That’s right. Buying this house was one of the most painful processes I’ve ever encountered. Fraught with incompetence, lack of urgency, needless paperwork, proof of EVERYTHING, and suspicion, the players involved were constantly at each other’s throats. We’ll get to that. Let’s just start from the beginning.August 8, 2008. After dropping our kids off at school and daycare, Rosemary and I returned to see a piece of paper stapled to our front door. Notice of Auction. Our house was due to be auctioned on August 28, 2008 on the steps of the Pomona Courthouse – 11am. WTF??? So Rosemary calls (shady) Sharon who assures us that everything is under control and it’s clearly a mistake. At this point we didn’t know she was in Chapter 13. So I attended the auction on the 28th and the sale was “postponed by the owner.” Apparently Sharon’s lawyer was able to get another month to settle the financial issues.
Now picture this scenario playing out for the next three months: We get a new notice on our door for auction. Sharon says everything is great. Either Rosemary or I attend the auction to see if the house we’re living in is going to be purchased. We would have 30 days to leave under that scenario. I don’t think I have to detail the stress this uncertainty wreaked on my family. In addition, I had dropped almost $50,000.00 in rental payments and deposits over the course of a year—and for nothing.
Luckily, my sister, Kathryn, is a bankruptcy attorney. When November came, we had her look up everything on Shady Sharon’s record. We got it all. Her payment dates, dates missed on her Chapter 13, all of it. Then mid-November, Sharon’s final attempt to keep the house came. Chapter 7 protection. No creditors, no financial institution can repossess assets if approved. Deutsche Bank, the holder of the mortgage immediately filed counter suit to have the Chapter 7 request voided because Sharon didn’t have a snowball’s chance in Texas of making payments. Yes, she lives in Texas. I’d put her address up here, but that’s going too far.
Needless to say, Deutsche Bank won. On December 2, 2008, the house finally went up for auction. Sharon did make sure to add us to her Chapter 7 foreclosure so she wouldn’t have to pay us back our security deposit.
In California, one can’t just go to the auction with a pre-approval letter from a bank. A buyer has to come to the auction with a cashier’s check for the entire amount of the house. In this economy, most real estate investors had been burned and were gun-shy at the prospect of purchasing a house sight-unseen. That we had in our favor. I do fairly well, but I couldn’t come up with $600,000.00 in two weeks to buy the house. We rolled the dice on that one, and won.
Now it’s early December and the house belonged to the bank—and this is where the fun begins. Deutsche Bank immediately sold the mortgage to Wells Fargo because Wells held a position on the mortgage as a security and is based on California. This is precisely where the myth-busting began….
Myth #1: It’s easy to buy a house out of foreclosure.
This couldn’t be further from the truth. When you buy a house out of foreclosure, you’re buying from the bank—but the bank is not in the real estate business. What do they do? They hire an asset management firm to manage the process. Wells Fargo had—and this is not a typo—43,000 foreclosed homes in its possession. Now I was just trying to make it 42,999, but again, I wasn’t working with the bank. The asset management company hires real estate agents to determine next steps with each property. Real estate agents are typically not known for their “thought leadership” (no offense to my real estate friends out there—yall are the exception) and this guy was no exception. He made it his business to tell us when the eviction process would begin and how long we’d have to move out. Mind you, we told him we wanted to buy the house. Which brings us to myth #2.
Myth #2: Banks are salivating when they get buyers.
You would think that with a backlog of homes, banks would be willing to wheel and deal to get them off their books. Not exactly. When the real estate agent (Michael) heard that we were willing to buy, he seemed genuinely upset. Rather than greasing the wheels through the process, he kept telling us how many hoops we’d have to go through to get the house and how hard it would be for us to get a loan. He didn’t even know who we were or what our household income was.
Wells Fargo didn’t make it any easier either. In order to buy one of the 43,000 homes in foreclosure from Wells Fargo, they require you to be pre-qualified through them. That’s right. You can’t be pre-qualified through Chase, BofA or any other of the banks still standing. You have to go to Wells Fargo and go through their entire process. And lengthy it was. I had to go through every bank deposit I’ve had for the last two years. Even my expense checks! Why? Because they had to make sure that the extra checks I was receiving each month from my expenses weren’t from drugs. Yes, I’m serious. Banks trying to help? Not so much.
Anyway, after Michael told us for the third time that we would be evicted if we didn’t leave the house by January 17, we stopped talking to him. We did the unthinkable…we got our own agent.
Myth #3: You’re guaranteed to get a GREAT deal buying a foreclosed home.
Are you serious? We finally put an offer in on the house on January 16, 2009, the day before eviction proceedings were to begin. Michael called us to say that because we had submitted an offer, they were postponing our eviction for a month. Thanks. He also said that he would have to get three separate appraisals for the home and that he wouldn’t submit our offer to the bank until those appraisals came back. There were two reasons that three appraisals were needed: 1) to assure that the appraisals were for market value (people in California have been paying the appraisers of foreclosed homes to keep the appraisals low and paying them a commission on the difference), and 2) because they want to sell the house for as HIGH a price as possible. Of course they want to minimize their loss. But for someone who’s looking to buy a house in this economic climate, the hassle was enormous. Banks don’t want to give you a good deal on a foreclosed home. They want to minimize their loss. Which brings us to #4.
Myth #4: Buying a foreclosed home is faster than buying a home normally.
How long do you think it took to get those appraisals? Try a MONTH. So we had to wait a month—the time we had before eviction proceedings, for the agent to find three appraisers to come in and put a price on our house. The excuse was that the backlog of home was so high and that there weren’t appraisers available. Hmmm….Nobody’s BUYING right now!! So what were those appraisers doing? I shudder to ask…The point is that this process was MUCH slower than buying a house under normal conditions and banks aren’t pushing the process along.
So What Happened?
To finish the story, the eviction was pushed back another month into March. Our offer was submitted, but we didn’t hear back within the 72 hours we were supposed to. We began to get nervous because our agent hadn’t heard from Michael either. The rumor was that these agents would go out and find their own buyers (usually investor buddies) who would pay more for the house than the offers they had in order to increase their commissions. Not good for us, right?
We finally heard back in mid-March that the bank wanted to negotiate pricing. Here we go. All the while, we kept going back to our loan officer at Wells Fargo to check our interest rate. During this time, interest rates were falling off a cliff, so our pre-qual rate seemed sky high at this point. That proved to be a good strategy as we were able to reduce our interest rate from 5.4% to 4.8% on our 30-year fixed. Had we not asked, it’s likely we wouldn’t have received the lower rate.
Back and forth we go with the bank. Sure we low-balled, but that’s what you do in a buyer’s market. Their initial counter-offer was unreasonable and Michael knew it. We then came back with a slightly higher offer. Finally Wells entered the realm of reality and got to a somewhat reasonable price. We counter-offered one more time and the deal was done. How long did the negotiation take? Two weeks! It was now early April. Time for escrow.
After all that, we had a 30 day (ish) escrow. All the while we had to keep pushing back the eviction proceedings. Finally on April 30 we closed. Almost nine full months had elapsed since the day we received our first auction notification. Can’t say how happy we are that this process is over. We enjoy our home and feel like the deal we got was squarely in our favor. It was definitely harder than expected to get the good deal, though.
So if you’re looking to buy a house out of foreclosure, be prepared for the drama. Sure it was compounded by the fact that we lived in the house we were buying and were scared of eviction, but the process took five months from when Wells Fargo took possession to close. That’s an eternity and shouldn’t be the case in this market.
Good luck!
