ABOUT FORECLOSURE PROPERTIES

Pre-Foreclosure or 'Short-Sale' Properties
These are properties that have not gone through the full foreclosure process.  They are still owned by the homeowner, but in most cases the homeowner has stopped making payments.  The homeowner's hope is that someone will buy the property before the lender forecloses and that the lender will accept less than they are owed.  If you make an offer on this type of property, be prepared to wait 4 to 6 weeks for the lender to review your offer and to either accept or reject your offer.  All offers are subject to the lender's review and approval - even if you offer the full asking price.

Before making an offer, find out if there is more than one lender holding a mortgage on the property.  If so, your offer will have to be sufficient to satisfy both lenders.  For example:

Countrywide holds a 1st Mortgage on a property for:      $200,000
Wells Fargo hold a 2nd Mortgage on same property for:   $100,000

You make an offer on the property for $225,000.  The net proceeds on a $225,000 offer will be about $210,000 after all transfer fees are paid.  Countrywide will usually demand to be paid in full, leaving $10,000 to Wells Fargo.  As the realtors, our job is to convince Wells Fargo to accept 10% of what they are owed.  This is a time-consuming process that typically takes 4 to 6 weeks.

Short sales on properties where there is only one lender have a higher success rate.  Using the same amounts, here's another example:

Countrywide holds a 1st Mortgage on a property for:    $300,000
There is no second mortgage.

You make an offer on the property for $225,000.  The net proceeds on a $225,000 offer will be about $210,000 after all transfer fees are paid.  In this case, we'll be asking Countrywide to accept 70% of what they are owed - and the higher ratio is much more attractive to the lender.

In summary, transactions involving pre-foreclosure or short sale properties are usually only successful if there is one mortgage on a property - which is rare.  Most speculative homeowners took second mortgages on their investments making these properties almost impossible to sell prior to foreclosure.

Our recommendation is to steer clear of Pre-foreclosure or Short Sales, and to focus on Bank-Owned properties.

 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 to make money does require 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 sale, 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.  And on top of all that, you’ll receive the property 100% “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.  The bank will see to the removal of tax liens, evict occupants if needed 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.  For example, banks are exempt from giving a Seller's Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

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 of 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.  We can help you by looking closely at comparable sales in the neighborhood and by taking into account the time and cost of any repairs or remodeling needed to prepare the house for occupancy or for subsequent resale. 

Ready to make an offer?
Contact us before making your offer - we're buyer's agents and represent your interests, not the bank's.  We'll help you determine the true value of the property by finding comparable sales, and we'll find out as much as we can about the condition of the property.  We'll also find out how much the bank is owed, research the property taxes, homeowner association fees, and any other fees associated with the property.  Finally, we'll assemble the offer for your signature, and since banks almost always sell REO properties “as is”, we’ll include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it.