What`s a Foreclosure

Investors love foreclosures. Right?

While foreclosed homes are good deals, more recently the trend is the “short sale“. Selling your home to an investor through a short sale can actually save you from going through the painful process of foreclosure. A short sale can sometimes even save you the homeowner from having to pay out money when you close the deal.

So What is a Short Sale?

In a short sale, the homeowner (or his agent) approaches the lender with an offer from a buyer who will purchase the property for less than the amount owed on the property. Why would the lender accept less than what is owed? Lenders are overwhelmed with foreclosed accounts on their books. Foreclosing on a property is costly for the lender. Once the bank takes over, it may take months to re-sell the property. If you, the homeowner, have a bona fide offer from a buyer who can close quickly, the lender often will accept the offer. Even though it is a loss for the bank, it’s a sure sale that will get the delinquent account off the lender’s books.

Regarding the shortage on the loan, the lender will usually try to work out payments with you to pay them back, but many homeowners are not able. If you are able to make up the shortage, you will avoid a major strike on your credit. But if you are truly unable to make up the difference, the lender will probably write off the shortage as a loss and forgive the debt. Debt forgiveness used to be counted as income. For instance, if you owed $120,000 on the mortgage, and sold your home on a short sale for $80,000, the IRS would tax you on the $40,000 difference. The passage of the “Mortgage Relief Act” abolished the mortgage forgiveness tax.

How to do a Short sale

I was told over and over by investors that I could not negotiate my own short sale because banks would not help their own customers, the homeowners, so I was very pleasantly surprised when I called my first one and asked them what I should do. I had been caught in a down turning real estate market and needed to sell my home, but I owed more than the house was worth. I had it on the market and did not know what I was going to do. Imagine my surprise when the lady on the other end of the line said “We will help homeowners.”

She then gave me a list of what I would need and I was able to get it done. It took 5 months, and we went through 6 potential buyers before it happened, but in the end, it was done.

I learned a lot from that transaction, and have since done several of them because I owned several houses and they were all “upside down” due to the declining value of real estate in general.

So do not let anyone tell you it can’t be done, because it can!

But be forewarned, it takes a lot of patience! Banks are not easy to deal with.

Employee turnover is a problem there like anywhere else, so you frequently have to start over building a relationship with a bank employee. This is necessary if you want to have a chance of getting your short sale done. And then there is this: the bank may sell your loan in the middle of the process and you will then have to start all over again.

But, if you just let the house go into foreclosure, your credit will be ruined for a long while, and you will not be able to get a mortgage loan for 5 years! A short sale on the other hand, will lower your score, but will not by itself keep you from getting a new loan, and it will not damage your score nearly as much. I know this from my old job where I looked at credit all day long.

So here is a summary of what you need to do.

First, there needs to be a compelling reason why you cannot pay off the mortgage. It may not be enough that your house is “upside down.” There also needs to be a lack of resources to pay the difference. If you have savings, the bank will just expect you to dip into savings to pay it off, or sign a note to keep paying the difference even though you are not living there any longer.

Also they will not start the process unless you are 60 days late on the mortgage, so you will have to let your credit get “dinged” until you can get some relief. It is part of the price you will have to pay. But assuming you are behind and need help, here is what you need to do.

First, write a letter explaining what happened to get you into this predicament.

Make it a real sob story, but do not lie. Do include that you have kids, or dependents that you support, if this is true.

Besides this, each bank has a list of what they want before they will consider your request. They call it their submission package. Typically it includes 2 or 3 months of bank statements, all pages, a month or two of paystubs, 2 years of tax returns, and all the information from your realtor. They will not usually let you sell it yourself but will want it listed with a real estate company. After this is all submitted, I strongly suggest you call every week on a specific day to check on your case. Otherwise it may get lost. Also don’t be surprised if they lose it anyway and you have to submit it over and over again. This is par for the course unfortunately. But don’t lose your cool. Just send it again. It is not the employee’s fault that you are in this mess. Be cordial no matter what because you need them to be on your side.

One thing that will happen during the process is that they will send someone to do an inspection, or BPO…meaning Broker’s Price Opinion. You can influence this a little by not cleaning your house and pointing out everything that is wrong with it, but for the most part you won’t be able to sway the inspector. Still, being friendly always helps, and you want it to come in as low as possible, so be sure to get a copy of the police report for the neighborhood, and a list of the sex offenders in the area. They are everywhere, and you can find this information online now. Even if the inspector is not influenced by this, sending the information to the bank will help your case. Also sending in any negative information about the housing market in the area is helpful. What you want is for the person making the decision to think that the house is worth as little as you can possibly make it seem like. One more thing: It can take so long to accomplish that the buyer you have will walk away and you will have to list it again. If this happens, do not inform the bank, because then they will put it on hold and you will have to start over once you find another buyer. Instead, just proceed as if it is going to close, and if they do approve the sale, you can then let them know that your buyer walked away because they took so long, but that you will continue to market it at the approved price. This way your realtor can list it as an approved short sale and it will not take any longer than a regular sale since all the paperwork is already done.

This is the basic process that has worked for me 6 times, so don’t let anyone tell you that you can’t do it. Good luck!

Buying a Short Sale

Every transaction is different (whether or not it’s a short sale) but there are certain questions that you need to ask every time you talk to a seller about a potential short sale. When you are meeting with a seller considering a short sale you need to find out as much as possible about their situation. There’s nothing worse that investing weeks or even months of effort only to have the transaction not come together at the last second because of something that you could have discovered before taking the listing.

Here five questions that you need to ask the seller before agreeing to take on a short sale listing:

How much do you owe on the property? If the seller owes about 90% or more of the list price, it could be a short sale. If you have any kind of a price reduction you almost certainly will be in a short sale situation. If the seller owes, more than 125% of your recommended list price, this is a sign that there may be more to the story. If this is the case dig a little deeper.

Does anyone else have a legal ownership interest in the property? The last thing you want to find out after weeks or months of short sale negotiations is that the sellers ex-spouse’s son has an ownership interest and their consent will be required to close the transaction. Start by ask the seller then the title company if it appears that anyone else might have a say in selling the house.

How far behind on your mortgage payments are you? If the seller is current on all their mortgage payments, the lender isn’t going to be likely to agree to a short sale. They would rather just keep collecting payments from the borrower. If the seller is too far behind in their payments (9+ months), then foreclosure may be imminent and their may not be enough time to find a buyer. Sellers that are 1 to 5 months behind in their mortgage payments are good candidates for a short sale.

How many loans or lines of credit do you have against this property? If there are more than two liens against the property you may be in trouble. For example if there is a 3rd line which happens to be a line of credit, then the first lien hold will probably get paid in full. The second lien holder will receive something less that the full amount owed and the 3rd line holder will (probably) receive nothing. Getting that 3rd line holder to agree to accept nothing is VERY hard. If there is a 3rd line holder many times I will just move on to another listing.

Are you considering filing for bankruptcy? If the seller files for bankruptcy midway through your short sale process, it will probably derail the short sale process. Suddenly you will have a bankruptcy attorney involved and many times lenders will not agree to short sale is they know there is a pending bankruptcy case.

Make it a habit to incorporate these questions into your short sale listings presentation and you will save yourself wasted effort every time.

Buying repossessed mobile homes

Sadly not everyone who buys a mobile home can afford it. When they figure out how much they can afford in monthly home payments, they may forget to calculate in lot fees, utilities, taxes and the like. Plus, since many mobile home buyers arrange for their financing through the mobile home manufacturer rather than through a bank – most mobile homes are financed via personal property loans, not traditional real estate mortgages – people are more likely to have been sold a home they cannot afford. Not only that, but such loans do not have foreclosure protection and the mobile home can be repossessed, just like a car, without notice or going through foreclosure proceedings.

This means that there are many quality mobile homes available. Mobile homes – or manufactured homes, as they are called today – are not like our parents’ mobile homes. Cathedral ceilings, hot tubs, fireplaces and the like are often found in today’s manufactured homes. Plus mobile homes of 1,800 to 2.000 square feet or more are not uncommon.

For someone looking to get a good deal, a newer used or repossessed mobile home can be quite a bargain. As mobile homes, particularly those in trailer parks tend to depreciate in value, rather than increase like a traditional built home would, you can find a great home at a bargain price.

Many mobile homes in foreclosure can be found in trailer parkers. You can ask park management if they are aware of any homes in foreclosure. Most park owners are well aware of what is going on in their parks.

HUD is another source of mobile home foreclosures since many first-time mobile home buyers qualify for FHA loans. HUD sells these foreclosed properties to recover the loss on the foreclosure claim. You can start your search on the HUD Homes webpage.

The VA (Veterans Administration) is another source for foreclosed mobile homes as is Fannie Mae. Like HUD, the VA and Fannie Mae help people with financing mobile homes and, as a result, handle foreclosures for people who have defaulted on their loans.

Buy Foreclosures

What is the first rule of real estate investing. Most real estate experts tell you “Leverage – Using Other People’s Money“.

Most real estate investors want 100% financing for a hand full of houses they intend to purchase or they request that the owner finance the property. The strategy is to buy and hold a handful of rental properties for a few years until the equity in the property has increased.

Then they either refinance all the properties or sell all the properties of take all the equity out and then retire rich with millions of dollars in equity or a healthy cash flow to sustain the lifestyle.

Within a thirty year period of time real estate market will have at least five downturns. The value of property in some areas can hit the bottom just as you decide to retire. The real estate investor of today does not want to wait thirty years to cash in and live the life.

Real estate investors diversifying their investment activities. Some are doing quick turn around transactions in addition to the long term buy and hold. If you are an investor. The theory of quick turn around transactions is finding distressed property get it under contract and sell it to another investor for a quick $5,000 – $15,000.

Some investors are doing short sales and pocketing more cash. Being house rich and cash poor can put many investors in a crunch if some crisis happens. Not having the money to close a good deal prevents some investors from cashing in on lucrative transactions. The first thing new investors need to understand is that lack of money should never be an issue when you plan.

Combine the buy and hold method with the quick-turn-around investment strategy to put cash in your pocket within a matter of weeks rather than years. If you find a good deal with lots of equity sitting in the property be sure you can re-finance within a short period of time to get the equity out and into another high yield interest investment fund that you can access when you find the next good deal.

Use ARMs with low start rates that give you 3 – 5 year before they reach their max. Refinance all your property with low start ARM’s and put the excess money in an account that builds your equity twice as fast. This financing alternative allows your tenant to make the full house payment while you pocketing Your money. No negative cash flow.

Set up lines of credit for your business. You may never need them but in case you do the money is sitting there waiting for you to use it to create more wealth. With a line of credit versus a loan, you only have to pay for the money you actually use.

To implement the strategies, you need to align yourself with as many funding sources that you can find. This strategy will insure that you can continue to add to your real estate empire or to maintain the empire that you have already built.

So, when you are building your real estate empire consider buy and hold strategies in addition to a quick turn-around transaction approach to investing. Build your funding sources so that you are ready to make the offer and close the deal.

Methods for Buying Foreclosures

Have you decided on the forclosure home that you want, and are you ready to buy? There are many methods that will help you get ready as you proceed with the purchase for your forclosure home.

Rules for Bidding on Forclosure Homes:

If the home you have chosen to look at is a bank forclosure, the bidding rules are pretty easy. You will want to get in touch with your real estate agent or the listing agent and let them know that you are interested in the forclosure home. After that, you will want to do a couple of other things.

1. You will need a pre approval letter from your mortgage loan officer. The letter need only be the amount you plan to offer and no more.

2. You can then ask your real estate agent to forward the letter to the listing agent expressing intent to purchase the forclosure home. This letter is different than a contract because the only things it includes are general topics such as the price, suggested closing date and financing.

3. When the letter is received by the listing agent, it will from there be forwarded to the bank that is holding the forclosure property. This process will take around 7 to 10 days, as banks proceed cautiously and very slowly.

What Should Your Bid Be?

At this point, there are two different concerns. The first is what to bid on a forclosure home, and the second is what to bid to win the home without bidding too much and over paying. This is where the water gets a little choppy. Banks are different from HUD or VA because they determine the price they are willing to accept on a per property basis. The VA and HUD have preset levels. You should never try to underbid what the bank owes. When the home has been on the market for three to six months, you might be able to get away with this.

You shouldn’t worry about bidding below the amount mortgaged for a forclosure home. You might be able to swing a 10 to 15 percent discount, but the bank may not be even that flexible when it comes to the price of the forclosure home. Offering anything less than full price can result in you losing the property to another purchaser

A guide to buying Foreclosures

When bank forclosures process begins, three real estate investing opportunities are created; the Default phase, the Auction phase, and the REO phase. Below, we will discuss the advantages and the disadvantages of each of the three opportunities.

Purchasing Homes before Bank Foreclosures

When you purchase a home before the forclosure process has begun, you are able to work directly with the owner of the home and sometimes even the lender. You are able to try for a win/win situation. The homeowner wins because they make the sale and avoid forclosure and you win because you are able to get the property at a large reduction.

In order to accomplish a successful purchases before bank forclosures, the following 7 steps are recommended:

1. Find homes that are in default on the loans.

2. Compare homes and choose which one to pursue.

3. Inspect the property.

4. Figure out what the property owner needs.

5. Figure out the market value of the property, repair costs, and potential sales price and profit.

6. Negotiate with the owner and the lender to come up with a decision.

7. Close on the property, fix it up and sell it again quickly.

Advantages – If done correctly, this can be a great investment. The discounts from market value are usually around 20 to 35 percent. A low down payment is possible if it’s structured properly, and you have plenty of time to check out the properties. You are able to make unique and flexible sales agreements.

Disadvantages – Sometimes it can be hard to get in touch with the property owner. You will have competition to purchase the home, and the court house research can be difficult. You may also have to negotiate with the lien holders.

Auction Purchases

Purchasing homes at an auction can be great. It is also dangerous. You are able to purchase the home as the highest bidder, and the process moves quickly. When you are purchasing something at an auction, you have to compete against the lender and other people who are looking to invest. Before purchasing at the auction, most people research the properties before the sale date, go after realistic opportunities, calculate their potential for profit and amounts, determine a good bid price and then go to the auction to bid.

Advantages – This is a great way to find moderate to large discounts. It’s possible to save anywhere from 35 to 45 off of market values and you can earn an excellent return on investment. It’s possible to really hit the jackpot.

Disadvantages – The auctions are often postponed or delayed. Being able to inspect the property is rare. In truth, a title search should be performed on the house and this is usually costly. You may have to provide a check for ten percent of the purchase amount within days or weeks from the auction. If you don’t do your research, it may result in a loss.

Purchasing REOs

Some think that the easiest way to purchase a foreclosed home is to buy an REO. A ‘Real Estate Owned’ occurs when a lender takes a property back to gain possession and cut its losses. They normally do not want to keep the property because it is not in the real estate business, and so they normally move the property quickly.

Advantages – The lender is the lien holder, so there is always a clear title, and that saves a lot of time. Not to mention expenses and worries about purchasing forclosure homes. The property taxes which were in arrears have normally been paid and the property may have been repaired to be within acceptable standards. Sometimes though, they just leave the repairs to the buyer and offer a discount.

Disadvantages – There are low to no risks with this method, however the rewards can be pretty low as well. You may save anywhere from 5 percent to 15 percent off of market value. You can save up to 25 percent or more if you are knowledgeable and know how.

This method of investing in forclosure properties can bring excellent profits. All three forclosure opportunities contain rewards and risks. Doing your homework before you buy is a must.

Foreclosure Purchasing

There is a system employed when buying bank forclosures real estate that breaks down into six small steps. By using these as a guideline, forclosure homes will be simplified and it is possible to avoid common buyer mistakes.

Step 1 – Pre Approval:

Shopping for bank forclosures without already having the pre approval process in place is a common mistake. A mortgage lender can help the purchaser decide on the amount that he or she is able to borrow, and also help determine ways for the buyer to increase borrowing power. Alternative lending programs should be explored, such as the Federal Housing Administration (FHA), Veterans Administration (VA), the Fannie Mae foundation and other sources of funds. The pre approval process means that the buyer is ready to go, and this can improve his or her negotiation position.

Step 2 – Selecting a Real Estate Agent:

A real estate agent should be chosen based on the ability to help the purchaser with his or her needs as far as finding and buying a forclosure home.

Step 3 – Finding forclosure homes:

Many times, a buyer will jump on the first forclosure home they find. While sometimes a quick decision is needed, the buyer should shop around and look at several homes that fall within their price range. This goes along with pre qualification because you are looking only at homes that are in the price range and the process can be speeded up.

Step 4 – Negotiations:

After a home is selected, the negotiations will begin. If the guide has been followed thus far, you have an advantage. Being pre approved before selecting the home you will bid on will improve your chances of getting your home even if there are many bidders. The people who are selling the home are more likely to select a buyer if they know that the transaction can be done fairly quickly.

Step 5 – The Loan Process:

If the home has been chosen and the terms have been discussed, the mortgage lender will take the homebuyer from the loan application to the final approval. There are many steps along the way and they will need constant supervision and participation from all parties.

Step 6 – Closing:

Someone who comes to the closing unprepared might experience some distasteful surprises. Those surprises may not only delay the closing on forclosure homes, but it may lose him the home altogether. The real estate agent, mortgage lender and closing representative will explain to the purchaser what he should bring, who needs to be there, and so on.

The loan professional that has provided this information to you specializes in assisting those individuals with obtaining a home loan. It doesn’t matter whether it’s for purchase or refinance. Your loan expert can usually coach you on the best methods and help you with loan requirements that you need to buy forclosure homes that you want.

Foreclosures facts

According to the Merriam-Webster dictionary foreclosure is defined as a legal proceeding that bars or extinguishes a mortgagor’s right of redeeming a mortgaged estate.
This proceeding is obviously no fun for the person who is going through it, However there are upsides to going through a foreclosure ranging from saving money to providing the atmosphere of a new beginning,none the less it still is obviously no fun.

Why so many foreclosures?

There are many different reasons for the massive foreclosures across the country, However there is none more convincing than fraudulent acts perpetuated by crooked loan officers, and naive would be home owners excited with the thought of actually owning a home.
The would be home owners are duped into a adjustable rate with a teaser for the first couple of years then “boom” it goes up making the mortgage unbearable for the homeowner.

Can you make money purchasing homes that have been foreclosed?

Absolutely there is a great deal of profit in shopping for property that has been foreclosed on and is now owned by the bank. The bank is usually eager to get rid of the property,and will sell the property below market value making the purchase profitable for someone in a position to buy the property.

there of course are difficulties that can arise when making such a purchase some homes that go in to foreclosure are damaged before the home is vacated making it a headache for the person who purchases the property, however with that being said if you have the money and the resources you can easily flip the purchase for an immediate profit.

Investing in home foreclosures

It is Possible to Get a Great Deal on a Home? Foreclosures may be the answer:

If you’ve wanted to buy a home, but you are worried about whether or not you will have the funds available to do so, you should consider purchasing a home that is in the process of foreclosure. By doing this, you can purchase a home for a price that is way below the market value. Buying a home in foreclosure can save you a ton of money however you should really prepare yourself in some ways before you take a leap. There are certain steps you can take to do this.

Preparing to Purchase a Home Foreclosures:

Learning about the properties that will be put up for auction in your county is very helpful. You can simply visit the courthouse in your county and check out the Registry of Impending Foreclosure Sales. There are many other foreclosure homes listing services that are available to you as well. You’ve probably seen them advertised either on the internet, computer, or television. The prices normally run around $150 to $450 yearly.

Once you have a list of homes that will be put up for auction, you will want to find out more about the property. Now, this can be difficult because many foreclosure auctions will not allow you to check out the property before you bid. There will be information provided on the home, as far as the number of bathrooms and bedrooms, and then you can check out the outside of the home. What kind of condition is it in? You should also find the recent tax assessments related to the property. Using this information, you are able to judge it side by side with other properties. Checking with realtors or having the home valued isn’t a bad idea.

Once you’ve found a home that you’d like to bid on, you need to figure out your budget. Homes which are in the process of foreclosure will typically be 70 to 75 percent off of a home of comparison in the area. Check between the price of this house, and the price of a similar home in the area. Once you have found all of this information, use it and your own budget limitations to decide what you can pay for the property.

Make sure that financing is in place and that you can access it quickly after the conclusion of the auction. Many people get pre qualified and pre approved for a home loan based on the expected amount of money you want to spend on the purchase of the home. You will want to add around 10 percent for repair expenses. You don’t know for certain what might need to be prepared, but having this amount ready to go just in case, is a great idea. By having these things ready to go, you will be a better bidder, and you don’t stand the chance of losing the home you want so badly.