Foreclosures,
Short Sales, REO's
When
it comes to purchasing a house, many people
believe they know the basics, but most don’t
know
the details involved.So, for less stress,
let’s break it down, step by step, so
the process feels more manageable.
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What are Foreclosures,
Short Sales and REO's?
What is a Foreclosure
Property?
A foreclosure property is when a notice of default has been
filed in the public records – it is in foreclosure. It means the owner has stopped making mortgage payments and the lender has given notice
that unless the payments are brought up to date, it will sell the property to the highest bidder.
Lenders can foreclose for other
reasons, but the most common reason lenders file a notice of default is when a borrower is at least two payments in arrears.
If the
home owner does not bring the loan current, the lender will take the property away from the owner. The final step the lender takes after a certain
period has passed is to try to auction the property at a public sale.
Not all homes that fall into foreclosure go to public sale because
owners have the right to make up back payments up to a point, the time which varies from state to state.
Real estate investors and home
buyers see profit in buying foreclosures because they can often buy the property for the amount owed, picking up the home owner's equity for
free.
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How California Law Affects
Foreclosure/Short Sale Investors
States have varying laws governing foreclosures
and some follow California law. To completely understand your rights as a foreclosure buyer, contact a local real estate lawyer. However, realize
that for a long time in California, a real estate agent could not represent a foreclosure investor if all of the following four statements were
true: |
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The home qualifies as the seller's personal residence.
• The property is a single family home or 2 to 4 units.
• A Notice
of Default has been filed in the public records against the property.
• The investor buyer will not occupy the property.
However, if any of those four statements were false, an agent in California would be allowed to represent buyers, especially if the buyer
was going to occupy the home. But to represent an investor, CA law requires that a real estate agent post a bond. No such bond is available
in the state of California. Therefore, as a pre-foreclosure investor in California, many buyers were forced to act on their own.
A
California court ruled in 2007 that the bond requirement was unenforceable. The California Association of Realtors then made available a special
package of forms that agents can use to represent investors. Realize, as an investor, you are required to comply with the Home Equity Sales
Act. Among other requirements, sellers who are in foreclosure have the right to rescind (cancel) a transaction within five days. Investors must
give the seller notice of that right, including a copy of the form that will let sellers cancel.
Failure to comply with the Home Equity
Sales Act carries severe penalties, including a provision that gives the seller the right to cancel the sale up to two years after the sale
to the investor has closed and get the property back. You read that correctly. Two years.
As an investor, before you decide to buy
a home in foreclosure by making up the back payments to the lender, giving the seller a few dollars and recording a deed, call a real estate
lawyer.
What is a Short Sale Property?
A short sale occurs when a home owner is in foreclosure but before the property goes to public auction. Under a short sale, a lender must
agree to accept less than the amount that is owed on the property.
Unlike a foreclosure, investors typically buy the home for even
less because investors are not paying off the existing loan nor making up the back payments. Investors are striking a deal with the existing
lender to take less than what the lender has coming to avoid dealing with a foreclosure.
It's a myth that lenders are not going to
make a deal with an investor unless the seller has fallen behind on the seller's obligation to make timely mortgage payments. Sellers don't
need to be in default for a short sale to occur. For a buyer who wants to occupy the home, buying a short sale makes financial sense. |
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What
are REOs - Real Estate Owned?
• An REO is a property that has already
gone to public auction, but nobody bid high enough to cover the loan amount owed, so it went back to the lender, so the lender now owns it.
• Lenders will sell repossessed homes for less than the past loan balance, especially in a market where so many loans are upside-down.
• REO stands for real estate owned by the lender.
REO homes are often considered the best way to buy a distressed property
because the seller is already out of the picture. It's just the buyer, the buyer’s agent, the bank and the bank's agent who are negotiating
the transaction.
For more information, seek the advice of a real estate lawyer.
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Buying Short
Sales and Foreclosures
Is it better to negotiate with a short seller or look for a house
that is already bank owned?
Q:
I am thinking of relocating, as I've read that there are deals in many cities. Is it better to negotiate with a short seller or look for houses
already owned by the bank? And if I go for the latter, how low should my offer be—and will the lender offer me financing?
A: There's no shortage of distressed properties. In the beginning of 2010 in Miami
Beach, for example, there were 442 homes there that are somewhere in the foreclosure process, and 58 that have gone back to the bank.
But bear in mind that in the case of both short sales and bank-owned homes, you are negotiating with lenders rather than sellers. In a short
sale, the seller might be desperate to accept any offer to avoid foreclosure, but that doesn't matter if the primary and junior lien holders
don't agree to it. With bank-owned properties, you will be dealing with the "real-estate owned" or REO department of the lender
who took ownership of the house at the auction. With a short sale, you should be prepared to be patient, since lenders are overwhelmed with
distress sales these days and may take weeks, or even months, to respond to your offer. According to a survey of real-estate agents conducted
in November by Campbell Communications the average wait time to get an answer from a lender on a short sale is 8.1 weeks. |
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It's hard to know whether or not you'll get a better deal
on a short sale or a bank-owned home because the situation varies with each property. Some short sales are priced higher because the seller
has junior lien holders who won't sign off on the deal unless they're paid something. But some foreclosures are priced higher than corresponding
short sales because the bank needs to recover costs for repairs, especially if an angry former owner decided to punch holes in the walls, steal
the light fixtures and flush cement down the toilet.
Because the back stories of properties differ, you should begin your quest by
finding a buyer’s agent that will help you with a short sale (many won't touch them, since deals typically take a long time to close,
and commissions tend to be minimal). A good buyer broker will be able to provide a comparative market analysis that shows sales of similar homes,
and may also be able to get a sense from other brokers of prices of pending sales. That's important to know because lenders are going to try
to hold out for fair market value for the home, even in a declining market, and will insist on an appraisal to justify the sales price to their
shareholders. The broker should also investigate how long the property has been on the market, what's owed on it and how many offers it has
received.
The time and complexity involved with short sales make REO properties much more attractive to buyers. They are actually available
to buy, the lender has to sell them, not decide if they want to sell them. Often, the demand for foreclosures outweighs the supply, so multiple
offers are common. Patience, and well written purchase offers, will make the difference between getting into a home in a reasonable time frame,
or just submitting offers.
While it isn't unusual to see both short sales and bank-owned properties listed at prices far below those
offered by traditional sellers, don't expect them to sell for much more than 10% below asking price. In fact, properties in good condition and
in desirable locations may even spark bidding wars, so low-balling is a waste of time.
Moreover, with your bid you'll have to show
that you have the cash to buy the property, or a letter from a lender pre-approving you for a loan. That letter can be from the bank that owns
the property—and you'll probably be taken more seriously as a bidder if it is—but don't expect the bank to offer you special low
financing terms to close the deal. |
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| Foreclosure
Timeline |
| Day 1 |
Notice of Default Recorded |
Within 10 days from 1st publication notice of sale |
Request for directions to property sent to beneficiary |
| Within 10 days |
Public NOD – when necessary |
After 3 months
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Set Sale Date |
14 days before sale date |
Record Notice of Sale |
25 days before sale date
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Send Notice of Sale to IRS
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7 days before sale date |
Trustee cannot sell for 7 days
after
expiration of court order |
20 days before sale date
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Publish Notice of Sale
Post Notice of Sale
Mail
Notice of Sale |
5 business days before
sale date |
Right to re-instate |
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Sale Date |
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| Cory La Scala, Cory, 91901, 91902,
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91977, 91978, 92124, 92122, 92081, 92083, 92084, 92120, alpine, bonita,
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mar, east san diego, el cajon, encanto, encinitas, escondido, imperial
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heights, mira mesa, miramar, mission hills, mission valley, mount laguna,
national city, north park, ocean beach, vista, old town, otay mesa, pacific
beach, downtown, granite hills, hillsdale, rancho san diego, grossmont,
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paradise hills, pauma valley, pine valley, point loma, poway, ranchita,
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san marcos, san ysidro, santee, scripps miramar, scripps ranch, solana beach,
sorrento, spring valley, tierrasanta, university city, south park |
