Foreclosures

So You Want to Buy a Foreclosure - “The Perfect House”, now what?

After intense research and a diligent search, you have located your “perfect” house. A few things should already be in place. The first and most important is your financing. Whether you are obtaining a mortgage loan or have cash, you should have already determined the timing and process involved. Even “cash” is difficult to obtain on short notice (unless you keep it in a mattress, which really is not a good idea). The second is your position as a consumer. You should be represented by a Realtor® who has been providing you with a steady stream of research and counsel. You should have a thorough understanding of the contract, and the process involved with creating a contract proposal and negotiating a successful outcome. What you must now confront is time and competition.

If you somehow thought you were the only one looking for your “perfect” home, I assure you that you have been thinking incorrectly. Consider that the factors that make your “perfect” home are almost certainly shared by others searching right now, just like you. Your “think it over” time has expired, and frankly, you should have been thinking it over all along. After all, that is the point of selecting a trusted Realtor® advisor, securing financing, and researching property and neighborhoods. The problem with waiting is that someone else will step in front of you and you will be back to looking. The reason you want to “think it over” is either a lack of understanding or you need the approval of someone else. If you do not have a complete understanding, then back up to your confusion point and work on gaining understanding. It is really important for your welfare that you understand the entire process, or you will always be fearful of making a bad decision. If you need the approval of someone else, then get them involved from the start. It is not fair to an outside advisor to be expected to step in at critical point and render a quick decision. Under that pressure, most people respond with “NO!” And it is generally true that you do not want to be competing with another buyer. That almost always places the seller in a better position to negotiate a stronger offer.

Your ability to negotiate an acceptable offer on any given property of course depends on you and the seller reaching agreement. The difficulty is always an incomplete understanding of seller. Whether the seller is a private individual, a corporation, or a “bank”, there is simply no way to know what they are thinking. (If you think there are inside deals, you are right, there are, some of which are illegal, and some of which appear to favor the buyer, but in reality, favor the seller. If it seems too good to be true, then it is.)

Negotiating with a private seller is usually fairly straightforward, and a conclusion to the negotiation is usually timely. The time factor here may be days or weeks. Negotiating with a corporation sometimes takes a bit more time then a private sale, and involves much more paperwork, but again is straightforward. You can almost always secure a contract form a corporation in a few days. But you want to buy a “foreclosure”.

If you are trying to negotiate with a seller in a “short sale” position, remember that the “bank” will be involved. It is the “bank” which must approve a “short sale”, because the “bank” is losing money on the sale. Negotiating with a bank to purchase a foreclosed property is anything but straightforward. To begin with, you almost never really know just who the other side is. Most “banks” employ an “asset manager” to actually care for the property and negotiate in their behalf. Most of the people in the asset management company are buried under hundreds of files representing hundreds of properties located all over the United States. They have no knowledge of the property beyond what they see in a file, and worse they do not care. Their interest is plowing through files, settling a few deals, and getting paid. Their interface with the “bank” is systematic, usually by e-mail, and the bottom line is just that which the “bank” needs today. The “bank” is really just a person trying to meet a quota of volume or income. Your offer is important only in reaching those goals. In other words, no one involved on the other side cares a hoot about your offer except as it applies to a greater picture which is constantly evolving. You must have patience. You may not receive a response from the “bank” days or even weeks. Understand, this is not about you; it is about an overworked and inefficient system.

The most important thing to understand and accept is to have patience. If you must have a home in 30 days, you will be better served to buy from a private or corporate seller that can respond easily and is not burdened with an efficient system. If you are determined to take advantage of the foreclosure market, then you must be patient and tolerant of the frustrations of dealing with a dispassionate sector of the market place.

So let’s assume that you have completed a successful negotiation and you are ready to complete the pre-closing process.

In the next article, we will discuss “Surviving the Painful Process”

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

So, you want to buy a foreclosure? – Part 1

The reality of today’s real estate market is that there are many foreclosed properties on the market, and such homes sometimes represent a great opportunity for a prospective buyer. Who wouldn’t want to buy a house for 30% or 40% less than it sold for 2-4 years ago? On the surface, practically everyone should jump at such an opportunity. But, let’s take a deeper look to see if a foreclosed home is really the best buy for you. Please consider, the following information is not designed to frighten you away from buying a foreclosure, it is designed to make you a more informed consumer.

First, a few definitions:

Foreclosure -is the legal act of demanding the transfer of ownership of real property to the lender if the borrower is not paying the note as agreed. The process is governed differently in each state, but the result is that the lender gains ownership of the property; in today’s market environment the property is usually a private residence.

Short Sale -is an agreement between the borrower (home owner) and the “bank” (lender) whereby the lender agrees to accept a payoff of the outstanding loan that is less that what is owed the lender. This is usually done to facilitate a previously contracted private sale. The advantage for the lender is simply a question of dollars, will the lender realize a better advantage with a short sale than a foreclosure.

REO or OREO -this means Real Estate Owned or Other Real Estate Owned. The reference is to a financial institution owning non-performing real estate that was acquired through a foreclosure process. Financial institutions generally do not want REO property as such property is a negative on the institutions balance sheet, affecting the institutions ability to borrow and lend money.

All of the above definitions apply to a basket of real estate known as “distressed property”.

Deed in Lieu of – this process is simply a way to give a property to the lender if the owner (borrower) cannot make the payments or sell the property. The term, “in Lieu of” means “instead of “(foreclosure). This is not a popular option today because lenders have stacks of property in their REO departments and do not want any more.

Real Estate Market – A market is a place where things are bought and sold. In real estate, we think of a market as a city, neighborhood, subdivision, or specific geographic area, but the term can also be applied to a state, country or the world as a whole. In practice and function markets are very local, sometimes as small as a city block or a multi-unit building.

Appraisal – the process or technique of determining the value of a thing, in this article, real estate. With regard to residential property, the technique is based on analyzing 3-5 very recent sales of the same type of property in close proximity to the subject property, the subject property being the one you want to buy. Appraisals are examined for accuracy and validity by the loan underwriter, and sometimes are rejected because of perceived flaws in technique.

“Bank”- is a simple way of referring to the many different types of financial institutions that may own and need to dispose of foreclosed property. In some cases, the owner (seller) really is a bank, but it may be any number of other financial institutions.

Asset Manager- A company that acts as a servicing manager for a “Bank”. The asset manager may be involved in any or all parts of a transaction, from securing the property and maintaining that property to negotiating and closing the sale.

Now that we have an idea of just what we are talking about, let us consider you and your desire to “get a good deal”.

Tomorrow: Preparing to Buy

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

An article in the business section of the Rocky Mountain News today focused on foreclosure sales. The article mentioned that during the summer season 1 in 4 sales of residential property were properties that had been foreclosed and currently owned by financial institutions. The silver lining in that dark cloud is that foreclosed property is being sold! Considering that Metro Denver closings in July exceeded last years closings ( 5,123 this year vs. 4,980 in 2007)with the average sale price remaining $40,000 less than last year, and available inventory in decline, the low priced foreclosures have become a mainstay of the market. A quick review of 1000 sold properties closed below $200,000 shows that 13% of those properties sold for cash. That certainly implies an investor purchase. Roughly one half of the closed sales employed FHA or VA financing, which implies owner occupant. The rest were sold using conventional financing, which could be either investor or owner occupant sales.

All of the above would seem to indicate that in spite of record numbers of foreclosures, property sales are strong at the lower price ranges. Investors are buying foreclosed properties for long term hold, and renting them to consumers that possibly were forced from their previous residence by a foreclosure action.

What were are really talking about here is declining inventory. I note with mixed emotions that Centex Homes is leaving the Denver area. While that is bad news for the building sector of the economy, it is good news for the home owner looking to sell in the next few years. At some point, the amount of available inventory declines below the demand placed on the market by home buyers. At that point the market begins to recover.

The bottom line for home sellers today in the Denver market: if you do not have to sell, then don’t. If you must sell, you must market your property with very favorable pricing, and in exceptional condition.
Otherwise, your home will become part of the “stagnant unsold”, not a good place to be.

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content