Foreclosure auction properties are a H U G E risk in this 2012 economy because you don't know the property and can't inspect, before bidding, what you might be buying.
People have been pushed to their, financial, limits and are losing/have lost their homes and livelihoods.
In many cases, people have tried every, reasonable, option to resolve their financial shortcomings with the banks/lenders that hold the mortgage on their home, only to be denied and, ultimately, foreclosed upon.
**Understand that this economy has had a devastating effect on home values which, in turn, has compromised earnest owner's ability to, even, sell their homes at the price equal to the debt that they owe on the home.**
That means that many people are stuck and can't sell, but can't continue to pay for, the home that they (And the lender) own.
So - this helpless feeling can - AND DOES - lead to resentment, where some of these "displaced" sellers act out by vandalizing the homes that they're forced out of.
Another major concern is that foreclosure auction buyers, traditionally, NEVER get to inspect/view the interior of the property BEFORE bidding.
BUYER BEWARE - because you might think you're getting that sweet deal at the foreclosure auction - only to find that your winning bid leads to untold secrets that lie in waiting for the rehabber that purchased that "bargain" property.
Go with the REO (Real Estate Owned - Bank owned property).
Because, in most cases - you get 10 days to have the property inspected AND, because the bank has already taken possession of the home, it's a "non-performing asset", meaning the bank needs to free up the cash reserves they need (Usually double the amount of the foreclosed debt) and liquidate this liability ASAP !
Once the bank owns (REO) the property AND it sits on the market for 30 + days, cash buyers can buy these up for pennies on the dollar.
This equates to amazing opportunities to buy properties for tens of thousands of dollars less than what someone may have purchased it, at the foreclosure auction, for AND you get to inspect the property BEFORE committing.
Short term, it's damaging to surrounding property values - but long term, the shadow inventories (Properties that the lenders have already foreclosed upon, but cannot put on the market) are cleared out and we can get back on track to a healthy housing value economy.
During that transition from pennies on the dollar to higher values - investors who get in, NOW, stand to do extremely well.
Remember this simple economic fact - when everybody starts to jump in, values climb.
Real estate has a sound history of creating more wealth than ANY other investment.
Get in, NOW, before everyone else does - because when everyone starts getting in, that's when it's time for you to take your profits/margins and move on......
Today's opportunities are historical AND they're all around you.
Don't blow it !
I attached an FNMA 13 page addendum that, essentially, has the buyer sign away many VERY significant rights AND enables FNMA to control how much profit you can make, for the following 90 days, after you purchase their house. READ THESE ADDENDUMS before you purchase that house ! You may get stuck and find yourself with the "deer in headlights" look on your face when you realize that asset is more of a liability.
Check out Clause #14 -
For flippers, like me, who are in and out of a property in 6 weeks, or less - this clause can really can cost you serious $$ and possibly more - depending on how much capital you have available for other projects.
This is one of many such psychotic addendums you'll need to sign off on, surrendering specific rights.
Seems with all that bailout $$ these lenders got, like Fannie and Freddie, they shouldn't be worrying about how much $$ you're making on your deals - they should be concentrating on liquidating the properties to buyers who have made acceptable offers and getting back on their own damn feet - leaving investors to help move the housing market into better times - like investors have always done in such times of strife.
However, if Fannie and Freddie - AND others, want to control how much you make - then let them fork over the renovation costs and contribute to our holding costs.
Of course, such contributions would be at the option of the buyer to choose yay or nay.
Remember - read those addendums to confirm that the deal IS the deal you think it is.
In my travels to other real estate websites and forums, I'm amazed at how many investors never read those psychotic addendums and it has cost some of those investors their business -
Make 2012 your best year yet -
New To You RE, LLC
If you're wondering how you can make your REO offer shine above all the rest and be the winning offer, here are a few tips to help you select the right price and terms:
1) Get the Property History of that REO ForeclosureAsk your buyer's agent to find out the bank's purchase price on the Trustee's Deed or Sheriff's Deed. Generally, it is noted on the document itself, which you can get from the tax rolls or a title company. Compare that price to the price the bank is asking.
Look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under-priced.
2) Determine Comparable Sales for the REO ForeclosureIn many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than list price.
4) Ask About Number of Offers Received for that REO ForeclosureIf there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.
If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.
5) Submit Preapproval LetterIt goes without saying that you do not want a prequal letter. You want a preapproval letter. Get preapproved from your choice of lender in advance.
Moreover, get preapproved by the lender who owns the property. Do not expect to use this lender for your loan, but submit the prepproval letter from this lender, along with the letter from your own lender. Banks don't trust other lender preapprovals but trust their own departments.
6) Don't Ask the REO Bank to Pay for Repairs / InspectionsSometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspection , renegotiate after your offer has been accepted.
7) Shorten the Inspection PeriodIf other buyers ask for 17 days, for example, to conduct inspections, and you ask for 10, you will be deemed the more serious buyer.
8) Offer to Split Fees wit the REO bankSome banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. Same thing for escrow fees.
Many banks negotiate discount fees for title insurance. If the bank will pay for the owner's policy, the ALTA policy might cost a bit more. But it's still a good idea to let the bank choose title if you want your offer accepted.
Consider the Appraisal ConsequencesIf you offer over list price, bear in mind that the appraisal will need to substantiate that price. If you find yourself dealing with a low appraisal, you have options, so don't despair. Remember, the bank will most likely run into this problem with the next buyer who obtains financing.
Have you ever wondered why and how a property is called a bank REO property? REO actually stands for real-estate-owned and is used to designate properties that have reverted to the bank's or lender's ownership. A borrower could have defaulted on his loan, causing a foreclosure action to be filed against him by the bank.
Usually, a notice is given to the defaulting borrower so he could have ample time to make current his account. However, if he fails to pay within the specified period, then the property will be the sold by the bank at a foreclosure auction.
In the real estate market, a bank REO property is regarded as one of the safest investments that a buyer can have. This is because the bank typically takes care of all the liens, debts and obligations attached to the property before it turns it over to the new owner. But before a property becomes a bank REO property, it goes through an auction.
An auction is a public sale where foreclosure properties are sold to interested buyers. The goal is to recover money owed on the property. But not every property offered in an auction is actually sold. Those which fail to get any successful bid revert to the lender's ownership as an REO property.
But since a bank is not really engaged in the business of selling real estate, it has an REO department which takes care of their bank owned properties. It is common notion in the industry that banks always aim for a quick sale in order to reduce the number of non-performing assets in their inventory.
A large inventory of property is actually undesirable for a bank. This is because a huge number of properties in their yard can only cost them money in terms of their maintenance, taxes and repairs. Selling them would literally transfer these obligations to the new owner, thus, the desire for a quick sale.
This is the main reason why many investors prefer a bank REO property over any other property in the foreclosure market. They know that they can negotiate for its price, and even some repairs on the property. If you can master the art of negotiating for a bank owned property, then you can get a good bargain for yourself.
At mikcohen.com - we enjoy sharing insights, helpful tips and specific information. Feel free to comment and share your knowledge and experience, but please keep it respectful.