Tired of renting and eager to take advantage of falling property prices, 28-year-old Leonard Poteat started working with a real estate agent last October in hopes of becoming a first-time home buyer. After a few false starts, Poteat found what he was looking for in a Hyattsville, Maryland, property that was listed for $239,000.
On the market for more than 12 months, Poteat’s home of choice was a “short sale,” meaning that the owners were on the edge of foreclosure and working with their bank to negotiate a payoff that would be lower than the amount they owed. The house’s list price was $100,000 below its estimated market value of $336,000. But roadblocks went up as soon as Poteat, a graphic arts and photography consultant, made an offer. It was September, and many of the government’s early first-time home buyer programs were about to expire. An anxious Poteat stood by as the typical 60-day closing period ended, leaving him responsible for a 5% down payment and 3.5% in closing costs. Holding up the deal was a second mortgage that the seller hadn’t disclosed. The original lender had outsourced or sold off the loan to an out-of-state bank, further complicating things. On top of that, there were a slew of unexpected charges (imposed by the seller’s outsourced lender) resulting from damages sustained during a prolonged vacancy.
“Three contracts had already fallen through on this property because of those issues with the lender,” recalls Poteat, “but I really liked the house and didn’t want to walk away.” That determination found the eager buyer waiting more than 30 days to hear back from the out-of-state lender, who seemed in no hurry to close the deal. Many buyers complain that banks are overwhelmed with the sheer volume of foreclosures and are moving too slowly to sell them off.
Poteat also spent time negotiating with the homeowner to come up with a way to pay off the $4,000 second mortgage with a promissory note.
“While everything was being worked out, the first-time home buyers programs’ went away and I had to bring $16,000 to the table,” says Poteat, referring to the Bush administration’s tax credit. Poteat finally closed in February, five months after making his offer. On the bright side, the delay meant he qualified for the Obama administration’s $8,000 housing tax credit enacted this year for first-time home buyers.
“That tax credit was a godsend,” says Poteat, who had little trouble obtaining a loan for his first home. “I have good credit, so that wasn’t the issue. The hard part was working through all the loopholes associated with the distressed sale.”