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Thursday, February 21, 2008

Buying Bank Owned Properties

There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject. Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know “the secret formula”. The fact is that there are no secrets, and making money requires effort.

What’s an REO?

REO stands for “Real Estate Owned”. These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a property during a foreclosure auction, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. On top of all that, you will receive the property “as is”. That could include existing liens and even current occupants that need to be evicted. A REO, by contrast, is a much “cleaner” and attractive transaction. The REO property did not find a buyer during foreclosure auction. The bank now owns it. In some cases, the bank will see to the removal of tax liens, evict occupants and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be aware that REO’s may be exempt from normal disclosure requirements.

Is it a bargain?

It’s commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isn’t true. You have to be very careful about buying a REO if your intent is to make money off it. While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs and remodeling needed to prepare the house for resale. Bargains with money making potential exist and many people do very well buying foreclosures.

Ready to make an offer?

Most banks have a REO department. Typically the REO department will use a listing agent to get their REO properties listed on the local MLS. Since banks almost always sell REO properties “as is”, you’ll want to be sure to have your Realtor include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it. As with making any offer on real estate, you’ll make your offer more attractive when you include documentation of your ability to pay, such as a pre-approval letter from a lender or verification of available funds. Most REO require such documentation submitted with the initial offer. After you’ve made your offer, you can expect the bank to make a counter offer. Then, it will be up to you to decide whether to accept their counter or reply to the counter offer. Realize, you will be dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or weekends. It is not unusual for the process to take days or even weeks. Additionally, recognize that your offer may compete with other offers from other buyers. You may be asked to bring your “highest and best” offer in order to have your offer accepted. Time is of the essence when attempting to purchase REO properties.

Tuesday, February 5, 2008

Is IT So Bad?

News from the Chief Economist for the National Mortgage Bankers Association, Doug Duncan
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Following are the bullet points that he made regarding the current housing/mortgage issues:

 The foreclosure problem in this country is really a story about seven states.

 The biggest foreclosure problem is in Michigan, Ohio, and Indiana. These are predominantly manufacturing states.

 Since 2001 Michigan has lost 300,000+ jobs.

 The other four states are California, Florida, Arizona, and Nevada. In each of these states there has been a significant overbuilding. 25% of the foreclosures in these states are on properties that are held by investors who were speculating.

 California and Florida have been hit very hard.

 35% of the homes in the USA do not have a mortgage.

 98% of the mortgages in the USA are performing.

 Only 9% of ALL these mortgages are sub-prime.

 75% of all sub-prime mortgages are performing.

 In the other 43 states, foreclosures have fallen in 2007 from 2006.

Source: Toledo Board of Realtors newsletter