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I found a house in the Phoenix area that I am interested in. Real fixer upper. It's obvious the house has been neglected for some time. The house is on short sale with a renter living there on month-to-month. This is exactly the house I am looking for: crappy house with potential in good neighborhood. Now the renter is telling me there are major problems like water seeping through the foundation, mold, all the electrical and plumbing needs replacing. I don't know if he is telling the truth or trying to scare me away to so he can stay longer.
My question is would it be advantageous to get a home inspection done BEFORE I place an offer so I know exactly what I am dealing with? I plan on giving a much lower offer than listing anyway because many things do need replacing (carpets, tiles, appliances throughout).
Is it normal for people to get home inspections before placing an offer?
I am rather an advocate for pre-offer home inspections. Having said this, I do not think it makes any sense in the case of a short sale. The reason for this is that too many have to be willing/able to " paly ball". Only a small percentage of short sales make it to the closing table.
The seller has to agree to the sale.
The seller needs to qualify for the short sale.
The lender has to agree to the sale.
Sometimes the insurer and/or secondary lender has to agree to the sale.
If you remain interested, take the occupant's word about condition and make your offer based upon worst case. Make sure you document the issues.
While the renter may be working an angle to throw of the OP I would go under the assumption that the statements are mostly accurate and the place really is a wreck. Given that lots of pretty decent homes have been foreclosed / offered at short sale in the Phoenix area I would question why a buyer that does not have much experience spotting problems would want to take-on such a project...
Yes, cost is a factor, but so is risk. If the OP is going to need to subcontract the major systems it is likely that thee is simple no way to wring profit out of this deal -- I have said before that folks that in over their head are just as likely to end up in foreclosure / short selling themselves down the road!
If the fee of a home inspection service is needed to bring the OP back to reality that is money well spent. It into so that the seller will fix up all the stuff that is wrong so much as it will show the OP that this is not a project for a novice.
Thanks for the advice. I think you're right. In this case the people who are supposed to be selling this house are difficult to get a hold of, rarely return calls, and seem generally uninterested in selling this house. Maybe they think it's a lost cause and simply expect it to go into foreclosure.
While I am a novice I am not buying a house just to flip it for profit, I plan to live there first for several years. Replacing all the tiles, carpets, appliances, kitchen cabinets, etc these are the types of things we want to do in the house we buy. I just don't know about getting in too deep with things like foundation problems, electrical problems etc.
middle-aged mom's suggestion would be the quickets, potentially easiest and safest route to take. But you really won't know how low to bid to cover all possible needed repairs and still not pay too much.
There is an alternative, since you did say the information came from the renter. Obviously the homeowner needs to sell it so why not speak with them to arrange for a General Contractor to come in and provide estimates for all of the visible repair needs. At the time of the GC visit you can nicely bring up to the owner the rest of the items the renter has mentioned but are not readily visible. Possibly the owner would be forthright with you, or at the least allow your GC to review and provide potential estimates for repairing those items as well.
If the owner is trying to short sell it then it is in their best interest to help you arrive at a realistic offer price that both you and the owner can look at. In Arizona the banks do have a right to pursue a deficiency judgment against the current owner if the home is sold short or repossessed and sold as a REO. You might be able to arrive at an offer price more suitable to you and the bank holding the mortgage, rather than the bank going through all the costs of a foreclosure and REO sale.
If nothing else the owner would benefit from a GC coming in and providing estimates so they can see if they are in deep doo doo or not. Let the owner know that if they lose the sale due to a bad inspection report, by a future buyer, it can easily run out their clock and go into foreclosure. If that happens the deficiency judgment amount can become much higher, as will be the chance the bank might pursue them for it.
But this brings up another point: I had no idea banks could go after homeowners for the balance of the mortgage after a short sale! What's the point of a short sale then?
But this brings up another point: I had no idea banks could go after homeowners for the balance of the mortgage after a short sale! What's the point of a short sale then?
The right to pursue a deficiency judgment has, for the most part, always been in existence. Some States like California and Oregon (only two I know of) enacted legislation to protect defaulters against this practice. Before the poop hit the fan (the RE meltdown and economic crash) there were obviously significantly fewer REO's and Short Sales occurring. In some cases the banks and mortgage underwriters did go after deficiency judgments in larger cases with larger dollar amounts. In many smaller dollar loss cases the banks just decided it was not worth the cost, and absorbed the smaller amounts of loss as a result of them.
Short Sales were there during the good times to help truly needy people get out from underneath a heavy debt load and, if agreed to by banks/lenders, not destroy their credit ratings completely. Now along comes all the crud happening, millions of defaults and strategic walk-aways from loans, and the banks/mortgage underwriters can't absorb all of the losses. With so many of these occurring the lenders are creating (or outsourcing) entire departments geared towards pursuing deficiency judgments. The bankruptcy laws were changed several years ago to thoroughly screw the truly needy consumers and make pursuing deficiency judgments easier. Now it is economical sense for mortgage providers to chase virtually all of their deficiency judgments.
There are potential ways around the deficiency judgment issue but that is all for a good Attorney to conceive a plan for each case. That is why it is in the seller's best interest to speak with you and try to obtain a picture NOW on how difficult it might be to short sell the home. The seller is apparently going to lose the home and only benefits by working with you, and their Attorney, to map their exit strategy now.
But this brings up another point: I had no idea banks could go after homeowners for the balance of the mortgage after a short sale! What's the point of a short sale then?
Escanlan is incorrect. AZ is also a non-recourse state. The bank can't pursue a deficiency judgment.
I tend to agree with MaM's advice. Assume the worst going into it. Normally, inspections don't take place until the seller gets bank approval, which can take several months. The condition of the home can change (get worse), and you should inspect reasonably close to the closing date once approved. Of course, you can also do two inspections; pre-offer and as part of the closing process.
Escanlan is incorrect. AZ is also a non-recourse state. The bank can't pursue a deficiency judgment.
Yes AZ is a non-recourse State and I am surprised that they extend that to real property that is not owner occupied. However there are conditions that a deficiency judgment can be obtained. The two AZ statutes that deal with this can be read at Format Document and Format Document.
The AZ statutes leave some latitude to the courts in determining if a bank can pursue a deficiency judgment. Yes I am not an Attorney, and as such it is my opinion the seller should speak with an Attorney to map their exit strategies. We nor the OP are fully aware of whether the seller would fall in the loopholes allowing a deficiency judgment or not. Even in AZ there are circumstances that could expose the seller to a bank having the right to obtain a deficiency judgment.
It is still in the current owner's best interest to prevent a foreclosure which could potentially expose them to a deficiency judgment situation. To prevent a foreclosure here might mean for the seller to work with the OP to get the home sold at a price agreeable to the OP, and which would make the mortgage holder at least somewhat satisfied.
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