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Jay Thomas
  • Chicago, IL
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131
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Lesson learned from My First Deal. What could I have done?

Jay Thomas
  • Chicago, IL
Posted Nov 29 2017, 08:01

I just closed on my first buy and hold deal, a HUD foreclosure. The closing process was way different from when I closed on my personal residence. I was hoping this HUD foreclosure process would be similar to that and hoping my lawyer/agent would guide me through the process, I was wrong. Below are the things that went wrong during the transaction. WHAT CAN I DO IN FUTURE TO PREVENT THESE.

1) HUD only allow 3 days for utility turn on. I told my bank and agent to notify me when appraiser is coming so I can schedule inspection, appraiser, and 3day utility turn on period at the same time. Bank and/or my agent didn't communicate with the appraiser. Utilities weren't turned on for the appraiser, thereby, costing me additional appraisal cost for re-inspection.

2) Bank said they would do "As-Is" appraisal but appraisal report came back as "Subject To". It took a month for the bank to successfully appeal the appraisal thereby extending the closing date. This cost me another $$$ because HUD charges money per day for extending closing date.

3) I was hoping the seller would pay for buyer's title insurance but I was wrong and my agent didn't educate my on HUD deal. Closing company wanted to charge $500 for lender's title and $1,500 for buyer's title on a $85k property. Title search came out clean so I told my lawyer that I don't want to buy buyer's title insurance. Lawyer spoke to title company. He said the title company wouldn't do business with me if I refuse to buy buyer's title insurance.  Since there is a single lawyer involved in a HUD deal, title insurance is how he get paid. They offered a $500 discount. Forcing me to buy an optional buyer's insurance still doesn't sound right to me. I bought both title insurance.

4) HUD doesn't accept electronic documents. They want us to mail the signed contract and all documentations within 3 days after accepting our offer. They rejected our first package because signature was missing on a page. The agent made me pay for the mailing fee for both packages costing about $100. He said his commission only cover electronic documents. Is that right?

5) HUD also doesn't care about city inspection, it is buyer's responsibility. No one took ownership of this task so I had to walk into city's office to schedule the pre-purchase inspection and final inspection. This cost me about $400. I know I have to pay the inspection fee but who is usually responsible for coordinating city inspection. How do people buying out of town handle this?

6) My agent wasn't really familiar with the particular area as we were making offers all around Chicago land area. Chicago land area is too big for a single agent to be familiar with all neighborhood and suburbs. We lost out on 5 deals in areas he was familiar with. I kind of felt bad for the agent for all the work he had done so I stuck with him in order to pay for all his troubles. Do investors have multiple agents in different areas?

I learned a lot from this transaction and I considered those additional cost as tuition  for "Real Estate Investor 101" class. However, what can I do in the future to avoid similar troubles?

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