BUYING FORECLOSURES IN CHICAGO – UNDERSTANDING THE PROCESS

What are the problems someone should look out for when buying foreclosures in Chicago? Is it easy to buy a foreclosure?

As the real estate market in Chicago is heating up we are seeing increased amount of investors getting back into the market and taking advantage of foreclosures. When I speak of foreclosures I am talking about bank owned properties, NOT properties that are “going into foreclosure” or have yet to be officially taken over by the bank.

If you are looking to buy a foreclosure what are the challenges that you may be facing throughout the process?

Competition: In the past year I have noticed that most foreclosures are priced so greatly under market value that they not only elicit multiple offers, but elicit offers are ABOVE list price.  This means that you must go in with your highest and best offer right off the bat.

Timing: Fannie & Freddie owned properties typically have a 15 day clause in the listing not allowing investors to purchase for the first 15 days on the market. This means that only Owner Occupants can purchase within the first 15 days. This does not mean, however, that the bank must negotiate with your offer. Many times they will wait the full 15 days in order to get an offer at or above list price. If you are an owner occupant and want to get the property above an investor you must still present the bank with the “perfect” offer in order for them to accept it and take the property off the market before opening up to investors.

Sold AS-IS: While the basic foreclosure addendums used by most banks allow for an inspection, the banks will NOT make any repairs to the property and will typically NEVER offer you a credit for such repairs.

Cash is King: At the end of the day the bank will net the same amount of money regardless if you are taking out a mortgage or paying cash. Where cash becomes very important, however, is when you are buying properties that are not finance-able. Many people think these are only the burnt out single family homes that we see for $5,000 on Realtor.Com but the truth of the matter is that this issue exists for many condos throughout Chicago. If a condo association has a high rate of rentals and/or litigation financing can become almost impossible. Therefore, if you are buying a property in this type of situation you must ALWAYS come in with a Cash offer.

Remove Contingencies: A great way to move your offer to the top is to remove contingencies in your offer. Remove mortgage contingencies and inspection contingencies in order to lessen the opportunities you have to back out of the deal. This does not mean you cannot inspect the property or cannot obtain a mortgage. It just means that if you are unable to get financing or if you uncover a problem with the property you do not have a legal way out of the contract.

Be Patient: While foreclosures are much quicker than short sales, responses from banks can take anywhere from a day to a couple of weeks depending on the system they use to submit and review offers. The banks will move at their own pace and there is nothing you can do to “hurry them up.”

Backed Assessments: You will receive clean title when you purchase a foreclosure but you may be responsible for some costs. Backed assessments can become your responsibility due to an Illinois law that is a couple years old. This law says that the new buyer may be responsible for up to 6 months of backed assessments. Be sure to review all financials for the property and include this into your budget when considering your offer price.

 

Paul Blackburn is an Illinois licensed Realtor and associate Broker with @ Properties in Chicago. He can be reached via e-mail Paul@PKBlackburn.com  For more information about buying condos in Chicago please visit www.BuyingInChicago.com

WHY ARE SOME CONDOS SO CHEAP IN CHICAGO?

Many first time buyers in Chicago start their search on the internet and come across some “great deals” that beg the question: Why are these condos so cheap? What is wrong with them? Well, first the buyer must know that each neighborhood in Chicago is different. However, if we narrow down into some of the most popular neighborhoods, such as those surrounding downtown, there may be instances where units in a particular building are much much cheaper than a neighboring building. Why is this? Why is one building 50% less than a building next door when features and amenities are almost identical?

One of the largest negative factors in today’s market are poorly managed or run condo associations or associations that have special assessments or litigation. The association manages the common space of the building. It also controls the daily duties of maintenance staff, door staff, etc. Most times the associations hire a professional management company but all the costs or issues pertaining to the building still fall on the association.

We’ve seen several common problems with some associations over the past few years. Some of these problems can adversely affect the ability of buyers to obtain financing and thus make it difficult for sellers to sell.

Here are some of the common problems:

Special Assessments due to poor construction: While this problem can manifest itself all over Chicago it has been most prevalent in the South Loop. The South Loop saw buildings fly up over night and such quick building can often lead to construction defects. Most buildings in the South Loop DO NOT have problems, but some do. When a building has a major issue…lets say the facade is cracking throughout the structure or water is leaking in off each balcony into the unit…the problem must be corrected. If the building is newer the association will typically sue the developer in order to have the developer correct the problem or pay to correct the problem. In the case of some buildings that have these issues the developers have either filed for Bankruptcy or are well protected enough that such lawsuits would take forever to bring money to the table.

With all this being said how does it effect values? Some buildings have had to levy massive special assessments in the ranges of $14 to $20 Million. Huge special assessments such as these are typically paid over time. The association gets a loan to fix the problem and then increases the monthly assessments on each unit in order to pay back the loan. The assessments are essentially what is used as collateral for the loan. In some cases assessments can jump from $300 to $800/mo. These high assessments will scare away buyers and the special assessment still on the books for the association may make it more difficult for someone to obtain financing. This can drastically decrease values.

Timing: The timing of construction of some buildings can be integral in whether or not values have sustained or fallen in recent years. Buildings that were completed in 2007 and 2008 have an unusually high foreclosure and short sale rate due to the fact that many buyers bought at the height of the market. The more buyers that “overpaid” for their units the more chances there are of owners walking away from their properties or short selling. Since short sales take much longer than traditional sales the pricing on shorts are typically less than a traditional sale of the same type of property since less buyers want to wait around for a short sale.

Litigation: Banks never like to see associations involved in litigation. Some litigation is not a big deal. If an association has completed work on the building and is simply suing a developer or a contractor to RECOVER costs then it isn’t that big of a deal. However, if the association has NOT completed the work and is suing a developer or contractor for money then this basically means that the work is CONTINGENT upon the outcome of a lawsuit. Either the developer/contractor pays if the association wins or the association loses and then is not only on the hook for attorney fees but also for the work which must be completed which means a special assessments. Banks just as much as buyers do not like “NOT KNOWING” the future. This means that not only is financing more difficult but less buyers are interested in these types of properties.

I HOPE THIS HELPS ANSWER SOME OF YOUR QUESTIONS! FOR MORE INFORMATION REGARDING BUYING IN CHICAGO PLEASE VISIT MY WEBSITE WWW.BUYINGINCHICAGO.COM TO LEARN MORE ABOUT THE BASIC PITFALLS YOU NEED TO AVOID WHEN PURCHASING A CONDO IN CHICAGO.

 

PAUL BLACKBURN IS AN ILLINOIS LICENSED REALTOR AND BROKER WITH @ PROPERTIES IN CHICAGO. HE CAN BE REACHED AT PAUL@PKBLACKBURN.COM

First Time Home (Condo) Buyers in Chicago!

It is great to see so many renters turn into buyers in this market. Right now many tenants are deciding to become home owners in Chicago for the first time due to the increase in rent prices. Buying in Chicago is very different than buying in any other market as not only the product is different but the laws and even the weather is different than many other cities. With all this being said I have put together a website to help everyone from first time buyers to those buying their second and third homes understand some of the very basics in today’s market.

BUYING IN CHICAGO

www.BuyingInChicago.com