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Ask the Broker: Is it legal to place offers on multiple homes?

August 23, 2009 By Jay Thompson

Sean sent this question in a couple of days ago:

Question: There are a lot of bank owned homes up in Anthem – is it legal to place 2 separate offers on 2 different houses?

The short answer is yes, it’s perfectly legal (at least in Arizona) to place multiple offers on multiple properties. Your mileage could vary in other states.

But, I’d be remiss if I didn’t discuss the potential ramifications of having multiple offers out.

In an absolute worse case scenario, you could have multiple offers accepted, you dilly-dally around and find yourself with no way out of a contract ”“ meaning you are now under contract to purchase more than one home.

Fortunately, there are ways to cancel a purchase contract without running afoul of the law or risking loss of your earnest money deposit. Primarily this can be done through the inspection period that is generally 10 days from contract acceptance.

I emphasize generally because no two contracts are the same. The boilerplate language in the standard Arizona Residential Resale Purchase Contract provides for a 10 day inspection period. Section 6j of the purchase contract and the Buyer’s Inspection Notice and Seller’s Response (BINSR), which is delivered from the buyer to the seller, contain a provision for the buyer to immediately cancel the contract if they disapprove of items uncovered during the inspection period.

Technically, this is not the “free pass” out of the contract that many say it is. In reality though, as long as you have an item to disapprove, any item, then the contract can be cancelled.

If you are looking at bank owned (REO) properties, you should be very cognizant of the lender’s addendums. They trump the contract and may contain language that significantly shortens your inspection period. Some will even attempt to eliminate the inspection period all together, which should be cause to run, not just walk, away.

So, should you submit multiple offers on multiple properties?

Every situation is different, and there are no blanket answers for a question like this. In the Phoenix real estate market, if you are interested in purchasing a short sale, you almost have to submit multiple offers. It doesn’t seem prudent to submit one short sale offer, and wait 3, 6, 15 weeks or more to get an answer ”“ an answer that may just be “no thanks” so you wind up starting all over again.

If you are looking at purchasing an REO property, particularly one priced at less than $150K-ish, then be advised that these properties often get multiple offers and while some banks respond swiftly, others can take days. If you only submit one offer and you’re outbid, then many other similar homes may have come and gone while you had your one offer under review.

In a traditional sale (not a short sale or bank owned home) you generally give the seller 24 hours to respond to an offer. In this case, it doesn’t make much sense to put in simultaneous offers on multiple homes.

If you chose to go down the multiple offer road, what you want to make sure of is that you’re working with a competent agent that will help you keep track of offers you have out, accepted offers, and all the timelines. Goof this up, and you may find yourself in a situation where you can’t get out of a contract and are well on your way to losing your earnest deposit on one or more of your accepted contracts.

Standard disclaimer: I am not an attorney, nor do I play one on TV, the internet, radio, print or anywhere. You should always seek competent professional legal help for any law related question.

Photo Credit: dbking on Flickr. Creative Commons License.

What is a Lis Pendens?

March 26, 2009 By Jay Thompson

From the Ask the Broker inbox:

I’ve put an offer in on a home and found out it has a “Lis Pendens” on it. I asked my agent what that meant and she didn’t know. Can I still buy this house?

It would be better to have a probate real estate agent for this kind of situation. However, I’ll resist the temptation to say, “find a new agent” especially if you’re under contract—it’s a little too late for that.

Lis pendens is Latin for “suit pending”. The book definition is:

Lis pendens is a written notice that a lawsuit has been filed which concerns the title to real property or some interest in that real property. The lis pendens (or notice of pending action) is filed with the clerk of the court, certified that it has been filed, and then recorded with the County Recorder. This gives notice to the defendant who owns real estate that there is a claim on the property, and the recording informs the general public (and particularly anyone interested in buying or financing the property) that there is this potential claim against it. (source)

So what does this mean in English and what does it mean to a potential real estate buyer?

In a nutshell, if there has been a lis pendens filed, someone is saying, “Hey, I have a piece of this property and you can’t have it.” They may (think) they own all or part of it, or they may have a lien against it and they have (or are about to) file a law suit stating their claim.

Now whether or not this claim is true may, or may not, be a different story. That will be up to the court to decide.

A lis pendens will place a “cloud” on the title that will have to be cleared before you can take title to the property. I haven’t met a title company yet that will issue title insurance if a lis pendens has been filed. They can’t, as they don’t know if the title will be clear to transfer to you, the prospective buyer. No title insurance, no loan.

Now this isn’t to say that a lis pendens will prevent the purchase of a property, but it will have to be resolved. In these days of frivolous litigation, many of these things just fall apart as they progress through the system, the lawsuit is dropped, and the lis pendens is removed. If you are a cash buyer, and for some ridiculous reason decide you don’t want title insurance, a lis pendens won’t prevent a sale. Just be aware that should the reason for the lis pendens be true, you may not be able to take the title or you may have to cough up more money to satisfy a lien holder. This just goes to show how important a Municipal Lien Search is to ensure there won’t be any hassles in the transfer of ownership of the property you’re purchasing.

What are some reasons a lis pendens is recorded?

In my experience, divorce or separation situations take the top slot. Mikey and Susie are married and they hate each other. Susie says, “Oh fine, you can have the house, just get out of my life”, so Mikey puts the home up for sale. Susie comes to her senses and realizes her soon to be ex is going to pocket some cash from the sale. So Susie’s divorce lawyer slaps a lis pendens on the the property until he figures out how to get Susie’s (and his) slice of the pie. Typically they will duke it out, resolve their differences, and the home will be sold.

Inheritance disputes often result in litigation. Let’s face it, when people die and will real property to an heir, others often come out of the woodwork and make a claim to the property.

Sometimes lenders will file a lis pendens on a property when they think foreclosure will be necessary. This stalls any attempt to sell the property to evade foreclosure.

There are a litany or reasons a lis pendens may be recorded. A title company will research the situation and should be able to advise you and your agent of what will be involved to clear the cloud on the title. Attorneys may or may not have to be consulted.

Can you buy a property that has had a lis pendens recorded? Yes. Just be careful and make sure you understand all of the potential ramifications.

Photo Credit: Creative Commons photo by umjanedoan

Looking to get into the foreclosure market? What’s the best approach?

December 22, 2008 By Jay Thompson

From the “Ask the Broker” inbox comes an email from Darrell in Alberta, Canada:

I’m a Canadian looking to get into the Foreclosure market in your area. What’s the best way for me to approach this and where can I find the best information on the process and the pitfalls of these transactions?

Great question Darrell!

<< Fair warning – interminably long post ahead >>

I’m assuming here (and I really hate to assume anything) that the question is asking about homes that have already been foreclosed on — that being taken back by the lender and placed on the open market for sale. If you are wanting information on buying homes at foreclosure auctions, then that’s a post for another day. The quick fact is, the vast majority of homes at foreclosure auctions (more accurately in Arizona — a Trustee Sale) are not bought and they wind up reverting to the bank. Why? The bank wants too much at the auction. They’re attempting to recoup all their losses.

Here’s a couple of points regarding the Phoenix foreclosure market (as defined above) that you want to be aware of.

First, there are a lot of bank owned homes on the market. Keep in mind that “bank owned” = “Foreclosed” = “REO” (Real Estate Owned).

How many is a lot?

Hard to say. At this moment in time, there are 10,770 single-family home listings 9,509 in the immediate Phoenix metro area) and 1,106 condo/town homes in the MLS ((Multiple Listing Service — a database where the vast majority of homes for sale are entered)) flagged as “Lender Owned Property”. Likely there are some properties out there that are either: 1) not really lender owned but are flagged as such; or 2) are lender owned but not flagged as such. After all, the data in the MLS is only as good as what is entered.

Suffice it to say, there are many, many lender owned homes to chose from.

Second, be advised that many of these homes are not in good condition. It’s not unusual for foreclosed homes to be missing such functional items as cabinets, toilets, stoves and light fixtures. Sadly, when faced with foreclosure, many people take everything they can from the home in a last ditch effort to “get something” from their home purchase. I’ve seen foreclosures where the owners ripped out all the wiring. Others were trashed to the point where college frat house residents would be ashamed.

Contrary to somewhat popular belief, not all bank owned homes are trashed. There are many that are in pristine condition (and all points in between). You just have to either shop carefully, or be prepared with money, time and desire to address any deficiencies.

What is the best way to search for foreclosures in Phoenix?

Why right here! You can use our home search and select “Bank / lender owned” from the Foreclosures drop down. Or, if you prefer, just go straight to this page that is dedicated to searching for Phoenix foreclosed homes.

We don’t require any registration for any of our home search tools. If you want to save searches or get automatic updates of new listings via email, then we do require very minimal information. But you will never be hassled with follow up emails/calls. If you need anything, ever, just ask.

But wait! What about BUYING foreclosures?

The process of actually buying a foreclosed home is basically identical to buying any other home owned by an individual. The contracts are the same, the disclosures and time periods are all the same (though you’ll almost never get a sellers property disclosure statement from a lender owned home). Also be advised that some lenders will have additional addendums for the seller to sign.

That said, it is important to know that you should use a buyers agent that is familiar with the REO ((Real Estate Owned — the less nasty sounding term for foreclosed / bank owned homed)) paperwork and process. It can greatly help your chances of having your offer accepted if your agent knows how to handle REO paperwork. I’d tell you which Phoenix agent to choose, but you already know… .

The lender, who is in effect the seller, will want the same assurances as any other seller that you can secure financing. Like any other seller, they will want to know you’re serious and committed to purchasing the home you place an offer on.

For Canadian home buyers of US property, securing financing can be challenging. Thanks to the credit crunch, some lenders no longer service loans for foreign nationals. But some still do. They typically require 25 – 30% down. Other requirements vary from lender to lender. Given the recent volatility of the Canadian / US dollar exchange rate, it makes sense to at least investigate a foreign currency broker — they can save you a bundle.

The Phoenix Foreclosure Market

We’ve already discussed the bloated inventory of foreclosure homes on the market in Phoenix. So how does this impact the foreclosure market?

Bank owned homes in Phoenix tend to be aggressively priced. Lenders aren’t in the business of holding homes. They want them sold. (Which is why the tortuous process of short sales ((A short sale is when a home is sold on the open market for less than what is owed on it.)) is dumb-founding.) So don’t expect to get an offer that is pennies on the dollar accepted. In fact, it’s not uncommon for foreclosed homes to receive multiple offers at or even above list price.

Bank owned homes can often move very quickly. While it is disappointing to get over-bid on a home you really like, keep in mind the 10,000 plus foreclosures on the market and more coming on every day. The odds are overwhelming you can find another home to go after.

The Lowdown – Advantages and Disadvantages of Buying Foreclosures

To wrap this up (finally!) here are a couple of lists. . .

Advantages of Buying Foreclosures:

Aggressively priced.

The owner (the bank) really wants them sold.

Lots to chose from.

Banks are relatively swift in making an offer decision — often as quickly as a few days (in stark contrast to the weeks on end a short sale decision can take).

You will have an inspection period (typically 10 days) after contract acceptance to have the home inspected. Cancellation in this period is not difficult.

The bank is not emotionally attached to the home. This can make negotiations swifter — though there is typically little if any room in price negotiations.

Disadvantages of Buying Foreclosures:

Condition may be an issue.

Typically sold “as is” — meaning the bank will not do any repairs (though sometimes they will).

Buyer competition — may be in a multiple bid situation. ((Multiple Bid — where more than one potential buyer submits an offer on a home))

Update: Financing Concerns. Sean Terry of the fabulous Deal Makers Blog made a great point in Comment #1 below about potential financing concerns regarding property in poor condition. Be sure to read it!

Hopefully this tome answers some of Darrell’s (and others) questions. I could ramble on forever about this and still miss something. Should anyone have any questions, drop a comment here or contact me!

As always, anyone reading who has anything to add is welcome and encouraged to do so!

Ask the Broker: What is an HOA, and should I care about them?

December 7, 2008 By Jay Thompson

From the Ask the Broker files:

Hello ”“ I may be relocating to Phoenix from Ireland and have noticed that some homes listed say, “NO HOA!!!” which makes it sound like it’s a good thing not to have one. What exactly is an HOA and what are the advantages and disadvantages? I’ve been in the UK for almost 30 years and don’t remember HOAs being so prevalent when I was in the US.

Great question!

A HOA (Home Owners Association) — at least in Arizona — is typically created by the builder/developer of a subdivision. They are the “governing body” of the development and enforce the “CC&Rs” (Covenants, Conditions and Restrictions) and manage the common areas such as green belts, play areas, walking/biking trails, community swimming pools, club houses, amenities, etc.

Virtually without fail, once the subdivision is built out (or almost built out), the developer turns the control of the HOA over to the homeowners. At that point the HOA is managed privately by the homeowners, or a property management firm is contracted to manage the HOA. In either case, a homeowner elected Board of Directors overseas the management of the HOA.

Homeowners pay dues to the HOA. In the Phoenix area, these dues can vary wildly from one development to the next. Sometimes in a seemingly random fashion. Generally speaking, the more amenities and common areas a development has, the higher the association dues will be.

As with just about anything, there are advantages and disadvantages to an HOA. I’ll be honest, many people hate the restrictions some HOAs impose. Others seem to have no issue with them.

Advantages of an HOA

Proponents of HOAs typically site “maintaining or improving property values” as a major benefit. The developments CC&Rs will almost certainly have guidelines for things like landscaping care, exterior maintenance and even a “color pallet” that homes must comply with. There will probably be rules that have to be complied with like no parking in the streets overnight, no large vehicles, and activities that are not allowable such as certain home businesses.

In the sense that an HOA prevents your neighbor from painting his house purple, or allowing 4 foot weeds to consume the front yard, then yes, most HOAs do serve some purpose and help maintain neighborhood standards which in theory helps preserve home values.

Disadvantages of an HOA

“It’s my house, I’m paying for it and I ought to be able to do whatever the hell I want with it.”

As a real estate agent, I hear that mantra frequently. And I certainly understand the feeling. The removal of “freedom” is probably what annoys most people. Sometimes there appears to be haphazard enforcement of the CC&Rs. Then there are the annoying letters and fines that the “HOA Police” send out. I got a letter once saying that my satellite dish had not been “approved by the Board”. It had been installed on my home in compliance with the CC&Rs for three years. That seems just a wee bit silly. I also got a letter once that said my grass was too long. I have desert landscaping without a blade of grass. It took three phone calls to the management company to stop the fine process.

These letters and the control that some HOAs have annoy many people.

So do you buy in an HOA or not?

If you do some research, you will find horror stories of HOA Boards Gone Wild. Over two years ago I wrote, Incredibly inept HOA action!, which outlined one such out of control HOA board. And here is another sad tale right here in the Phoenix area ”“ Silly HOA Moves.

On the other hand, there are some great HOAs out there that do really good things for the community. My own HOA is one example, which I wrote about in, Why I *Like* my HOA.

A good (or bad) Board of Directors can make or break an HOA. Voting out an entrenched board can be difficult as let’s face it ”” many homeowners are apathetic about voting, and getting someone to agree to volunteer for an utterly thankless job is very difficult. The single best way to make your HOA better, serve your needs and be reasonably is to participate. You don’t have to get on the board. Just participate. I was on my HOA board for two years and could count the number of homeowners that regularly attended meetings on one hand.

In most of the Phoenix metro area, if you want a home newer than say 20 years old, it’s not really a matter of whether to buy in an HOA or not. It’s more a matter of which HOA to buy in. They just aren’t building homes in non-HOA areas for the most part (though a few can still be found in outlying areas).

The standard Arizona Residential Resale Purchase Contract and specifically the HOA Condominium / Planned Community Addendum clearly spells out the documents and time lines that a seller (or the HOA depending on the size of the development) are required to deliver and abide by to a prospective buyer. This includes such things as the CC&Rs, bylaws, and the financial status of the HOA. The astute buyer would be well advised to go over these documents with their agents in excruciating detail. The last thing you want to do is buy a home only to find out that something in the CC&Rs prevents you from doing something important to you.

Further reading: Here is a good article from a Phoenix real estate attorney regarding your rights in an HOA.

Purchasing Part of an Existing Lot: Ask the Broker

September 28, 2008 By Jay Thompson

From the Ask the Broker Files:

I am interested in buying two acres of property that are part of a five acre parcel that has a mortgage. There is a house on the remaining three acres in which the owners live. How do we proceed with releasing the acreage in which I am interested from the mortgage?

Theoretically the lender could “split” their lien placing one lien on the home and three acres and a separate lien on the remaining two acres. This is however, extremely unlikely. A more viable solution is for the lender to retain a lien on the home and three acres and release their lien on two acres.

There are several factors at play here, and without knowing more information, it is difficult to answer the question completely and accurately.

Let’s assume the entire property is one of those homes with acreage, which means the land and home were purchased and financed together and the lender has one lien covering both the land and home. In this case, the homeowner would need to petition the lender to release their lien on the two acres you are interested in purchasing. This will likely come down to a pure financial decision on the lien holders part. If they feel they could recover the balance of the loan by retaining a lien on the home and three acres, they may be willing to release the lien on the other two acres. Or maybe not.

There are many factors
to consider in
purchasing a partial lot

Let’s do a little math example:
Current market value of only the home: $200,000
Current market value of the land, per acre: $50,000 (for a total land value of $250,000 ”” 5 acres * $50K/acre)
Total current market value, land and home: $450,000

The key factor here is what is the current balance of the loan. There will need to be at least $100,000 in equity (2 acres at $50K/acre = $100K) before the lender will even think about releasing part of their lien. In this example, the current amount of the loan would have to be less than $350K. In all probability, given generally declining home values and slow sales, the lender would want to see a loan balance significantly less than $350K. How much less is anyone’s guess, but it wouldn’t surprise me at all they would want to see a remaining LTV ratio (Loan-to-Value) of at least 80%. So in our math example, multiplying that $350K by 0.8 means the loan balance would need to be less than $280K. The lender may consider all, part or none of your purchase price in their determination — usually part in my experience.

Another factor to consider is how the land has been platted and recorded. The most likely scenario is the 5 acre lot is a single recorded parcel. If this is the case, then a survey will need to be conducted and a request filed with the appropriate county and city governments to split the parcel.

Existing zoning and deed restrictions could prevent splitting the acreage into two or more smaller parcels.

In a nutshell:

Determine if the land parcel needs to be split ”” if it even can be.
Get a current appraisal of both the home and the land values.
Petition the lender to rework the lien to be held on the home and three acres, in effect releasing the two acres of land you are interested in purchasing.

It is also possible that the land and home were financed separately and are held under different liens. If this is the case, nothing really changes other than there is no need to determine the market value of the home. If you need to clear the land you just purchased, a horizontal grinder equipment can be very useful.

Ultimately, it’s all up to the lien holder ”” at a somewhat significant expense to the seller, who is most likely going to want to pass that cost on to you the buyer.

Ask the Broker: Is it legal to place offers on multiple homes?

So, should you submit multiple offers on multiple properties?

What is a Lis Pendens?

Looking to get into the foreclosure market? What’s the best approach?

Ask the Broker: What is an HOA, and should I care about them?

Purchasing Part of an Existing Lot: Ask the Broker

Who is The Phoenix Real Estate Guy?

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