Foreclosure Buying Risks

A lot of the real estate coming on the market these days are foreclosures, which are usually sold in as is condition and are often in poor condition. This may create a buying opportunity for some buyers, but it may pose foreclosure buying risks for others.

Foreclosure Profit

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A purchase opportunity arises because many potential buyers don’t want the hassle of fixing up a house in poor condition, which means that there are fewer competing buyers. In addition, those who sell houses as is are frequently in a hurry to get it done, which means that they are disinclined to wait for a higher offer.

The buyers in the best position to take advantage of such opportunities are those with the skills and knowledge required to assess what needs to be done and how much it will cost.

Foreclosure Buying Risks

Buying a home in poor condition can be risky. One risk is the greater uncertainty connected to its value. The worse the condition, the more costly the improvements required to make the house livable, and the larger the potential error in judging in advance what these costs will be.

The appraisal may reduce but not eliminate the uncertainty connected to the property’s value. Appraisers mainly rely on the sale prices of comparable properties, after adjusting for the differences between the subject property and the comps.

But because information on the condition of comps is often difficult for appraisers to obtain, the error in making price adjustments is relatively large when the property is in poor condition.

Foreclosure Buying Risks -Mortgage

But today the greater risk in buying a property in poor condition is that the buyer will be turned down for a mortgage or forced to find a lender who will make the loan but at a premium price.

This problem seldom arose before the financial crisis because there were very few foreclosure sales, and lenders generally operated on the assumption that valuation errors would be erased by property appreciation. Today, those looking to buy a house in poor condition need to consider this risk very carefully.

Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) recently developed a classification system for housing condition ranging from C1 (the best) to C6 (the worst), but only C6 is unacceptable to the agencies in as is condition. Nonetheless, many lenders require a C4 or better.

Foreclosure Buying Risks-Condition

It is understandable why the agencies that bear the risk of default would either require that the condition of mortgaged houses meet some minimum standard, or base their purchase prices or insurance premiums on house condition.

As noted above, the potential error in appraisals is larger for houses in poor condition, which would result in greater losses on loans that default. When defaults occur early, furthermore, the house that was in poor condition when the loan was made is very likely to be in poor condition at default, which increases marketing costs.

Why some lenders are stricter than the agencies, however, is not clear. Presumably the servicing of loans on properties in poor condition is less profitable, perhaps because these loans have relatively short lives.

Whatever the reasons for lender caution, investors or home buyers looking for a bargain in distressed real estate need to take it into account in planning their purchase.
Foreclosure Buying Risks-Strategy

An inspection report from a licensed expert will help in the decision as to whether to buy the house but will not eliminate uncertainty regarding how an appraiser will classify the condition of the house. If the house is classified C5 or C6, a loan may not be available.

If the sales contract has a mortgage contingency clause, which is a standard provision in some states, the buyer who can’t get a mortgage because the property is classified C6 or C5 will get his earnest deposit back and the deal is canceled. However, the thwarted buyer will not be reimbursed for the cost of the inspection or the appraisal, which might total about $700.

If a property is being sold “as is” and the standard sales contract does not have a mortgage contingency clause, I would pass unless the seller agreed to return my earnest deposit if the property is classified C6 by the appraiser. You could be more conservative and require the return of the deposit with a C5, which would avoid a mortgage problem because most lenders will accept a C4 or better, but it may substantially reduce the number of sellers who will deal with you.

While accepting a C5 will give you access to more houses, you must find one or more lenders who will accept a C5. You would be well advised to do this in advance of purchase.

This is the question that every employed real estate investor has to make a decision about. For those who are unemployed, it isn’t much of a decision – just get started and see what happens. However, if you are employed and have a livable income, there are other factors that should be taken into account.

Most people want to change their careers because of the people they are working for or with, or their field of endeavor has changed with economic times. They tend to know they have to get out for their own sanity but are constrained by a life-style or other financial obligations. These constraints can include putting children through college, alimony, child support, excessive life style or not earning enough to allow for any breathing room financially.

Real estate investing can be very attractive as an alternative career or even just for additional income. If a part-time investor is initially successful, he has to start considering about doing it full time and giving up his job that is either financially or emotionally no longer rewarding. But at what point does he make the jump to investing full time and will his effort translate from his part-time experience into a full time upsizing?

Too often, wannabe investors get excited by national speakers professing the attributes of real estate investing. The speaker’s motive is likely to sell books and tapes and not worry about the success or failures of the majority of the people who purchase the courses. Here are some generalized statistics that relate to the success or failure of new inventors:

1. If an investor does one profitable deal his likelihood of continuing in real estate investing as a career is only 5%. [Soft Break]2. If an investor does two profitable deal his likelihood of continuing in real estate investing as a career jumps to 30%. [Soft Break]3. If an investor does three deals his likelihood of continuing in real estate investing as a career is 50%.

The caveat to these numbers is that the deals don’t come from local realtors giving him listings or pocket listings that haven’t been listed on the MLS. These have to be deals that were gotten from the prospecting, negotiating and closing efforts of the investor. To be successful in real estate investing long term, an investor has to be able to change his business to meet changing conditions in the market place.

So when should a part-time investor become fulltime? While the answer isn’t the same for everyone, my personal experience is that wannabe investors should keep their “day jobs” and worked part-time at investing until they complete five deals with at least an average net profit of $10,000 each. At this time you should have saved money for your change-over to a new career and not be so concerned about where the mortgage payment is coming from. A good guideline is to have at least 6 months of cash reserves to pay all the expenses you normally have and one month for emergency reserve of the unexpected. Most critical is health insurance which is unnecessary until you need it and then it is invaluable.

Some of the most successful investors have full time jobs and work making offers and looking at properties in the evenings and on weekends. If you quit your job and start investing, you will be under a different set of financial constraints than before which can affect your judgment. As with any start-up business, take a close look at a simple business plan and if it’s workable, do it until you know it is reproducible time and time again before you jump off the cliff and lose your benefits and income.

Written by Tom Donnell

Whether you’re using wholesaling, lease-options, short sales or any other investment technique, a huge secret to your success is in how good of a buyer’s list that you maintain.

So just how much money is your buyer’s list worth to you?

A lot …like millions of dollars a lot.

Let me explain to you why using a practical example. The single most successful investor I know (even better than myself) has a buyer’s database of 3000 quality leads. Every buyer on his list has been pre-screened for having the down payment requirements, having good credit, having the ability to work within his time requirements and they have been sold on his investments and their projected returns. He actually works with developers to find homes by the dozen which in turn he wholesales to his buyer’s list for substantial profits. I have seen him literally buy and sell 25 turn key homes in one single day. Just imagine the pay check he got from that too!

None of that is possible without an extensive and complete buyer’s list. Many others have tried to emulate his actions but without the dedication to building a quality buyer’s list, it is an impossible and uphill battle.

How Do I Build a Quality Buyer’s List?
Firstly, you should know when it is the right time to market for buyers. Do you know when the right time is? Be sure to market for buyers all the time, which is the only “right time.” Quality investors take the time to go to networking meetings (not just R.E.I. clubs) to find qualified buyers they can meet face to face to close their deals to. Marketing is the key to your business, no matter what you do.

You should also always have homes marketed online even if you don’t actually have any under contract to build quality buyers lists. You’ll want to meet with them face to face as much as possible to show your seriousness and to build rapport.

If you’re trying to build a quality lease-option tenant/buyers list, a great place to look is for mortgage brokers turn downs. By paying mortgage brokers referral fees for dead leads, you can continually grow a quality list. You’ll know how much the tenant/buyer can put down and exactly what the credit issue is that prevents them from ownership before you even meet them.

You should also network with other professionals. If you want to build a quality list for wholesaling, rehabbing or short sales, take the time to network. Attend real estate investment clubs, legal clubs, other investment clubs, accounting networking meetings, condo open houses, etc. The best investors I know do these little extra steps continually and often and that is not a coincidence.

Getting in the right circles is easy. While you’re sure to be full of motivation for your business, be careful not to be overbearing. People are more apt to listen to you when you’ve taken the time to make them feel important. I recommend asking the other person, “So what do you do?” before anything else and then pay attention. Eventually they will reciprocate the question. At which point, you can move into your pitch. Don’t fake interest; learn to hear other people’s stories. Good karma can’t hurt you.

How Do I Weed Out Who Can Buy and Who Can’t?
You probably noticed that I said my investor friend has 3000 quality buyers and not just any old list of 3000 people. Do you know what the big difference between how people like him and I manage our lists and how the average investor handles their list? Besides the sheer size, we maximize efficiency by not wasting time with who can’t buy or is not ready to. In short, our list is of the highest quality. Don’t be afraid to be direct with your buyers.

“How soon can you close if need be?

“ASAP” = Quality ready and serious buyer
“I need at least…” = Still window shopping for investments

“How much can you put down?”

Only a direct answer = serious buyer

“Do your prefer turn key already rented and managed properties, fixer uppers or both?

“hands on” = flip rehabs and short sales to them
“hands off: = joint venture partner
“both” = use them for anything and everything

What Else Can I Do With This List?
Occasionally you’re going to come across great deals that require cash without any way around it. The benefit of having a quality list that you have established rapport with is that you can turn around and raise private capital with your list very easily. In fact, if you screened your database properly in the first place, you’ll know exactly how much cash they’re working with and what the source of that money is – i.e. cash, line of credit, investments, etc. Furthermore, putting together a quality list will help you get in to larger and more profitable deals because you’ll have a quality list to mine your joint ventures from.

If you don’t have a quality list already, you may be costing yourself millions. Many investors know the techniques that can make them successful but only a select few treat their business like a business so that they can very wealthy.

The moral of the story is this. Those few extra hours a month you spend building a quality buyer’s list make all the difference in the world for your financial success.

by Matthew David

Want to Be Taken Seriously in the Foreclosures Market? Make a Realistic Offer!

By Rick Sharga, Vice President of Marketing for RealtyTrac

It’s no wonder that the foreclosures market is gaining popularity among first-time buyers and real estate bargain hunters alike. Foreclosure properties can often be purchased at 10 to 30 percent less than their market value, making them an attractive investment in a time of soaring real estate prices.
But despite what you may see on late-night cable TV, investing in foreclosure properties isn’t a sure fire “get rich quick” formula. Lenders aren’t likely to give properties away, particularly in a real estate market where prices continue to rise. And homeowners in financial distress still have some leverage to negotiate the purchase price, particularly early in the foreclosure process.

“You have to practice both diligence and patience when looking to buy a foreclosure property,” explains Jim Saccacio, chief executive officer for RealtyTrac. “There really are some fantastic deals out there, but you have to be willing to wait for the right opportunity, then make a realistic offer so the seller will view you as a serious buyer.”

With interest rates ticking upward, experts predict an increase in the number of foreclosure properties on the market. Web-based services such as RealtyTrac, give consumers access to foreclosure and pre-foreclosure information that was previously available only to professional real estate brokers and investors. Today, homebuyers can use these services to identify and research potential home purchases, as well as to find the tools and professional resources they need to help them close the deal.

Sales in this marketplace can move rather quickly, so there’s no time to make uninformed or low-ball bids on properties in a half-hearted attempt to save a few bucks. Nothing turns a seller off faster than a low-ball offer on a fairly-priced property. In most cases, doing so may irritate the seller so much that no further negotiations will be entertained, meaning that you’ve essentially lost any opportunity to buy the property. Conversely, making an uninformed offer that is too high may get you the house you want — along with a never-ending monthly reminder that you overpaid!

Find out what the house is really worth

In order to make a realistic offer, you first need to know what the actual value of the property is. Look at the original purchase price and recent comparable property sales to determine the current value of the property. You can obtain information on recent sales in the area from your realtor or via RealtyTrac’s Comparable Sales Report. Ideally, you should look at sales in the area over the past six months. Then you can drive by each property on your list and note its condition, size, appeal and location. You should also look for properties that are currently listed for sale in the area and research the same information for them. This information, along with a thorough examination of the condition of the property, should give you a good feel for what it is really worth.

Find out how much is owed

You should also find out the amount the seller is in default and the remaining loan balance. In order to determine a reasonable offer price, you’ll need to know — at a minimum — how much money it will take just to satisfy the debt to the lender (or lenders). Knowing this will help you determine whether the property is within your price range or unattainable considering your current finances.

The estimated loan amount and default amount are included in the foreclosure documents filed with public records, and RealtyTrac posts this information online for subscribers. Additionally you can order RealtyTrac’s Legal and Vesting Report or Transaction History Report to check for any other mortgage loans on the property.

Ultimately, even if you’ve presented what you believe to be a fair offer, you’re likely to receive a counter offer from the seller. That’s to be expected as the negotiation process is a major part of real estate sales in general — even foreclosures. Remember, a successful negotiator in any situation must be informed, prepared and realistic. Again, you must practice patience and diligence in order to get the property you want for a price you are willing to pay.

Lastly, it’s important to remember that real estate purchases can be rather emotional, especially as you grow attached to the idea of owning a particular property. It’s important to know what you are willing to spend on a home, regardless of your emotional attachment to it, so you need to set a limit and stick to it.

Foreclosures Just Won’t Go Away

Nearly a quarter of a million homes that were in some stage of foreclosure were sold during the second quarter of 2010, an increase of 5 percent since Quarter One.  This, however, was 20 percent fewer sales than were recorded in that category in the second quarter of 2009.

According to the 2nd Quarter RealtyTrac Sales Report issued this morning, sales of homes in the process of pre-foreclosure or out of lenders real estate portfolios (REO) accounted for 24 percent of all sales in the country.

Home sales overall increased from the previous quarter, but while actual numbers of properties involved in foreclosure sales increased from 232,959 in the first quarter to 248,534, the market share of foreclosure sales was down from 31 percent. Extrapolating from RealtyTrac’s foreclosure sales numbers and percentages, an estimated 1.4 million homes were marketed in Q2 compared to 752,000 in the previous period.

James J. Saccacio, chief executive officers of the Irvine California based firm said, “While foreclosure sales increased in the second quarter, non-foreclosure sales increased even more, spurred on by the homebuyer tax credit that expired during the quarter.  That had the net effect of lowering foreclosure sales as a percentage of total sales during the quarter, but that may be a temporary dip as the removal of the tax credit could drive more buyers back to discounted short sales and REOs.”

Lenders appear to be moving substantial numbers of properties before they fall into bank ownership.  151,290 homes were sold from REO  inventory while 97,244 of sales were of properties in default or scheduled for auction.  While the latter were not necessarily “short sales,” that is transactions where the lender agrees to take less than the balance owned in order to release its lien, many were.   While REO sales were up 3 percent from Q1, they were down 28 percent from one year earlier.  Pre-foreclosure sales increased 8 percent from the previous quarter but were down 3 percent from a year earlier.  REO sales represented 15 percent of all residential sales in the country compared to 19 percent in Q1 and 20 percent a year earlier while pre-foreclosure sales accounted for 9 percent, 3 percentage points lower than the previous quarter but at about the same level as a year earlier.

A buyer of REO continues to get a substantial discount from market prices.  REO sold at an average discount of just over 34.5 percent, a number which was virtually unchanged from both the previous quarter and the figure a year earlier.  A pre-foreclosure property, on the other hand, sold much closer to market price.  The average discount was 13 percent, down from 16 percent in Quarter One and 19 percent in the second quarter of 2009.  On average, a buyer of distressed properties averages a 26 percent discount.

As usual, Nevada, Arizona, and California posted the highest percentage of foreclosure sales.  More than half of all sales, 56 percent, in Nevada were of homes in foreclosure but the actual number of sales was down 30.1 percent from Q1.  Buyers in Nevada received an average discount of 16 percent.  In Arizona 47.4 percent of sales were foreclosure related and in California 43.2 percent.  Discounts in the two states were 24.8 percent and 39.3 percent respectively.  It is important to note that discounts in these long-term distressed states probably also reflect substantially depressed market prices.

Other states where foreclosure sales accounted for at least one-quarter of all sales were Rhode Island (37 percent), Massachusetts (35 percent), Florida (34 percent), Michigan (33 percent), Georgia (27 percent), Idaho (27 percent), and Oregon (25 percent).  However, in Rhode Island the number of sales was down 54 percent from the previous quarter and in Massachusetts the change was -54 percent.  In both states the number of sales were down over 60 percent from one year earlier

The highest discounts were recorded in Ohio (43 percent), Kentucky (40.8 percent) and California (39 percent).  Other states with average foreclosure discounts of more than 35 percent were Michigan, Tennessee, Pennsylvania, Georgia, Illinois, and Iowa, along with the District of Columbia.

Is it Too Late to Find Bargain Real Estate

Do you want to understand how to find, negotiate and close on distressed real estate and then how to flip the property to hungry investors. Well then you need to listen to Chris McLaughlin the renowned real estate attorney turned short sale investor.

I've heard it all.  But the 3 biggest whoppers keep coming
back, over and over again.

#1: The recession is over.  Right.  We believe the media
    about as much as we do the politicians.  It ain't
    over with unemployment numbers still piling up new
    bodies on the heap every week.  And foreclosures
    still hitting record highs (no, "slowing slightly"
    doesn't count - they're still growing every day!).

#2: The stock market's recovering.  If so, it's the worst
    "recovery" in history.  Stock markets in China and
    Europe are delivering up to SIX DOLLARS IN PROFIT
    for every ONE ours is! Why?  Our economy still has tons
    of bad subprime loans and are gonna go South.

    Other economies may be saddled with dunderhead politicos
    too, but not subprime defaults.  Our stock market is
    limping along like an anemic bum in the gutter, looking
    for bottles to turn in for change.

#3: Foreclosures are down.  What a spin-job that was!
    We simply threw a few less houses on the bonfire this
    month than last.  Does that mean there are less?  No!
    In fact, if you compare it with the same month of the
    previous year, when the economy was crashing big-time,
    the rate is UP 18% this year!

If you search out media stories in the Great Depression,
they also constantly broadcasted "recovery is just around
the corner."

For 8 miserable years.

Look, you can actually make a ton of cash in these bad times
and the worse ones to come.  Truth is, there are more
millionaires made in recessions than any other times.  The
main reason being, when things fall apart, there are smart
people positioned to pick them up...

...for pennies on the dollar.  But there's even more money
being made by spotting these opportunities and flipping
them to other investors.

Where is the Recovery in Housing

Nearly 11% of mortgages modified under the government’s Home Affordable Modification Program, known as HAMP, have fallen two months behind in payments, according to a banking regulators’ report issued Friday. By contrast, just more than 22% of non-HAMP adjustments redefaulted.  The reason for the gap is pretty clear, regulators said. HAMP modifications reduce a borrowers’ monthly payment by an average of $608, while bank modifications lower it only by $307. “There is a correlation between sustainability of payment and the reduction in the payment,” said Joe Evers, deputy comptroller at the Office of the Comptroller of the Currency, which put out the report along with the Office of Thrift Supervision.

Under HAMP, eligible borrowers can have their monthly payments lowered to 31% of their pre-tax income as long as its more profitable for the bank to modify the loan than to foreclose. The federal government pays servicers an incentive to participate in the program.  Also, proprietary bank modifications are outpacing HAMP adjustments by more than 2-to-1. Many troubled homeowners are falling out of the government program and 44.5% of them are receiving bank modifications. Housing counselors have been wary of proprietary modifications, mainly because there is not a lot of information about them. They caution homeowners to make sure they understand the terms of the adjustment. A Chase spokesman said HAMP is always the first program the bank considers for troubled borrowers “because it lowers the payment more than most other programs.” If they don’t qualify for
HAMP, they are reviewed for a proprietary modification.

Tax bill comes under fire

Sen. Dick Durbin of Illinois and other Democrats plan to bring a tax bill called “Creating American Jobs and Ending Offshoring Act” up for a vote tomorrow, but the legislation has already come under attack from Republicans and business groups. The U.S. Chamber of Commerce called on lawmakers to oppose the bill, saying it would hurt the economy and lead to job cuts. Instead, the group urged lawmakers to extend all of the Bush tax cuts set to expire on Dec. 31 — an issue Congress is unlikely to resolve until after congressional elections on Nov. 2.  Tax policy analysts say the bill is politically-motivated and doubt that it will have a meaningful impact on hiring.  “I don’t think this package is going to be successful,” said Anne Mathias, a tax analyst at Concept Capital’s Washington Research Group. “Politically it makes sense, but economically I’m not sure it will work.”  The bill would give U.S. employers a two-year break from payroll taxes on wages paid to new U.S. work
ers performing services in the United States, according to a summary of the legislation.  To be eligible, businesses would have to certify that the U.S. employee is replacing an employee who had been performing similar duties overseas.

Experts said the amount of money companies could save as a result of the tax holiday may not be enough to offset the benefit hiring workers in cheaper labor markets. In addition, analysts said many questions remain about how the provision would work if the bill is passed.  “How do you identify the jobs that have come home?” asked Roberton Williams, senior fellow at the Tax Policy Center. “How does the firm prove that a job has moved from overseas to home? How do they prove that the job wouldn’t have been created here anyway?” In addition, businesses would be blocked from taking any deduction, loss or credit for costs related to reducing or ending U.S. operations while expanding similar operations outside of the United States.  Critics, like the Chamber of Commerce, say ending deferral would subject American companies to “double taxation” on the earnings of their foreign subsidies. “Limiting deferral would hinder the global competitiveness of these American companies, impede U
.S. economic growth, and ultimately result in the loss of jobs,” Bruce Josten, an executive vice president at the Chamber, wrote in a letter to Senators last week.

New home sales near lows

Sales of new homes were flat in August at a seasonally adjusted annual rate of 288,000, the second lowest level since the Commerce Department started tracking new home sales in 1963. Sales year-over-year are down 28.9%. Home sales were expected to jump to an annual rate of 291,000 in August, according to a consensus estimate of economists surveyed by Briefing.com. “It would have been nice to finally see a nice upward blip, but this is not surprising at all,” said Leif Thomsen, CEO of Mortgage Master. “Builders are unable to get financing for new homes in this economy, and buyers aren’t in a hurry to buy because they know nothing is really selling.”  Reports earlier this week on existing home sales and new home construction indicated slightly improving housing market conditions. But until hiring picks up and more people start shopping for houses, a significant rebound is unlikely. The median price of new homes sold in July was $204,700, a 0.5% decline from July and down more t
han 1% from August 2009. At the end of August, 206,000 new homes were for sale. At the current sales pace, the government expects the supply to last 8.6 months.  Sales soared in the West, rising 54.3% in August. The Northeast saw sales rise by 16.7%. Sales in the Midwest fell the most, by 26.1%, while sales in the South fell 10.8%.

Bank Owned Home Addendum

A bank owned home addendum is a legal document attached to a purchase and sale agreement by almost all banks when selling REO properties.

Bank Owned Home Addendum-Bank Owned Homes

Buying a bargain priced foreclosed home from a bank might seem like the best idea in the history of the world but the starry eyed buyer should keep a few simple home truths in mind:

• The bank who is apparently your best friend is the same entity who foreclosed on the previous owner and evicted the family from their home. They are in this only for the money and they see you as a means to an end. This is the reason why the find it necessary to attach a bank owned home addendum to the purchase and sale agreement.
• The realtor who is also apparently your best friend would most probably sell his/her own newborn for a buck. They are only showing you potential dream homes for the money. If you don’t buy they don’t get paid so don’t go falling into the tra of thinking that your realtor has your best interest at heart.

Bank Owned Home Addendum-Making an Offer for a Bank Owned Home

When you make an offer on a piece of bank owned property an REO (real estate owned) the offer will be faxed to the bank and depending on the length of time on the market and the black hole depth of the market that the property is located in the bank will either accept your offer or play hardball to get the last cent possible out of you.

More and more banks are coming back to buyers who have make an offer and asking for a highest and best offer. This is usually in a scenario where there are multiple offers but corporate being corporate they will use this strategy even if your offer is the only one on the table. If you bite and improve your offer great if you don’t then they may just go ahead with your original offer.

It is never a good idea to become emotionally involved in a deal. Know your price and know your limits and stick with them.

Then they will send out a P&S agreement that has an addendum attached to it that basically says in this deal all the detail is in the banks favor and that you the buyer will accept or go away.

In almost all cases the bank will not take the home off the market until their addendum is agreed to and signed.

Bank Owned Home Addendum-Buying a Bank Owned Home

If you must buy a bank owned home follow these two steps:

1. First sit down with yourself and examine your greed motives for buying this particular home. If you are only buying it because it is cheap then you better be an investor looking to do a quick flip.
2. Never lose sight of the fact that your real estate agent is working for a living. Also remember if you are working with an agent who is not the listing agent of the bank owned home chances are that the listing agent will treat your agent with contempt. The reason for this is that Realtors who list bank owned homes have hard task masters in the form of bank asset managers.

The bank asset manager only wants to know how much and when, every other detail is a headache. You on the other hand have concerns, know this your concerns are not the sellers concerns.

Bank Owned Home Addendum-The Offer

The bank is selling as is with no contingencies which means basically what you see is what you are making an offer for.

• So have your inspector look the house over before you make the offer.
• Make the offer contingent on financing
• Submit a pre approval with your offer, some banks will want you to be approved by them before they will look at your offer.
• Submit a recent credit score with your offer
• Submit a letter of assets from your bank with the offer
• Make the offer good for 7 days
• Remember that if the bank receives a cash offer they will go with it even it it is for less than your offer which is contingent on financing. Cash talks, financing walks.
• Include a clause in the P&S agreement that negates the sale if the property is damaged before the sale. Most bank owned homes are vacant and have a nasty habit of having the copper pipes stolen. In the Northeast vacant homes are susceptible to winter freeze and water damage from burst pipes.
• Don’t expect to close on the date included in the P&S.
• Be ready to close on the date in the P&S.
• The agreement will sanction you if you cannot close whereas it is OK for the bank to delay.

The bank owned home addendum is designed to protect the banks interests and totally override any rights you may think you have in the P&S agreement

Buying Foreclosures

Without doubt the absolute best way to get a real estate bargain can be found in buying foreclosures. Distressed real estate usually means that someone is in trouble the bank wants its money and the white knight is the investor or potential homeowner with a large check waiting to bail the delinquent owner and the bank out.

 This nice little picture however isn’t quite as perfect as I have painted it. All the parties involved may not be quite happy with the potential outcome.

Buying Foreclosures-The Parties Involved

Almost all foreclosure situations have three parties involved

• The person who is buying foreclosures.
• The bank who is driving the foreclosure process in order to get its investment back.
• The homeowner who is delinquent and waiting to be thrown out on the street by a combination of the person who is buying foreclosures and the foreclosing lender.

Now in this three sided transaction two sides tend to walk away from the table happy and one side very unhappy.

The bank will be happy when the foreclosure is processed, be it by auction or judgment. They will finally have their money and a delinquent asset off their books.

The person buying foreclosures will be happy they will have got a piece of real estate at a knock down price.

The foreclosed owner will not be happy at all they will have just their family home, any down payment they made when they initially purchased it and any money they put into the home in the form of home improvements or remodeling.

Buying Foreclosures-The Auction Process

When you buy a foreclosure at an auction you get a home with a clear title with all liens including real estate taxes paid off.

What you may not necessarily get is a vacant property.

In a lot of States the foreclosure process is a non judicial process. This means that the foreclosing lender merely files some papers with the registry of deeds, comply with the service member civil relief act, set a date and hold a foreclosure auction.

People intending to buy a home at a foreclosure auction will be required to show up at the auction with certified funds. The winning bidder will sign the bid documents and hand over the certified check and within 30 days the foreclosure will be complete, a foreclosure deed will be prepared and the winning bidder will be expected to show up at the banks attorney’s office with a check for the balance of the funds for their winning bid.

The bank will hand over a foreclosure deed with clear title and the winning buyer will own a foreclosed home.

Buying Foreclosures-The Problems

There are two main problems for inexperienced people buying foreclosures.

You are buying a home without inspection. In most cases the sitting homeowner will not be willing to let potential bidders view the interior of the home prior to the foreclosure auction. In this case the bidders are bidding sight unseen on a property.

The bank will not remove the delinquent homeowner who after the foreclosure auction becomes a tenant of sorts. The dirty job of evicting a hold over homeowner who is reluctant to move on falls to the lucky/unfortunate winning bidder.

Buying Foreclosures-Dealing with The Homeowner

Unless you are a battled hardened real estate investor experienced in buying foreclosures it is imperative that you make contact with the sitting homeowner before you even consider bidding on their home.

Pre foreclosure:

• Make contact with the homeowner.
• Find out if they are in the process of moving on.
• Ask very nicely if you can look around their home.

Post foreclosure:

• Offer them key money to move out quickly
• Never, never, never, engage in combative behavior, the last thing you need is for them to dig their heels in and have you go through the eviction process.

If they are not willing to entertain you, you will have to hire an attorney to evict them, it wound not be a good idea to do this yourself.

Remember this person is living in a home that you own and they can and will do major damage to the home costing you thousands of dollars.

Buying Foreclosures-Better Option

If it is not possible to view the home before the auction and the bank is not willing to guarantee a vacant property you will be far better served letting the bank buy the property back and dealing with the bank after the foreclosure has taken place.

At this stage the home will be a REO (real estate owner) which is a fancy term for a bank owned home. Now the home buying process is more conventional. You will be able to inspect the home, make an offer based on the condition and if your offer is accepted you will go to purchase and sale and after the closing you will get a home with a clear title without any lien other than any mortgage you have taken out to buy it. The home will also be vacant.

For the average person looking for a bargain piece of distressed real estate buying foreclosures can be fraught with major problems that can turn the happy winning bidder into a foreclosure candidate.

What is a Short Sale

The simple answer to the question what is a short sale, is that a short sale is a real estate transaction where a lender allows a homeowner who is in financial difficulty to sell their home for les than the outstanding mortgage amount. To qualify for a short sale a homeowner must be behind on their mortgage payments and must be able to document the reasons for their inability to pay their monthly mortgage payment.

What is a Short Sale-Foreclosure Process

When a homeowner finds them self in financial difficulty and reaches a position where they cannot meet their mortgage payment the foreclosure process begins. At first it might appear that they are merely behind on their mortgage payment by a month or two but the reality of secured real estate is that the instant that the first payment is late is the instant that the foreclosure process actually begins.

This is a rough timetable for the foreclosure process

• Foreclosure Process Begins – First payment is late
• Notice of Default – Three payments are missed (3-4 months into process)
• Assignment of Mortgage – 4 to 6 months from missing first payment
• Foreclosure Auction – 6 to 9 months from missing first payment
• Eviction – 6- 12 months from missing first payment

It is important to note that the above time frames are estimates and are based on a foreclosure where the homeowner assists the lender in the foreclosure process by ignoring the process by pretending it really isn’t happening.

If you are in foreclosure and want some real advice then wake up to your situation, open all your mail, answer all your phone calls, do not allow yourself to be intimidated ever, ever, ever, and formally answer all complaints made to any court.

By formally answering all court complaints made against you, you will add possibly a year to the foreclosure process giving you time to get your affairs into order and get some cash together for your eventual move.

Remember this if you remember nothing else: No one is coming to save you. In reality this article might be the best free help you ever get. I am that soldier.

What is a Short Sale-Realtor

When you fall behind on your mortgage and the lender starts the foreclosure process the whole world and its mother will know that you are in trouble. Unfortunately the foreclosure process is designed as a public process to enable the distressed real estate to get the best possible sale price to meet the secured loan and the legal fees associated with the foreclosure and if possible to have some money left over for the homeowner. In reality there is never anything left over for the homeowner so don’t get your hopes up.

You will start receiving mail from your long lost best friends who want to help you out in this your moment of need. Remember no one is coming to help you; your new best friends are the vultures of humanity who smell fresh meat and are coming to help themselves.

You will alsohave every realtor in four thousand miles sending you their card and testaments to their otherworldly ability to sell homes, help people like you avoid foreclosure and introducing you to a neat little trick that only they know how to perform to perfection called a short sale.

Your first reaction will be to ask the question what is a short sale and store the mail away for future use in a year or two. News flash you have months left not years. This is the time to start doing something.

What is a Short Sale- Foreclosure Options

When a person finds them self in foreclosure there are some certainties:

• You income is not sufficient to meet your debt load
• You are going to lose your home

There are also some uncertainties involved in the foreclosure process:

• When are you going to lose your home
• How are you going to lose your home

If you decide that you are not an ostrich and take your head out of the sane and basically decide that you are in control a miracle will occur and you will be in control.

The bank and its attorney’s are your mortal enemies. They want to take your home and put you and your children out onto the street. The bank and its attorney’s do not give one single damn what happens to your or your children, they want your home, period.

Wake up an fight for yourself an your children!

The options available to you when you can no longer afford to pay your mortgage are:

• Do nothing and let the bank take your home with ease and evict you
• Move out and start over if you have the funds. This could be a great strategy because you will be able to rent somewhere affordable before your credit starts showing a foreclosure which might make renting difficult.
• Do a short sale
• Do a deed in lieu of foreclosure
• File bankruptcy
• Take a superior court case against the bank and its legal help.
• Fight them on every front

While you will eventually lose and have to move on if you decide to fight you will gain intense interior satisfaction and self worth and you will give yourself much needed time to move on with dignity.

What is a Short Sale-Short Sale Process

This is a brief answer to the question what is a short sale and a brief summary of the short sale process:

• Contact your lender and inform them that you would like to do a short sale
• Have your lender mail or fax you a short sale package
• List your home for sale with a Realtor who understands the short sale process and who is a full time real estate professional. Avoid part time realtors at all costs.
• Your home will be listed on the MLS with the contingency “third party approval required”, the third party being the bank. This contingency tells the real estate profession that your home is being sold as a short sale.

Other than the bank needing to accept any offer your sale from your perspective will be a normal real estate transaction. The realtor will have to do additional negotiations with the loss mitigation department of the lender.

What is a Short Sale-Documentation

You will need to supply the following documentation to the lender to facilitate the short sale process:

• 2 years of tax returns
• Recent W2′s
• Hardship letter explaining why you can no longer afford your home loan payments
• Limited power of attorney giving your realtor permission to discuss your account with your lender. This should have the last 4 of your social on it.
• Fully signed offer to purchase or fully signed purchase and sale agreement with the subject to third party approval contingency.
• A preliminary HUD closing statement showing how it is proposed the purchase money will be dispersed.
• An income and expense statement from the homeowner. Most lenders have their own document that you will fill in.

It is important that the short sale package is submitted in this fashion:

• Do not submit the package piece meal. Wait until all the documentation is gathered and submit a complete total package.
• Ensure that the last 4 of the social are on all documents in the margin written in sharpie.
• Ensure that the account number is on every document page written in sharpie in the margin.
• Fax and or mail it to the correct address at loss mitigation.

It is also good short sale practice for the person negotiating the short sale to form a relationship of sorts with the loss mitigation officer handling the short sale. At the very least get an email address of the person responsible for the case.

What is a Short Sale-Time Frame

A short sale will take anywhere form 3 months to eternity to complete. Everything is in the detail. If you half fill in half the required documentation the bank will file your short sale somewhere dark and out of sight and your home will be foreclosed. Los mitigation departments are exceptionally busy and they are underpaid and they do not want to deal with your short sale. Do not repeat do not give them an easy reason to put your short sale on hold.

What is a Short Sale-

The real answer to the question what is a short sale is this:

• A short sale is a way for a homeowner to get out from under the burden of a negative equity home.
• A short sale is a way for a lender to get a non performing asset off their books without the expense of a foreclosure.
• A short sale is a way for a buyer to get a good deal on a piece of distressed real estate without the dangers of buying a foreclosure.
• A short sale is a great way for real estate agents to make good money in a bad housing market.

These are just some of the answers to  the question what is a short sale.