I must have looked at 3-dozen short sales or foreclosures before I found one that I was ready to make an offer on. It turned out to be a property where the borrower was not having taxes and insurance escrowed by the lender so they fell behind on their taxes and insurance…3 years behind.

The county cannot operate without real estate tax funds to pay for services like fire and police. And of course, insurance is mandatory for fire, floods and more. The lien on the taxes (for the last three years) was sold as certificates to an investor and now time was running out. The property needed to sell and the deal closed in early June or else the investor who owned the tax lien certificates would be able to sue for the deed.

The chances that the lender would allow an approximate $15,000 (this is the amount of the last three years of delinquent taxes) to stand in the way of their position were slim to none. The lender needed a sale and a closing. Period.

The asking price on this home was $249K in December 2008. The lender dropped the price to $199K in March. I decided to put in an offer. With the short time available to close it had to be a cash offer in order to get the bank excited.

So I did a cash flow analysis. The property was a 4 bedroom 2 bath in a nice area where people want to live. I researched and determined it would get between $1200-$1500 a month in rent.

I ended up putting in an offer of $130K cash. Of course where I would get the cash I would worry about later, but at least I had an offer in with a deposit that the bank could review.

Well, that was not enough for the bank. They wanted more. They wanted verification of the funds that were to be immediately available sent to them before they would accept the offer. No verification. No acceptance. My next step was to get pre-qualified so I can do cash deals. In other words, I needed to have a financing strategy in place and show the bank the money!

The lesson for this week? Better have the cash or financing in place before you go shopping. With the economy what it is, the banking industry in turmoil, the tightening of all markets, and the average credit score falling to 651 (according to Trans Union, one of the three major credit reporting companies), banks want cash. They just don’t want to be the ones to give it to you!

This entry was posted on Friday, June 12th, 2009 at 12:41 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.