You know who you are. The good little boy scout who hid bottled water around the house and converted your kid's old Spiderman backpack into an emergency survival kit as the clock counted down the zeros and ones to a binary holocaust. And while the Y2K panic has been relegated to the laughable corridor of our collective consciousness that houses every lamentable craze from temperance to the macarena, that backpack is still secreted safely away in the hall closet behind the good linens. No need to feel ashamed. You would have had the last laugh when you outlived your derisive contemporaries by an additional fourteen hours had the computers actually burned down Western civilization in the predicted electrical firestorm of biblical proportions.
You have waited patiently for signs of an impending apocalypse, and I bring you news from the front lines. While Rome's housing sector continues to burn in time with the banking industry's fiddle, I offer two pieces of good news: First, there is no expiration date on duct tape. Moreover, it is finally safe to emerge from your makeshift fallout shelter.
As a certain Colts Neck, New Jersey Realtor once opined on this blog, the housing sector has been hit by a neutron bomb. Once thriving neighborhoods are now littered with property shells; all signs of internal life eviscerated in the 90 day blink of an eye (time it takes from notice of default to trustee's sale in the state of Arizona). As with any catastrophe, there are survivors huddled together in leaky hovels and scavengers prowling the streets for an easy score. The investors have been looting foraging for the past year or so, and the average citizens of Scottsdale are just now starting to emerge from hiding; duct taped sweatsuits, breathing apparati and all. Tired of fighting over stagnant water and cramped living quarters, they want in on the free lunch that is available for the bully's taking.
They want a place of their own.
And not just any place. They want the 5000 square foot monstrosity of limestone and marble that belonged to one of the supposed financial elite who was taken in the first wave of foreclosure body-snatching. Their truth is out there. All that is required to realize it is a decent FICO score, verifiable income, DNA sample and a letter from the Dalai Lama.
Locating viable properties at astoundingly low prices is the easy part. Fearful of Little Boy's incoming after Fat Man already exploded on their coffers, however, lending institutions are not exactly lax with their loan qualification standards these days. Thus, to compete for your little piece of heaven amidst the rubble, it's time to break the glass and remove the emergency gear from its casing. Lose the duct tape, however, and add the following supplies to your pack:
1) Pre-approval letter from your lender. Pre-qualification is a good first step, but in addition to demonstrating to sellers that you are a legitimate candidate for a home purchase in this harsh environment, you may save yourself the unpleasant surprise of discovering that you do not qualify for the home of your dreams - even at today's reduced pricing.
2) A job and a down payment. I'm not kidding. Easy credit and zero down programs are a thing of the past. Like parachute pants, don't expect them to come back into vogue anytime soon. You will need to document your employment and pay fully, and most likely (unless you are a veteran who qualifies for VA financing) will have to bring in anywhere from 3.5 - 20%, depending on financing type.
3) Reputable Real Estate agent. Never has it been more necessary to lean on an experienced veteran who can help you ward off the pitfalls you never see coming. Appraisals, lagging property taxes, unpaid seller liens, short sale nuances, foreclosure purchasing hazards ... the purchase of Real Estate has always represented a potential hydra. While in the past a buyer has had to remain leery of two to three toothy mouths, today's incarnation sports about 78 different heads. Amateur hour at the Colosseum is over. Today's market requires the dragon-slaying skills of a professional Beowolf.
4) An outstanding home inspector. Many of today's purchases are of the "As Is" variety. Bank sales, short sales, etc come with few, if any, disclosures. Latent defects and seller warranties go right out the window as all of the risk is hoisted onto the buyer's pale shoulders. With neither disclosure of the property's physical history nor potential for seller repairs, you will never need a thorough home inspection more than you do now.
5) Comprehensive home warranty policy. If the seller will not pay for one, do yourself a favor and plunk down the $300-500 to save yourself some misery related to unanticipated shortcomings of the inner workings of the home. Any home inspector will tell you that he/she can't see through walls and cannot predict what will happen to the components of the home in the future. Especially in light of the lack of seller disclosures and repairs mentioned above, a home warranty policy is some cheap insurance against catastrophe.
6) Easy access to a scanner or fax machine. In a perfect world, we would all be using virtual signature programs that save both trees and time, but Utopia, this is not. The co-pilot on your loan processing flight will be a torrential flood of paperwork. To get to the closing table on time, you must anticipate faxing, re-faxing and faxing again. Pay stubs, W2s, bank statements, senior thesis, third grade poetry ... your lender wants it all, and numerous times. You will get angry at the redundancy and the seemingly unending list of "final" documentation requests, but must bear with it to close in a timely fashion.
7) A sense of humor. If you are a stress case, your head will explode prior to closing. Numerous times. I will piece it back together as best I can, but if you anticipate the sheer lunacy of eventualities to come, it will be much easier on your psyche. You might even look back on a difficult endeavor with a fondness for your ability to overcome the inane to accomplish your goals. No better way that I know of than to simply laugh at it all.
8) Headgear. Make no mistake, you are going into battle. That sense of humor which manifests itself as a cocky smirk directed towards your brawny foe will give you some confidence, but confidence alone doesn't stop a right cross.
9) Oh hell, go ahead and throw the duct tape back in the bag. Might come in handy if circumstances ever find you with a bank's asset manager or loss mitigator in an abandoned warehouse in the meat packing district.
Now go embrace the sunlight and hit those streets. There is always room for one more in the ranks of a self-respecting marauding horde. If in your pursuit you stumble into a property teeming with more than one other mud-caked suitor, simply move on to the next. There are too many fish in this sea to fight with other anglers. Besides, the additional walking will help make that sedentary gluteus a bit less maximus.
And hey, let's be careful out there.
The hidden “gotcha” to many bank owned purchases right now are property taxes. While the institution that owns the property should pay off any back taxes as a condition of conveying clear title to the purchaser, many buyers fail to properly account for the bill they will be saddled with for the next couple of years (at a minimum). Unlike other parts of the country, where taxes are based solely upon purchase price, Maricopa County taxes are based upon the assessed value of the property. Many falsely assume that the home they are buying for $350,000 will reflect a tax basis commensurate with that value. As our budget revolves around 2 year property evaluation schedules, odds are very good that your current tax basis will reflect a value closer to the $1.1 million that the home sold for back in 2007.