short sales and condo hunting in Kauai

[tevake]

About six months ago my wife and I decided to look into getting a condo for vacation rental here on the North shore of Kauai. Got a good agent, and did lots of looking around. then zeroed in on a unit that really stood out above the rest available in the Princeville area. Its in a small complex with little turnover. And it was a short sale, so possibly a good price.

The story was that it had been for sale for well over six months and there had been an offer under consideration for six month. Well when the bank finally did decide to accept the offer the buyers had all ready found another deal that they went for. So it was just back on the market for three days when we saw it. We put in a full asking price offer the next day. only to be told that another offer had come in before ours. So ours then became a backup offer.

Here is where it gets strange. In a short sale it seems that the seller only forwards one offer to the bank for consideration. the other offers don't even get looked at by the bank that is holding the morgage. What is that about?
Well we were told that the other offer was strong and the buyers were just standing by waiting for the bank to make up its mind. And they were definatly going thru with the deal.

So our search continued. Then another unit in the same complex came on the market. This one was for sale by owner ( not a short sale) in turn key condition.
Nicer condition that the short sale unit but almost $100K higher price for the same floor plan. We had to swallow hard on the price jump but went for it. there was some back and forth till we came to an acceptable price reached. Now we are in the process of closing on the deal. We are happy with the unit and think it will do well as a vacation rental.

While we were just into the negotiations with the seller. Word came in that the other unit (the short sale) had closed. And, get this, it closed for almost $15k less than our offer had been. WTF. I guess that it wouldn't have mattered if we had offered $50k more, if the bank only looks at one offer. Whats wrong with the bank, willing to take what ever the seller forwards to them, without even looking at other offers? This process seems seriously flawed to me. this is a bank that recieved over FIFTY BILLION DOLLARS in bailout funds from us thru the largess of our government. And cant be bothered to look at all the offers on a property they are selling at a loss? Really WTF? I just don't get it! Any insight here?

We did end up getting a very nice unit, and a good old friend from the Big Island is coming over to be our first guest just days after closing. So we are off to a good start. And do plan to offer a PP BBS discount to attract like minded visitors. More on that once we get the listing site up and running.

But I really just need to vent a bit about this short sale process, and the banks still managing to blow it so badly. And now back to our regular programing. thanks for listening.

Cheers Richard

[tevake]

72 hits and no comment, Well I guess that you are all of the same opinion as my wife. The banks can do what they want, just let it go.
I'm sorry Its hard for me to ignore this. First off the banks need to pull it together and stop doing stupid stuff. Or pay back all the money they took in the bailouts!!

Then there is the difference in cost between the condo we should have had a shot at and the one we did end up getting. That difference is about the cost of a nice 993 TT, Just to put it into terms that will resonate here. Or a fully restored 3.2 carrera after refreshing the the short sale unit. I guess that's a point I am stuck on.

OK I'm done now
Cheers

[Hugh R]

I bought a short sale condo and it took months and months. We offered asking and thought that the seller could sign off and we were done. Wrong, BofA had to sign off and then HUD, which owned the place. Why is HUD buying short sales from BofA? I don't get it. Can't give any insight on their accepting a lower offer. Can you go to the Board of Realtors and file a complaint. I think the realtor has an obligation to represent her client (seller or bank) in the best possible manner.

[john70t]

It sounds like a system not for free-market, but for FOR(friends of realtor).

[2porscheguy]

Sorry Richard, I have nothing to offer...just curious....where in Princeville did you purchase your condo?

Cheers!

Alex

[tevake]

John T FOR sounds about right :-). It did seem like it might have been an inside deal.

Hugh, I remember watching your deal go down. And recall some of your surprise at the process. Yes short sales are weird. Are you happy with your condo?

The B O A is the bank doing the sale here also.

I will be contacting the Board of Realtors shortly after our deal is finalized. As long winded as the OP was its a some what condensed version. The real deal was that the sellers had a backup deal in the works all the time, thats who ended up with the unit. But they re listed it for sale with no mention of the contingencies. That is the issue I plan to bring to the attention of the Board.

In the mean time we are happy with our new condo and look forward to having many others enjoy their stay on Kauai at the place.

Another side benefit to owning this unit is that we live in a flood zone area that has been swept by tsunamis in the past. So this gives us a fall back place if that were to happen again.

Cheers Richard

[Hugh R]

Very happy with the condo. Been doing little things like graphite in the door locks, and adjusting a door or two. The HVAC filter was really, really dirty, but $5 solved that problem. The HOA voted to increase the monthly dues by $200/month the week after we closed escrow for enhanced maintenance (Ouch) but not a big deal.

[tevake]

Hey Alex, the complex Emmalani Court, where its located is along the main road to the St Regis just after the golf course and on the ocean side. It looks out on the golf course with the ocean view to the left. Can see the ocean from the master bed room, the lani, and from the end of the living room. The back bedroom has a view of the mountains and water falls behind Hanalei. Its near a trail going down to hideaways bch.
Its Sweet! We will be getting pics to post on a listing site soon. Will be happy to send a link at that time if you are interested.

Cheers Richard

[tevake]

Hugh, Ouch is right, was that change disclosed at the time of purchase?
Are you renting your unit?

Cheers Richard

[Eric Coffey]

Originally Posted by tevake

Whats wrong with the bank, willing to take what ever the seller forwards to them, without even looking at other offers? This process seems seriously flawed to me. this is a bank that recieved over FIFTY BILLION DOLLARS in bailout funds from us thru the largess of our government. And cant be bothered to look at all the offers on a property they are selling at a loss? Really WTF? I just don't get it! Any insight here?

Yeah, it can be a bit confusing!

Remember, it is still an agreement (contract) between buyer and seller, just contingent on (seller's) bank approval. So if the seller has signed/accepted an offer, any subsequent offers automatically become a back-ups, even if the first/accepted offer hasn't officially been submitted to the bank for approval yet. Also, most sellers will jump at the first reasonable offer, as they really have no skin in the game. The only motivation for a seller in a short-sale is to avoid foreclosure. They can't net any money at closing, so the offer price is largely irrelevant to them. That said, the bank will still do their own valuations to ensure the price is at/around current market value.

Regarding the "one offer at a time" thing: It is standard procedure. The approval process for most short sales is a long, involved process. So, a common practice is for the sellers to agree to only submit one offer to the bank for consideration at a time (no back-ups submitted). In return, the buyer agrees to deposit hard (non-refundable) earnest money at the time of seller acceptance (instead of upon lender approval, which can take 3+ months in some cases). Otherwise the buyer could walk away at anytime prior to that lender agreement notice without any penalty, putting the seller back to square-one. That can be a very frustrating proposition for the seller, especially if they are approaching their foreclosure/trustee sale date (with no more extensions).

Yes, the system is far from perfect.

FYI: It is usually the exact opposite with REO (bank-owned) properties, as most banks can/will collect several offers, then issue all parties a "highest & best" request with a deadline to make any changes to your offer. It is basically the equivalent to a silent-bid auction at that point, as you will never be privy to what the other offers are at. Also, cash is still king. So you will frequently see buyers requiring financing being beat out by lower offers from buyers with cash.

Oh, and regarding the bailout funds: You will likely be even more appalled to know that those banks are being FULLY compensated for their losses from the gov't on some of those distressed property sales.

[Eric Coffey]

Originally Posted by Hugh R

I think the realtor has an obligation to represent her client (seller or bank) in the best possible manner.

In most cases, the agent's duty/obligation is to the seller only (their client). However, agents will frequently expose themselves (unknowingly) to conflicts of interest and gray areas regarding fiduciary duty/agency by signing the bank's addendums that usually follow/precede short sale approval by the seller's lender.

[Eric Coffey]

Originally Posted by tevake

The real deal was that the sellers had a backup deal in the works all the time, thats who ended up with the unit. But they re listed it for sale with no mention of the contingencies. That is the issue I plan to bring to the attention of the Board.

Re-listing a property with a back-up offer already in hand is usually just a formality/requirement from the seller's lender and possibly an exercise in CYA from the listing broker. I am guessing your situation was just a matter of bad timing, not any form of "dirty pool", although it certainly is a possibility.

[mepstein]

Originally Posted by Eric Coffey

Yeah, it can be a bit confusing!

Remember, it is still an agreement (contract) between buyer and seller, just contingent on (seller's) bank approval. So if the seller has signed/accepted an offer, any subsequent offers automatically become a back-ups, even if the first/accepted offer hasn't officially been submitted to the bank for approval yet. Also, most sellers will jump at the first reasonable offer, as they really have no skin in the game. The only motivation for a seller in a short-sale is to avoid foreclosure. They can't net any money at closing, so the offer price is largely irrelevant to them. That said, the bank will still do their own valuations to ensure the price is at/around current market value.

Regarding the "one offer at a time" thing: It is standard procedure. The approval process for most short sales is a long, involved process. So, a common practice is for the sellers to agree to only submit one offer to the bank for consideration at a time (no back-ups submitted). In return, the buyer agrees to deposit hard (non-refundable) earnest money at the time of seller acceptance (instead of upon lender approval, which can take 3+ months in some cases). Otherwise the buyer could walk away at anytime prior to that lender agreement notice without any penalty, putting the seller back to square-one. That can be a very frustrating proposition for the seller, especially if they are approaching their foreclosure/trustee sale date (with no more extensions).

Yes, the system is far from perfect.

FYI: It is usually the exact opposite with REO (bank-owned) properties, as most banks can/will collect several offers, then issue all parties a "highest & best" request with a deadline to make any changes to your offer. It is basically the equivalent to a silent-bid auction at that point, as you will never be privy to what the other offers are at. Also, cash is still king. So you will frequently see buyers requiring financing being beat out by lower offers from buyers with cash.

Oh, and regarding the bailout funds: You will likely be even more appalled to know that those banks are being FULLY compensated for their losses from the gov't on some of those distressed property sales.

All the above is correct. I've done 80+ shorts. The seller can only sell the house to one buyer so they really can't sign more than one offer. Even if later offers are for more, the house is already under contract. The banks often feel differently and will ask for multiple offers but they don't have to follow the same laws that Realtors do.

Not much about shorts make sense. The seller's lender is often servicing a loan for another investor. If the loan is not fannie mae backed, the investor will not always follow the governments short sale guidelines. It's sort of a free for all at times. Shorts are often unpredictable and a real gamble. They are sometimes good for the investor looking for a deal but not always the buyer looking to find a home for their family.

Never put a large good faith deposit on a short sale offer. If the seller goes AWOL (they often do) you will need to go to court to get the deposit back. The broker is forced to keep it in escrow until the seller releases or the court gives permission.

Oh, trust me, the banks are not doing any favors for the Realtors. Inside deals, I wish. They act like Realtors are the enemies instead of the ones helping sell off excess, distressed inventory. It's a fight every step of the way and a lot of wasted time working shorts.

Have fun :>)

[Hugh R]

Originally Posted by tevake

Hugh, Ouch is right, was that change disclosed at the time of purchase?
Are you renting your unit?

Cheers Richard

It had been noticed but not a firm deal. We've listed it as a rental. Even with the increase, I think we'll still cover the costs. I bought it as an investment for long term. As long as I'm not dumping money into it every month, I'm OK if it breaks even, but a few extra $/month would be nice. If it takes a month or two to rent I'm OK with that. In Santa Clarita where I live it was 100 yesterday; 50 miles to Oxnard it was 74. Where going out to the condo on Sunday and Monday, less than an hour drive. My wife wants to keep it for ourselves.

[tevake]

Eric, thanks for the detailed explanation. My wife and our Realtor have been making those points to me for a while. And I do think that I'm coming to understand how it works. But it still seem all FUBAR to me.
Are you in the real-estate business there in AZ? Been hearing of the huge number of distressed properties there. If so are you dealing with this process regularly.

Cheers Richard

[tevake]

Hugh since you are spending time in Oxnard you might enjoy checking out the Peter Mullen auto Museum there. I stopped in and really enjoyed it this last summer.

The collection if focused on French cars from the 20s and 30s. Mostly coach built masterpieces in the art deco style of the period. The place is only open to the public one Sat per month. Its a very specialized collection but some world class examples there.

We too are looking to hold onto the condo for long term and are hoping to attract a core group of return visitors to help cover the costs of owning the unit. The association fees were all over the map at the various complexes here. Ours at about 650 per month were lower mid range. What sort of fees seem the norm there?

A few pics. to spark the interest.






Cheers Richard

[tevake]

Sorry guys I almost hijacked my own thread with the car pics.
Here are a few pics of our new ( to us )condo,
Its on the second floor, two bedroom and bath, the bedroom areas are well separated, nice living room, and lanai.

the entrance,

living room


Front bedroom

Back bedroom
some of the view
Lanai


Dining and kitchen

It is in nice turnkey condition. We will be tweeking the decor over the next year or so
more to our own taste. But nice, no?

[85eurocarrera]

yes, nice. I'd be interested when you get itopen for rental.

[stealthn]

Richard,

Funny my wife has been looking for quite a long time at prices there. We love Kauai and I'm glad you had this thread so I understand it as well. It's even more complicated for us being Canadian, but we'll work through it.

We're looking at places in Waipoli

Bob James

[Baz]

Hello Richard - I just now read your thread...wow....congrats on the nice new pad but sucks about the initial process with the previous unit. I'm no expert on real estate procedure but it really does sound like there's plenty of room for manipulation ti favour someone's back pocket.

Great pics as well. Never knew of that car museum but next time I'm in the area I will try to check it out.

FWIW: I have an old surfing buddy who lives in Oxnard Shores and he bought a second pad on Maui. I think they rent it out now and again but they also use it as frequently as possible. He's chairman of the art department at CSUCI - and teaches a class called "The Zen of Surfing". An interesting person to say the least.

Congrats again & thanks for sharing!

Regards,
Baz and the girls