What is a Short Sale?

One of the original purposes of this blog was to help educate my readers about purchasing a foreclosure and since my busy academic life is now affecting our renovation progress I'm going to revisit this notion.

So let's talk about our house search and the types of listings we considered.

We would have loved to consider conventional listings - houses listed for sale by the owner through a real estate agent. Sadly, once we began looking we realized that it was unlikely we would be able to afford such a house, at least one we'd be willing to live in and in an area that wouldn't require flack jackets.

Next then were the options of listings on the market as foreclosures or short sales. Both of these have been major buzz words since the bottom fell out of the real estate market. Despite all the negative press around short sales I was SURE that we could successfully find, make an offer on, and purchase one of the great deals. I mean, I grew up in real estate right? Wrong... so wrong... The process was so exhausting, fruitless, gross and difficult we ultimately decided it wasn't for us.

What is a short sale you ask? That is a popular question. Here's the quick and dirty:

1. A short sale is a home being put on the market by the owner of the house, not a bank.

2. The owner of the house is often significantly behind on their payments and/or is experiencing extreme financial difficulty.

3. The house is no longer worth what was paid for it or the owner is upside-down in the house. This could be due to market trends or damage/condition of the home.

4. The owner is going to submit a request to the bank to request that they accept less money than they actually owe as full payment for their loan.

5. By no means does "short sale" mean it will be a short process, it can take months and only a very small percentage actually go to sale.

6. Often times many offers are being submitted and considered on a short sale at one time.

7. This may not be true of all short sales, but was true of all the ones we saw. They are not going to be in good condition. We went into some very gross houses and if they weren't gross, they still had significant issues that would need to be resolved. Also, unlike foreclosures the family may still be living in the home.

8. Expect to pay more than the listing price. My agent explained it well when she said they could list the house for $1 if they want. Essentially they're putting in a low price to solicit offers from multiple buyers.

Let me give you an example. Mr. & Mrs. Smith bought their house in 2006 for $400,000 with an interest only loan. In 2009 Mr. Smith lost his job and now Mr. & Mrs. Smith are behind on their payments and are at risk of losing their house. They have their house appraised and because the housing values have decreased in their area their house is now only worth $315,000 - $85,000 less than the amount of their loan.

As a last ditch effort not to be foreclosed on they list their house on the market as a short sale for $315,000. I make an offer of $315,000 and then Mr. & Mrs. Smith must submit this offer to the bank with the financial hardship letter asking the bank to accept my $315,000 to pay off their $400,000 loan (essentially, they are "short" the amount of money owed - hence the "short sale.")

This is where the process hits the stopping point - banks take forever and don't have any real incentive to accept this sale as they are taking a loss. Sometimes it makes more sense for the bank to let the house go into foreclosure if they can make a better profit selling it themselves. The bank will likely ask me to pay more or tell the family they have to bring money to the table both of which may kill the deal. This can take months - I've heard of people submitting an offer and not hearing anything for up to 6-8 months (if ever.)

Is it impossible to purchase a short sale? In a word, no. I know a few people who have successfully navigated the process. Is it easy? No. Is it fast? No. Is it a huge PITA? YES! Can you get a good deal? Maybe.

Things to look for or consider that may help ensure a successful short sale purchase.

1. The seller has already submitted their letter of financial hardship to the bank and the bank has approved it.

2. The bank has already set a price of what they would be willing to accept.

3. A seller that is only submitting one offer at a time. (Often times sellers will submit any and all offers throughout the entire process which makes it infinitely more complicated.)

4. A patient real estate agent who is well versed in the short sale process.

5. Find out which bank the short sale is being submitted to and do research about whether or not they regularly accept short sales.

6. ALWAYS get an inspection!! The house may have fallen into significant disrepair during the owners financial difficulty.

If you're planning on shopping for a short sale I wish you luck and patience. We decided to move on from short sales to foreclosures, a summary of that will come next!

Behind door number 1...

Whenever you purchase a house you always have to be worried about what's behind the facade. Especially one that sat empty for at least 6 months. We always open vents, access panels, closets, etc. very very carefully.

Today we got one of those nasty little surprises when preparing to hang the new mailbox. (EEE!! It looks great! Pics soon!)

The old mailbox was covering the outdoor speakerbox for our amazing (non-functional) whole house intercom system. If you look right below the mailbox you can see the bronze peeking out. I didn't take a picture of it because...well I didn't think it would be important!



Micheal unscrewed it so we could spray paint it to match the new mailbox and this is what we found...



It gives me the heebie jeebies just looking at it! We pulled at LEAST 5 hornet/wasp nests out and several spider egg sacs out of that hole - that conveniently led directly into the house. Awesome.



Gross, seriously gross.

The crazy things you find...

I almost gave up on the month of daily blog posts today, only 5 days in - why? Because it was a long and exhausting day and I couldn't think of anything good to post about.

Then I thought it might be interesting to share some of the interesting eccentricities that our lovely house boasts:

The Crazy Alarm System
When you first walk up to our house you're greeted by this red cherry light.


As an intruder, if that doesn't scare you off maybe this very odd looking lock (that we believe to be a magnet lock) will keep you out of our house.


However, if those two deterrents don't keep you away I will just hit the "prowler" button on my fabulous alarm system...


If THAT awesome system wasn't interesting enough for you - you should check out our state of the art kitchen exhaust system!

Oh yes, that IS daylight you see in this hole in the wall with a fan in it.

The final piece of crazy foreclosure excitement I'll share with you, the scary downstairs...green...bathroom:

This is in the basement, it's scary, and no one uses it.

Bathroom "Refresh"

When your entire house needs to be renovated/updated there will likely be times that you are going to need to bite the bullet and make something "presentable" as opposed to making it "fabulous." This was the case with our guest bathroom last month when Jason and Jolene came to visit. While we were okay with using a bathroom that had a hole in the ceiling, ugly unfinished walls, musty smelling, and with a less-than-fabulous color scheme we didn't want to expose our guests to it.

So we decided to do a quick refresh to make the bathroom at least usable, and if we got anywhere near nice looking that bully for us. :)

After a good scrub, our first areas to attack were the walls. In the future these walls will either need to be repaired, replaced, or covered with some sort of wall treatment. They have been damaged by wallpaper, moisture, bad patch jobs, and years and years of bad paint.



So instead of wasting paint on bad walls we decided to do an initial layer of white primer just to make everything look uniform. This did wonders for the overall look. We also removed the black tile that went around the base of the walls.



We bought new towels, a cute candle holder, bath mat, and used a small shelf I had to add some color and charm. I also strategically used our shower curtain to hide the pink and green tiles so the only tiles I had to match were the blue/gray floor tiles.



Overall I think it was a HUGE improvement and we love these towels so when we renovate the bathroom we will incorporate these colors (blue, green, and brown.)

Here are some inspiration images of what I would like for our bathroom:

Vessel/Basin Sink


Vanity


We are pretty limited because it is a very small bathroom, the sink cannot be deeper than 18" which does not give us much room to work with AT ALL! But we're up to the challenge!

Inevitable Complications Associated with Purchasing a Foreclosure

I could go on an hour long rant about all the issues we've had with the bank, the listing agent, our bank, utilities, and mostly the settlement company (I'm that steamed). But I won't I'll just share with you the most recent installment of the saga.

See this?


It's a water meter and you need one for there to be water in your house. Yesterday we had one...today, not so much.

Here's the deal, WE were being the responsible ones and following up since we had yet to receive a water bill. I had contacted our settlement company twice and they indicated it was their responsibility and they were on top of it. A month later, still no water bill. We call again and they say they're overnighting the payment...sure...

So Micheal calls the water company directly to make sure everything was good to go. No payment received...and - our water isn't even supposed to be on! Whoops! We tell them the situation and they said to check in tomorrow to confirm the payment. And evidently right after we got off the phone put in an order to pull the meter...(insert choice words here).

So the payment arrived today and they took out the meter today (did not just turn off the water, TOOK our meter!) Oy. They sent someone back out to reinstall it. But SERIOUSLY - what did I pay the settlement company for?? HUH??

So here's the foreclosure tip for the day: You're going to have to clean up some messes so just prepare yourself for it. No one else is going to do it for you because once they unload that bad-boy, they're outta there. Keep records, document, document, document and dot your i's and cross your t's.

Okay, vent over. :)

Taming the Beast

When selling any home it is likely the last thing on the previous home-owner's mind to get that one last mow in before they leave - they'll leave the pleasure for the new homeowner.  When it comes to a foreclosed home you're lucky if the lawn has been mowed in the past few months!  We were lucky that the bank had been somewhat maintaining the lawn but none of the shrubs had been managed and everything was overgrown.

Here is a pic of the overgrown shrubs...half dead evergreen...weedy hillside...and the awful holly trees by the front door.






Unfortunately (for our neighbors) the lawn got pushed to the back burner with all of the other major issues inside the house that needed to be addressed.  Then we FINALLY bought a lawnmower; this really felt like the lynch pin of home ownership for us!  Only for it to rain...and rain...and rain.  Every.darn.weekend.

Isn't she a beauty?!  A pretty red Craftsman Self-propelled mower.  Well last weekend we braved the wet grass and mowed part of the lawn!  Only part because we only had enough gas for part of a tank, but man did it make a difference!  I'm going to make this picture pretty big so you can see just how long the grass actually was, this was our first path:

It's a pretty impressive swath, after about 10 or 15 minutes of mowing Micheal says to me "Man...I didn't realize quite how big our lawn really is!"  It is a big lawn, but this was before he took my advice and used the self-propel option.  Pushing through that jungle without it was exhausting I'm sure!





Of course I wasn't going to let Micheal have all the fun...

In the process of mowing we also discovered another underground hornet compound.  So we still need to take care of that, didn't these hornets learn from their less fortunate upstairs neighbors??


Finally, here is a video of Micheal tackling our insane hill that ultimately we want to landscape with a retaining wall so we have less of it to mow.  As you saw from the last post we've started collecting the bricks to make it!

Doesn't that look fun?!

We officially no longer the 2nd worst lawn on the block. :)

Tips on Purchasing a Foreclosure - Part 1

This will be the first in a series of posts about the process of purchasing a foreclosed home. It's a tough process and takes a certain mindset, personality and a LOT of patience. Micheal and I learned a lot going through the shopping and buying process that might be helpful.

Part 1 - Getting in the right mindset.

If you're purchasing your first home you might find out very quickly that there may be a large discrepancy between your "dream home" and what you can realistically afford. Especially if you grew up in Kansas and you're now purchasing a home in the greater Washington DC area. To say that we were shocked by what our preapproval could purchase would be a gross understatement.

After much searching we soon realized that even with the recent downturn in the market the only houses that were in our price range were either short sales or foreclosures (more on the difference between these later.) So the dream of walking into a pristine beautiful home was let go and the mindset of 'what can we feasibly deal with' and 'what can we feasibly fix' was embraced. It's definitely not puppies and rainbows but it's reality. We are very fortunate in that both Micheal and I have experience renovating homes and with an electrician, a plumber, a general manager, the owners of a real estate business, and a landscaper a phone call (unfortunately 1,100 miles...) we had faith that would could transform the proverbial "diamond in the rough" into our dream home.

So in my humble opinion these are some general tips on the who, what and when of purchasing a foreclosure.

If you have unlimited time and funds - anyone can buy a foreclosure! Unfortunately we did not have either of these...

Purchasing a foreclosure is not for you if:

• If you are easily grossed out. We walked into homes filled with mold, bugs, trash, food on the counter from who knows when and regularly just filth.
• You don't think you could live and renovate at the same time. This has been a very taxing experience and we're only just beginning. It's difficult to finish projects and there is always something to fix...
• You do not have A LOT of patience. We looked at what seemed like an endless stream of houses that all seemed to blend together including several days of marathon (exhausting) searching (Thank you Sharie!!) - the searching process requires patience, the purchasing process requires even more patience, and then renovating your new home, in our case with your new spouse, might test the patience of a saint.
• You are an pessimist. To do this you absolutely have to be able to see the bright side, the potential and the silver lining. You can easily get bogged down in feelings of defeat and frustration and become amazingly overwhelmed.
• If you can't curse the person who lived in the house before you! Someone has to take the blame for all the ills that you will experience during the renovation process. I don't know how many times Micheal and I just look at each other and say "WHAT WERE THEY THINKING??" Yellow walls with blue trim, really?? You're going to need to blame someone, directing it away from those in your direct presence is a good thing.

Purchasing a foreclosure IS for you if:

• You can see the beauty and potential in anything.
• You are willing to sacrifice comfort in the short run for the long-term greater good.
• You are type A enough to help navigate the difficult purchasing process but type B enough to make it through the renovation process.
• If you go to garage sales or cruise craigslist looking for old furniture that simply needs a makeover.
• You either have the skill or money to transform your foreclosed house into a fabulous home.

Obviously I'm not trying to encourage or discourage anyone from purchasing a foreclosed home, but from my experience it's not for everyone.

Stay tuned for Part 2 - I'm ready to start shopping...now what do I do?