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.

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

Tips for Pet-Owning Sellers

Pet-owning sellers may turn off potential buyers if they don’t keep their pets out-of-sight during showings.

If a dog or cat is around during a showing the buyer maybe afraid of or is allergic to animals. Sometimes they fall in love with the pet and don't pay attention to the house.

Here is a list of advice for sellers when showing a house that has a pet:

1. Remove photos of pets from the walls, shelves, or refrigerators.

2. Clean food and water bowls regularly, and hide them when not in use.

3. Stash away pet toys, crates, carriers, and leashes.

4. Vacuum carpets, upholstery, and wood floors.

5. Keep litter boxes clean and out of sight, and remove signs of doggy potty pads.

6. Open windows to let in fresh air.

7. Neutralize odors with fresh-smelling candles and air sanitizers.

8. Hire professionals to remove unsightly pet stains.

9. Board or crate animals during open houses.

10. Repair visible signs of pet damage, such as scratched walls or floors.

Bank of America to Buy Countrywide

Bank of America to Buy CountrywideBank of America Corp. announced today that it has agreed to buy Countrywide Financial for $4 billion in stock.The purchase will make Bank of America the nation’s largest mortgage lender and loan servicer. "Countrywide presents a rare opportunity for Bank of America to add what we believe is the best domestic mortgage platform at an attractive price and to affirm our position as the nation's premier lender to consumers," Bank of America Chief Executive Ken Lewis said in a statement.The sale will place the responsibility of sorting out the payment issues surrounding millions of dollars worth of troubled loans on Bank of America. "There's still plenty of risk involved," says Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm. "[Lewis] is brave to do it. But I think that it's very likely down the road to be profitable, maybe not immediately, but long-term."The agreement has been approved by both companies' boards and is subject to regulatory and Countrywide's shareholders approval.

Source: The Associated Press, Ieva M. Augstums (01/11/08)

NAR Makes Tremendous Strides on Public Policy in 2007

Since 1908, REALTORS® have worked hard to earn a reputation as America’s leading community builders and dream makers. Today, the “Voice for Real Estate” is stronger than it has ever been, speaking for millions of consumers in neighborhoods across America. And, we’re just getting started.

Thanks to your participation in our advocacy efforts, NAR made tremendous strides on the public policy front last year, passing legislation in three key areas that will preserve the long-term value of real estate and help you grow your businesses:

Mortgage Relief – We achieved a major victory for consumers caught in costly mortgages, when President Bush signed the Mortgage Cancellation Tax Relief Act in December. We also are making affordable financing available to potential buyers through landmark FHA Reform. We expect this bill will go to conference early next year.

Terrorism Insurance – NAR also worked with Congress to keep the commercial real estate market strong and stable well into the future. President Bush recently signed a bill that continues the Terrorism Risk Insurance Program for seven years.

Banks in Real Estate – For the first time ever, Congress also passed a two-year moratorium on banks entering the real estate business, which will take effect early next year. We also have record support for a permanent ban through the Community Choice in Real Estate Act.

REALTORS® are in a prime position to succeed on many other key priorities in 2008, including GSE Reform, Flood Insurance Reform, Natural Disaster Reform, Affordable Housing Trust Fund and Mortgage Reform. All of these issues are critical to our professional success, a healthy real estate market and strong communities.

Dick Gaylord
2008 NAR President

Dale Stinton
NAR EVP & CEO

HUD Incentives

The Department of Housing and Urban Development (HUD) has announced new incentives on Ohio HUD-owned properties that will make them more affordable for homebuyers. This program started November 15:

Ohio homebuyers will be able to purchase a HUD home with a $100 down payment when they use financing insured by the Federal Housing Administration (FHA). In addition, homebuyers can obtain a $2,500 sales allowance at closing that can be used towards closing costs, to make repairs to the home or to pay down on the unpaid principal balance of the mortgage.
If the borrowers do not use FHA-insured financing they can still qualify for a $1,000 sales allowance to be used for the payment of closing costs.

Source: TBR News

Well-Water Homes: What to Investigate

A house that relies on well water can be a turnoff to some buyers. But before buyers shun these homes completely, here are some things that real estate professionals can help them investigate:

• Is it drinkable? Most mortgage lenders require a water potability test before closing a loan on a property. Beyond that, the buyer should consider a professional inspection and possibly more testing for potential contaminates.

• Do some official research. It's a good idea to look at the "well log" or "drilling report" from the county health department or environmental services office. These logs include information like construction date, contractor's name, drilling method and materials used, depth of the well, geological formations encountered, gallons per minute drawn, and distances from structures or septic fields when the well was built. These logs will also include any servicing or repair work done.

• Visual inspection. Inspect the well visually. Ideally, the well should be higher than surrounding ground. Look for pooled surface water around the well, which can indicate drainage problems.

• Look around. Are there potential sources of contamination — barnyards, septic systems, or ponds uphill from the well? Nearby underground gas tanks also can be a problem.

Source: Realtor® Online