Please read my prior two posts for more on this topic.
The Foreclosure Dilemma
When a bank forecloses on a home, the homeowner is usually in a very bad financial situation. They didn’t just wake up one morning to find their banker knocking on the door to take possession of their home. In Illinois they usually have missed at least a year of payments before the bank will actually move forward with the foreclosure process (though by that time they have already sent several legal notices and warnings). So it should not be a surprise to anyone that some of these home owners go take unusual steps to get some cash. It is not uncommon to find a bank-owned home that is missing things like doors, door knobs, appliances, lighting fixtures, etc.
I was working with some buyers that found a terrific bank-owned home that was in fairly decent condition, except for the kitchen. The former home owners had hired someone to remove everything from the kitchen and sell it so they could get some cash. All that remained in the kitchen was the walls and hookups for gas, water and electricity.
My buyers were actually happy about the kitchen because they were planning to start building their dream kitchen immediately after the closing. Unfortunately, their financing fell through just days before the closing. The bank they were working with denied the loan because there was no kitchen in the house! The buyers were willing to put money in escrow for the kitchen build-out, but that did not change the banks’ position – no kitchen, no mortgage. I’ve learned that this is a fairly common issue these days when people try to purchase a foreclosed home. And of course the bank that owns the property has no plans to put in a basic kitchen in order to get the house sold.
The only buyer that will be able to purchase this home is someone that has cash or someone that can get a construction loan. I’ve learned that a construction loan requires a higher down payment and has a higher interest rate than a conventional, FHA or VA loan. There does not appear to be a lot of buyers in this market that are in a position to get a construction loan. And so this house will continue to sit on the market and the neighbors will continue to be concerned about the vacant home on their street, and the bank that owns the property will continue to rack up holding costs while the value of the home continues to decline.
Why can’t someone at one of these banks make an exception to their rules in order to get this house off of the market? The bank that owns the property can put in a few basic appliances, cabinets and a sink, and then the home will sell and they can get it off of their books. Or, why can’t a bank give a mortgage to a qualified buyer that is willing to put money in escrow for the kitchen build-out? The buyer doesn’t want/need a construction loan – they are just building a new kitchen. I really don’t see how this is different from a home that has a very old out-of-date kitchen that a new buyer is going to rip out and re-build. I just sold a home like that – they buyers are going to re do the kitchen before they move in. If anyone knows why this is a GOOD reason to block the sale of a home, I’d love to hear about it. It makes absolutely no sense to me. And given all of the foreclosures out there in the same or worse condition, there has to be some logical way to get new owners into these homes quickly.
Your comments and insight are welcome!
Thank you for reading!