Tuesday, March 17, 2009

If you are an FHA buyer and you are making an offer on a foreclosed property, the lender/owner of that property may never even see your offer.

Facts to know:
-As we all know, the government guarantees many loans through FHA.
-FHA puts some sensible restrictions, usually having to do with health and safety, on properties that it will back. For condo projects, restrictions have to do with HOA finances and ratio of renters to owners. Conventional lenders have the same restrictions on townhomes/condos.
-Right now, most of the buyer groups I am working with need to "go" FHA.
- There are "mega-lister" brokers out there who have hundreds of foreclosure listings.
-I had a great experience recently with a Realtor who has a normal amount of listings, some of which are foreclosures.
- Biggest fact: If you are an FHA buyer and you are making an offer on a foreclosed property, the lender/owner of that property may never even see your offer. Here's what happened to my clients this week in the form of an email string.

First, here's my email with names changed, of course: [Mega-Lister Realtor], on Sunday my clients wrote and we submitted an offer to you on [unit in large condo building in Burbank]. I had contacted your office on Friday and was told the property was available. My clients are Mr. and Mrs. _____. The offer was close to asking and was accompanied by financial information including a pre-approval. It is an FHA offer.

I phoned your office for status on Monday and spoke to [unlicensed assistant]. She told me another offer had already been submitted and that the townhouse complex was not FHA approved. She told me this was because there were too many renters in the complex. She also said that she could not submit the offer, because your company would get "in trouble" with the lender/seller for submitting an FHA offer on an un-approved complex... The mls says nothing about accepting or not accepting FHA offers.

I am very, very familiar with this complex and have been for years. It is extremely well maintained and I believe the HOA has very healthy reserves. I also find it hard to believe that it has less than 51% owner occupancy. I will check that in the next day with the HOA management company. I have also checked FHA's website, and the complex is not listed as approved or not approved. We've all been very educated about FHA requirements lately, and I know of no reason this unit/complex could not pass those.

I know this new market is a tough one for us all. But could you please guarantee and confirm that our offer has been submitted to the seller? It is a good offer and we need to know that the seller has seen it and responded.

Please phone me or email me with any questions or concerns. Thanks very much!

And here's the email that I got back from the mega-lister Realtor: I have reviewed the property prior to marketing and my recommendation is not to accept FHA offers based on the fact that it is not approved on huds website and the HOA verbally told us that there are only 45% owner occupied units. We don't have a condo cert yet however there is no sense in any of us getting into a deal that cannot be closed... I hope you understand.
Now, it probably sounds like I just have a case of sour grapes because my clients did not get the townhome. Well, okay. But, Realtors have a legal obligation to present all offers to their sellers. And Realtors should not be making the decision about what reasonable offers their clients should see. And Realtors also have an obligation to post on an mls listing if something is not eligible for FHA funding. And it seems to me that lenders who own bad assets and are getting bailed out with tax payer funds should be looking at everything.


  1. I am so frustrated because my husband and i have been searching and searching. we put an offer on a beautiful townhome in the area and did not get it. we were bummed so then we found this other beautiful townhome and wanted to win it so we put down 15,000 over the asking price. we had two approval letters and everything finished and i think we were the first offer submitted. they chose a non-FHA offer instead simply because it wasn't FHA. it is getting so disheartening to us when we can't seem to find a place.

  2. Allison, it IS frustrating. It seems that my clients have to make three offers on three properties for every one they actually get. Hang in there, though. This can't last forever.

  3. Interesting post. How do realtors benefit from non-FHA loan vs FHA loan? I would assume, no matter what, they are getting certain % of the total accepted offer amount!

  4. Jennifer, you are correct; the Realtor gets the same commission regardless of whether a loan is FHA or non-FHA. However, FHA loans can be somewhat harder to close, especially for townhomes and condos. Some of the mega-listers don't want to bother their sellers (who are banks) with (or be bothered by) a transaction that's going to be tougher than usual. That's why they are mega-listers; they get lots of biz from banks based on how smoothly/quickly they can get these foreclosures closed.

  5. Anonymous11:29 AM

    I feel your pain. We've been looking for some months now. We put offer 10k to 15k more than asking price..still not accepted. I don't know whats wrong with FHA :(((