Q. If I'm trying to buy my first home as cheap as possible, am I better off purchasing the property from a bank, at a foreclosure sale or through a short sale?
A. Books have been written on this subject. However, I will attempt to define the most significant aspects of each type of transaction. Of course, as it sounds like you're new to the real estate arena, I would strongly suggest employing an experienced Realtor and attorney to assist you in your venture.
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Purchasing from a bank
This is certainly the easiest of the three options. The bank already owns the property and this type of transaction is not that much different from a typical real estate transaction. You negotiate a sales price and as long as you are able to procure financing, you're generally home free.
There are some differences, however, from a typical transaction. Some of those differences are:
1. You purchase the property "as is." This means the bank is making no representation as to the condition of the property. If the basement leaks during the first rainstorm after you close, tough luck, you fix it. You still have the right to conduct a home inspection and if you uncover defects that you cannot live with, you still have the option of terminating the contract. Once you close, however, you cannot hold the bank or the prior owner liable for any repair issues that may surface.
2. You will not receive a survey from the seller as you would in a typical transaction. If you want a survey, you will need to order and pay for it at a cost of $300 or more, depending on the size of the lot. The survey may be required by your lender and it will certainly be required to obtain extended coverage on your owners title policy.
3. Often there is a penalty if you do not close within the time specified in the contract. The penalty can be $100 per day and higher. Before you commit to a closing date, make sure your mortgage company can approve your loan within the time you have agreed to close.
4. Real estate prorations are calculated at 100 percent of the last full year's real estate tax bill. In a typical transaction, prorations are calculated at 105 percent or more of the last known bill. Prorating taxes at 100 percent often results in the purchaser paying a part of the seller's real estate tax obligation.
Certainly the most frustrating of the three options. You negotiate a sales price with the seller, who still holds title to the property. The seller then submits a package of documents to their mortgage company in an attempt to convince the mortgage company to accept less than what it is owed.
The process is long and status information along the way is often hard to come by. This is definitely an option to avoid if you are on a time schedule, such as you must be in your new place within 60 or 90 days. No one cares about your time constraints and many short sales die as a result of purchasers simply getting tired of waiting. If, however, you can be patient, this method often results in significant savings. Again, be prepared for not receiving things that you would ordinarily receive in a transaction, such as a survey, increased tax prorations and repairs.
Easily the most complicated of the three and not to be taken on lightly. Most people that participate in foreclosure sales are grizzled veterans and the sheep sometimes get hurt. You will not have time to obtain financing after your purchase as the full sales price is due usually within 24 or 48 hours after your purchase. You often will not have the opportunity to view the inside of the property, which often yields horrific surprises to foreclosure purchasers. You must also be very wary of title and real estate tax issues. This is probably one option you should scratch off your list unless you can obtain the assistance of someone familiar with these proceedings.
•Send your questions to attorney Tom Resnick, 345 N. Quentin Road, Palatine, IL 60067, by email to firstname.lastname@example.org or call (847) 359-8983.