Pros and Cons of Purchasing a Foreclosure Auction Property

There are many properties being offered at foreclosure auctions across the nation right now. Some are good investments and others are not. The rule is the same for buying real estate no matter what type and where, do your due diligence. Check the prices in the area and make sure you know what you are getting into.

PROS

The major advantage of purchasing a foreclosure auction property is the deep discounted prices. By the time you go to the auction and start your bid, you better have done your homework and know the prices of comparable properties in that area. Otherwise, you may pay the price for a long time down the road for your mistake.

CONS

· Properties are sold as is.

· Generally you cannot inspect the property.

· No title insurance is available.

· If there is a tenant or owner still living on the property, you are responsible for having them evicted. However, if you are planning on holding on to the property for awhile and renting it, then you may be able to negotiate a lease with the current occupant.

· Must pay cash for the property in most instances at the end of the auction. Some states allow you to arrange for financing. Check with your state laws or an attorney first.

· May need court approval of the sale if you live in a judicial foreclosure state.

· Borrower may have right of redemption to pay the outstanding default amounts, attorney fees and costs and redeem the property leaving you with no ownership rights whatsoever and out of pocket costs. Check with an attorney regarding the redemption laws in your state.

· You may be overpaying if you get caught up in the excitement of a bidding war.

How to Purchase a Fannie Mae Foreclosure Property

Purchasing a Fannie Mae property in my opinion is the easiest and best way to go right now if you are looking for a foreclosure property. Fannie Mae is government run. Since the government is trying to get the home market jump started, it is much easier to deal with Fannie Mae than a REO (bank owned) property.

Finding a Fannie Mae Foreclosure

The easiest way to find a Fannie Mae foreclosure in your area is to visit their websitehttp://www.fanniemae.com/homepath/homebuyers/buying_fanniemaeowned.jhtml at. Fannie Mae offers Home Path financing which is special financing to buyers/investors that are purchasing Fannie Mae properties. Your credit score can be as low as 580 to qualify. To find a Home Path lender, click on the information on the Fannie Mae website to find one in your area, or check with your own lender to see if they offer Home Path or other Fannie Mae financing.

If you are working with a Realtor, the Realtor can check the MLS for you to see if there are any Fannie Mae foreclosure properties in your area. All Fannie Mae properties are listed with Realtors, and you must make your offer through a Realtor.

Pre-Qualification Letter

Fannie Mae requires a pre-qualification letter to accompany all offers because they want to make sure that the borrower is qualified and can close the transaction. You are free to choose whatever type of loan you want, and do not have to go with the Home Path or other Fannie Mae Financing.

Repairs on Fannie Mae Properties

Some properties may need repairs and all properties are sold in an “as is” condition. You have the right to make an inspection and if there are major repairs, you have the option of cancelling the contract.

Earnest Money Deposits

Fannie Mae requires a 10% earnest money deposit if you are buying the property as an investment, and a 5% earnest money deposit if you are buying it as your primary residence.

Closing Costs

Fannie Mae may pay up to 2% of your closing costs so be sure to ask for that in your offer. Fannie may is exempt from paying documentary stamps or transfer taxes so be prepared to pay those costs. For instance, in Florida, the documentary stamps are .70 per $100 so on a $100,000 property, your doc stamps will be $700.00. you will need to check what the transfer taxes are in your area. Either the Realtor can tell you or the title company. You must use the title company selected by Fannie Mae. You are able to obtain title insurance on the properties.

Responsive to Your Offer

My experience with Fannie Mae has been good. They are responsive and willing to negotiate as long as you come in with an offer within reason to the listing price.

Pros and Cons of Purchasing a REO Foreclosure Property

An REO is when the property has gone to foreclosure sale and no one purchased the property so the bank buys it back and it becomes bank owned. The bank then lists the property with a Realtor, and puts it on the market to sell. Sometimes the Bank make minor repairs such as putting in new appliances, changing the carpet and painting to make the property presentable.

Purchasing an REO can be beneficial if you find the right property and have good luck with the lender you are working with. My experience has been that not all REO’s are good investments because right now many banks are holding out to get market value for the properties. So if you do make an offer and it is rejected, keep watching for a couple weeks as the bank continues to reduce the price, and you may get the property at the price you hoped for.

REO Properties Nationwide can be found at Foreclosure Home Investors for FREE. Foreclosure Home Investors has REO listings posted by REO agents.


PROS

1. Reo properties are generally discounted.

2. You can inspect the property as opposed to buying a property at a foreclosure auction.

3. Title insurance is available because the lender has cleaned up all the title issues.

4. Sometimes the bank has remodeled the property already.

5. The banks usually respond within two to three days to your offer, unlike a short sale which can take thirty days to six months to get a response.

CONS

1. The property is sold as is. Most properties today whether they are foreclosure or not are sold as is anyway so this is not really an issue. If you do your due diligence during your contingency period then you know what you are getting involved with. If there are major repairs, the roof needs repair, the air conditioning is not working, that type of thing.

2. The banks are not as negotiable as you think. My experience lately has been that they are looking to get market price so if you come in too low, they won’t even counter your offer.

3. Multiple offer situations are occurring on some discounted REO properties if they are priced way below market. However many buyers are coming in extremely low on offers so don’t be discouraged if the Realtor says there is a multiple offer situation.

4. You have to submit your offer through a Realtor, unlike a short sale where you can deal directly with the owner.

5. Generally you need to close the deal quickly.

Again, REO properties are good values to invest in. It really depends on which bank you are dealing with and how much they want to get the properties off their books. I would encourage you to make offers on REO properties until you find one at a price you are comfortable with.

Pros and Cons of Purchasing a Short Sale Pre-Foreclosure Property

If you are searching for discounted properties, you are probably coming across
short sales, REO’s (bank owned) and Fannie Mae properties. Short sales are unique because they are pre-foreclosure properties as opposed to REO and Fannie Mae properties which are already owned by the bank or Fannie Mae and have gone through the foreclosure process.

Pros of Purchasing a Short Sale

Purchasing short sale properties can be beneficial because they are discounted. To what degree the discount ends up depends on the location, market place and the lender, who ultimately decides if they will approve the sale. If your offer is accepted, then you will probably be getting a property at a very discounted price.

Before you make an offer on a short sell property, it is recommended that you check the prices of similar properties in the building, if you are buying a condo, or in the subdivision or area that you are interested in purchasing. If there are no comparables, then see what else is listed in the area or under contract so you can get an idea of how much you should be paying for the property.

A Realtor will be able to give you a CMA (comparative market analysis) free of charge or you can go online and check yourself. However, you may not find as many properties as the Realtor, but it will give you an idea of what properties in the area are selling for. Right now, it’s a good idea to go back and check the last three to six months for sales because the prices having been going down in many areas so you don’t want to research too far back.

Cons of Purchasing a Short Sale

· Uncertainty of whether the lender will approve the offer.
· Time delays. A short sale can take anywhere from thirty days to six months to get approved by the lender or lenders. In some cases, there are second mortgages, so you need two lenders to approve the transaction.
· Competition of other offers. Until the lender accepts an offer, other bidders may submit offers as well.
· No reimbursement for costs of inspection or loan applications fees. If your offer is accepted, you must still meet the contingency dates for inspections and loan contingencies, and any costs you incur will not be reimbursed to you if your offer is not accepted by the lender.

So now that you are educated on short sale transactions, you can make an intelligent decision as to whether the property is worth your time, effort and money.

Short Sale Properties can be found on Foreclosure Home Investors for FREE.

Purchasing Properties at an Auction

Purchasing Foreclosed properties at a Trustee Auction, while it seems like you will make tons of money, you have to be very careful and do your due diligence.



Typical due diligence might be to run a title report to see how many trust deeds are on the property, which trust deed is foreclosing, and what it's current market value is for the property in Average Condition.



The reason for running a title report is that a property could have many many trust deeds or loans against the property. Typically, there are two (1st Trust Deed, and 2nd Trust Deed). The 2nd Trust Deed is usually in the form of a Home Equity Loan or Home Equity Line of Credit (HELOC). HOWEVER, we have seen many homes with more loans on it than that. I have seen up to 8 Trust Deeds on a property. So you really need to find out exactly how many people are entitled to this property.



You would also need to find out which Trust Deed is foreclosing. This is significant and realted to the first item above. So with the above example, with 8 Trust Deeds on a property, if the 8th lien holder forecloses on the property, it is junior to the first 7 Trust Deeds that comes before it. WOW... Imagine if you bought a property that you thought was a steal at $20,000 just to find out you have to pay the first 7 trust deeds worth $500,000. It is not a steal anymore is it?



Generally, the 1st Trust Deed forecloses due to the payment being significantly higher than the others. There are lot of cases though, where if the 1st Trust Deed forecloses, the bank that owns the 2nd Trust Deed buys that mortgage to be the 1st TD holder. This way, they are not left out after the sale.



The third item: Determining the current market value of the property in AVERAGE condition is crucial because you have to factor in the final cost of this property in addition to the fixing it will most likely require. Once you take in all of the cost, determine if you are still purchasing it below the market value. Otherwise, it will not even be worth considering.



Since we are talking about repairs, I have seen properties that are in condition where it should be condemned. Tiles, carpet, flooring, sinks, toilets, showers, etc.. pretty much everything can be taken by the previous owner. At these auctions, it is sold AS-IS WHERE-IS so be careful and assume the worst possible condition.

REO Foreclosure Step by Step

We are investing in REO properties around Southern California and would like to share the process with everyone.

There are 3 phases to a foreclosure process:
1 - Pre-foreclosure: This is usually after the NOD (Notice of Default) has been filed. A typical sale for pre-foreclosure would be a short sale.
2 - Trustee sale: This is the process where the property is auctioned off at the county court house or at the property itself. This process is an auction format so you will need to have financing ready prior to bidding.
3 - REO or Real Estate Owned: This is when the property did not sell at the Trustee sale and the deed has been trasnferred back to the Bank.

For our investments, due to availability and numerous data available, we chose to concentrate on REO properties. We have found REO properties to be a good value compared to short sales due to willingness of the lender to take a loss.

For our research, we are scouring the MLS listing in the target neighborhoods. Once we find a few that are of interest, we have our Agent show us in and to make an offer. Of course there are other ways of finding REO properties, but we have an excellent agent and wanted to utilize his resources.

At this time, we have offers on 2 properties. We will wait to see if they are accepted.

Once an offer is accepted, we will go into detail on our exit strategy for the property. REMEMBER: Always know your exit strategy before going into any investment. This is a crucial step which will save your behind.

During the real estate boom that just passed, real estate investors did not think too highly of exit strategy because there was influx of buyers willing to purchase any property at any price. However, in the current market we are in, exit strategy is crucial and should be a deciding factor on whether you purchase a property or move onto the next one.

Wholesale Foreclosure Flip

With the foreclosure rate hitting all time highs in Southern California, lot of Real Estate Investors are starting to purchase Foreclosed homes and flipping them for a small profit.

Foreclosed homes are considered REO Homes and they are owned by the Bank. REO Homes are a better deal than buying in the open market for Investors because of the following reasons:

• Usually the bank that holds the 1st Trust Deed forecloses on the home. This means that the bank is usually in it for approximately 80% of the home value when it was originally purchased.
• Banks are in dire need, especially now, to reduce their REO inventory to satisfy their shareholders. This means that they are willing to take less than market value.
• REO Homes are usually in poor condition due to neglect. This can be due to time it takes to foreclose or due to prior owners trashing the place before they are evicted. This is a great opportunity for Investors to go in and rehab for a profit.

Wholesaling a Foreclosure Flip is just like Wholesaling any property to Real Estate Investors. You first need to find a property that is undervalued with potential for profit. Then, you will need to find other Wholesale Investors to sell to.

Due to our nationwide reach, we have Wholesale Property Investors throughout the country seeking Wholesale Properties to purchase. This Wholesale Property would be ideal for handy Investors looking to flip properties.

All Memberships are FREE of charge and there are no fees for posting properties or contacting members for more information.

Good Luck!

REO Homes

I had many people ask me about my Foreclosure list article. That article was geared for investors looking for Pre-Foreclosure lists.

If you are a Real Estate Investor or a buyer looking for a great deat, I have compiled a small list of link I have gathered. These links are to wll known Banks and Financial Institutions that list their REO properties directly.

IndyMac

Countrywide

HSBC

Bank of America

JP Morgan Chase

Wells Fargo

What is an REO you ask? REO stands for Real Estate Owned and usually refers to a property that was foreclosed and is now owned by the bank itself. That means, that at foreclosure, no one either showed up at the auction or did not bid at all.

These properties usually represent a great deal as Investments as usually the 1st Trust Deed forecloses. This means that the bank is in it for only 80% of the original value. Therefore, when they put it up for sale, it is usually around that figure.

BUT, the price they listed it at is NOT the price you have to purchase it at. You can always make a lower offer and see if they get accepted. Depending on which bank owns the properties and what their specific circumstances are, you may walk away with a Great Deal!

Wholesale Real Estate

A good way for anyone interested in real estate investing without putting down huge sums of money is through wholesaling real estate contracts. Wholesale or Contract Assignments are a way for anyone to control the real estate property for sale to someone else.

Everything in Real Estate is about control and rights to do something with it. A common way to control the property is through option to purchase or through actually having a purchase contract with ability to assign the contract to someone else.

This is how it works:
A typical scenario involves you finding a property that will be favorable to investors. Favorable meaning that owner will carry, there is a huge upside potential, or the deal is structured so that the investor will profit immediately. Once you find this property through advertising and/or marketing, you can either put it under contract with minimal amount of money as deposit or obtain a option to purchase with minimal amount of money.

If the property is under a sales contract, your goal is to find an investor that is willing to pay you a finder's fee and purchase this contract from you before the due diligence period runs out. A good way to increase the due diligence period is to have a clause in the purchase contract that states that with additional deposit amount, you are able to extend the due diligence period for a certain amount of days.

If the property is under a option to purchase contract, your goal is to find an investor that will purchase this property before the option expires. Once you find the investor, you exercise the option to purchase and then assign the contract to the investor for a fee.

Of course no investor will purchase any property if it does not make financial sense. Meaning: it must make money and be profitable.

A typical real estate contract assignment will cost anywhere from $2,500 to $50,000 depending on the price and the profitability of the contract. Therefore, if you are good at networking and finding properties for sale at a good value, this is a easy way to make quick money with very little risk at all.

A good resource to find wholesale investment properties is Action Investor Network. We have hundreds of members, both Financial Investors and Property Investors. So if you are starting out in Real Estate wholesale and would like a way to post your wholesale deals to other investors, take a look at Action Investor Network.

Good luck!

Foreclosure Lists

I get asked often, where I get my foreclosure list.

These lists consists of either NOD or NTS list. In my experience, I have found these through title companies. Since I get these from the title company, they are regional and do not cover all counties.

Now, to get these lists emailed to you, you need to know someone in the title company or one of their client. Since we are all investors and know at least one or two loan officers, they are a good candidate for us to hit up.

Who are the title companie's clients? They are the loan officers or real estate agents/brokers. This is because they have a good say in which title company a seller or borrower use in a real estate transaction.

This is what I do: I contact a loan agent and ask them if they receive NOD/NTS list from their title company. If they do, I ask them to forward me the email to me. If they do not or they do not know if they can, ask them to call their title rep and ask them for the list.

It is that simple folks. I have never had any loan agent or real estate agent/broker not succeed in this.

Now, you might be asking what the difference is between the list I get from the title company and the list you can get from online source that you pay for. I do not know since I have never used those online services before to get a foreclosure list.

Those sources are a great way for a beginner just starting out to get leads. However, real estate investors should have contact that we can use to obtain these lists very easily.

Hope this helps and Happy New Year!

I will continue to post articles on this blog site. I have been on a hiatus due to the holidays, but I will make sure I post at least one article per week in 2008.