeding red ink all over their quarterly government filings showing what they did with all that taxpayer bailout money,

  • THEN they could use the blank Financing Commitment Date to justify taking Buyer’s earnest money.

HOW? I used to work for a bunch of lawyers. I grew up listening to my Mom talk about the lawyers for whom she worked for over 20 years. Believe me, it wouldn’t be hard to find a lawyer who’d argue that that a blank Financing Commitment Date meant the buyer needed full loan approval at the time she signed the contract.

Slam, bam, thank you Ma’am. You’ve just been burned by legalese. Your earnest money? Gone.

(and I'm not even lawyer bashing; they’re just doing their job)

The Bottom Line

I’ve laid out a pretty far-fetched scenario. It’s highly unlikely the bank selling the foreclosed house expects the buyer to have a full loan commitment on the date she signed the contract to buy the house. (Technically, it’s 99.9%  impossible to have a full loan commitment on the date you make an offer.) It’s also pretty unlikely that a bank would actually take my buyer’s earnest money if we told them our loan was denied.

But as a buyer’s agent it is my job to anticipate and explain to my client the potential worst case scenario. Murphy’s Law says the minute I don’t, is the minute the worst case scenario hits my buyer in the face. Or the wallet, as the case may be.

Buyer Beware

Read the fine print on everything you sign. The banks selling foreclosed homes are not your friend. They do not wish you well. All they wish is to recoup as much money as possible on every house they sell.

My buyer is very likely to decide to go through with this deal. But at the very least, she deserves to know the risks she’s taking, upfront. And she deserves to make an informed decision, after hearing the potential risks (bigger risk of losing earnest money) and the potential benefits (nailing a screaming good deal on a solid little house).

Too good to be true Phoenix MLS prices

Actually, the MLS isn’t wrong. It’s correct, technically. But it’s also deceiving. And the MLS data that’s viewable on public websites via a data feed is even more deceiving.

Take this ad for example. Yesterday, a buyer asked us to show him this home which he’d found online.

49k house MLS ad

(for all pics in this post, click picture to enlarge; use browser’s back button to return to post)

Yes, you read that ad right – it’s a Phoenix home with nearly 1400 square feet, 3 bedrooms and 2.5 baths, built in 2004 for $49,900. And it’s showing up on real estate websites as a “For Sale” home.

Here’s the interior photos. It’s looking better and better!

49k house KIT

49k house EIK

49k house BA

1400 square feet that look like this? For $49,900?!

Hold on. This house isn’t really for sale. Not anymore.

First, it’s a short sale. Meaning you send the seller an offer, s/he accepts it and then your offer goes to the seller’s lender for their approval. That could take 2 to 3 months. Could be less, but could be longer. Nobody knows. Essentially you set the price at today’s market rates, then wait months for acceptance of your offer. Meanwhile, you’re likely watching the market prices continue to go down.

Second, the fine print in the Realtors-only data field (yes, there are data fields that only Realtors who login to the private, paid-for, and meant for Realtors and appraisers only MLS database, can see – go back and read this) says “AWC-C” is the status. That means Active with Contingencies-Contingent (on buyer selling an existing home).

So they’ve got an offer already? Yeah, but it gets worse.

The sellers of this home accepted an offer on April 7, 2009 and sent it to the sellers’ lender for approval. (more data only available to paying Realtor/appraiser subscribers to the “real” MLS)

At first this house looks like a once-in-a-lifetime investment opportunity when you see it on, Trulia, Yahoo, Dwellicious, or any of a million other real estate websites. The truth is, it’s already under contract, but there’s no telling how long it will take the seller’s lender to decide whether or not they’ll accept that offer or just take the home to the foreclosure auctions.

To rub salt in the wound, tax records seem to indicate that the original buyer (the current seller) put less than 20% down on the home at purchase. Which means the lender who’s contemplating accepting a short sale actually might get more money if they let the house to auction because then they’d get the insurance money payoff.

Still reading? There’s yet more salt for your wounds. A quick check of the satellite maps available to anyone who can spell GoogleEarth shows the house backs up to a commercial building and sides onto Roeser Road which is a pretty major road in this part of South Phoenix:

49k house sat map

Today more than ever, it’s buyer beware when you’re surfing real estate websites.

Homes for Under $25,000 ??

Buy a Valley home for under $25,000?

Sold Since 3 15 09, listed 25k and Under(map courtesy of FlexMLS. Click to enlarge, use browser’s back button to return)

The map above shows the homes (single family detached only) in the greater Phoenix area, with list prices of $25,000 or less, that sold between March 25 and April 25 of this year. Each blue marker is a sold home.

There were 190 of them. One hundred ninety houses that were listed for $25,000 or less sold in the past 30 days!

Only 2% were not lender-owned. Two-thirds of these homes sold above list price.

I thought it might be interesting to see the pattern of homes sold in this price range over the past few months. It was.

December 2008 – 37 homes sold w/ list prices under $25,000
January 2009 – 48 sales
February 2009 – 87 sales
March 2009 – 168 sales

Seems like a pretty clear upward trend. I can hardly wait to see the April month-end numbers.

Meanwhile, at the other end of the price spectrum …


 Listed for 1M or more, 4-25-09 (Map courtesy of FlexMLS. Click to enlarge; use browser's back button to return)

Here’s a map of the homes (again, single family detached only) currently for sale with list prices of $1,000,000 or more. There are 3,107 of them. Only 52 are lender owned. In other words, almost 98% of these homes are not lender owned.

Number sold in past 30 days? One.

In the previous 30 days, 63 homes with a list price of $1M or more were sold. The month before that? Fifty-four sales in this price range.

That’s a microcosm of the Valley’s real estate market this spring. Bank owned homes at the low end of the price range are selling, and fast. The luxury market is dead on it’s feet. Homes in the middle are muddling through. I promise to find and post some stats on the muddling middle very soon.

Buyers having hard time getting accepted bid

I’m helping a first time buyer shop for a house on the near-Northwest side in the under-$70,000 price range. She wants at least 3 bedrooms, 2 bathrooms, and must have a backyard (big! dog!). We’re shopping from 19th Avenue to about 83rd Avenue, and from Peoria road north to the 101. We’re searching inside the blue rectangle on the map below.

google map of Lacie's search area for blog post (Map courtesy of GoogleMaps. Click to enlarge; use browser’s back button to return).

This past Saturday the buyer picked out a handful of homes to see, from the list of potential properties I’d emailed her. All of her picks were bank owned. Here’s the results of my calls to the listing agents on each home.

Home 1

Me: Hi. Calling to check status & availability on your REO listing at 123 Main Street. I see it’s only been on the market for 3 days. Any offers yet?

Listing Agent: Yep, we have 3 offers. Bank says they’ll accept one of them on Monday morning.

Home 2

Me: (same as above, home on the market 1 day this time)

Listing Agent: Yeah, sorry we got 8 offers already. All of them are at or above list price, and most of them are cash. We’re probably not going to be looking at offers from FHA buyers.

Home 3

Me: (more of the same, 6 days on market)

Listing Agent: We already have an accepted contract on that home, we’re just waiting on the bank’s signatures.

Me: Oh. You might want to know that it’s still showing “Active” in the MLS.

Listing Agent: Yeah, like I said, we’re waiting on the bank’s signatures.

Me: But you have an accepted offer. So it’s not really for sale anymore is it?

Listing Agent: (hung on on me)

Moral of the Story

Homes in good condition in the under $100,000 price range are moving like hotcakes. Multiple offers, bidding wars, and home selling in hours or days. If you’re shopping in this price range, be prepared. Bring water and a snack, a good pair of running shoes and an extra measure each of patience and perseverance.

Technorati Tags:  Phoenix Real Estate

Wall Street Journal Quotes The Phoenix Agents

To readers who found us via Realtor Heather Barr's quote in today's Wall Street Journal article "Bargain Hunters Descend, Cash in Hand", welcome! We're glad you're here and hope you enjoy our blog content.

Long-time readers who aren't Wall Street Journal subscribers might have missed our mention.  The story is behind the WSJ's subscription firewall and I don't want to tempt copyright lawyers by reprinting the entire article on this blog. You can read the article in its entirety here if you are an online subscriber or on page C10 if you get the print edition.

I talked with WSJ reporter Nick Timiraos about the growing number of cash buyers who see bargains amid the current housing price declines. Here's the quote:
"Cash investors have come right out and said, 'We can't make a return on our money in stocks or bonds,'" says Heather Barr, a Realtor based in Gilbert, Ariz., a Phoenix suburb. "They think Phoenix has had such sharp price declines that we've got to be near the bottom and real estate will be a safe place to put their money."


There are bargains to be had in the metro Phoenix real estate market. It’s increasingly easy to find properties in the suburbs that will cash flow immediately after installing a tenant. For those seeking a vacation home, houses are more affordable than they’ve been in years while mortgage rates are still near historic lows.

Looking for a bargain yourself?

We at The Phoenix Agents team have been working with bank owned properties and investors of all stripes lately so we're familiar with the banks' (often confusing) paperwork and requirements.

Click around and visit the various parts of our blog. We've got tons of great content, MLS searching with no registration required, and are ready to help you find the perfect property when you're ready to talk with an agent.

Browse properties listings.

When you feel like you've browsed enough and done the homework you wanted to, give us a call. We'll help you negotiate the best possible deal we always provide world-class customer service from start to finish, and beyond.

Let the bargain hunting begin!

Related Posts

  1. quotes Jay Thompson, "the Phoenix Real Estate Guy"

  2. USA Today quotes Heather Barr on recent changes in mortgage industry

  3. Chris Butterworth interviewed by Phoenix's own Channel 3 TV about foreclosures