Archive for Foreclosure Buying Tips
Daily Real Estate News | Thursday, December 29, 2011
The Federal Housing Administration is extending its “anti-flipping” waiver through the end of 2012, which allows buyers to purchase homes that have already been sold in the last 90 days.
The waiver, which was soon set to expire, is “intended to accelerate the resale of foreclosed properties in neighborhoods struggling to overcome the possible effects of abandonment and blight,” Carol J. Galante, the acting Federal Housing Administration commissioner, said in a statement. “FHA remains a critical source of mortgage financing and stability and we must make every effort to promote recovery in every responsible way we can.”
An anti-flipping rule originally took effect in 2003 to stop a spike in home flipping that was being blamed on driving up home prices during the housing boom. The rule prevented FHA-backed loans from being used to purchase homes that had been owned by a seller for less than 90 days. But the U.S. Department of Housing and Urban Development decided to reconsider the 90-day limit in 2010 after skyrocketing foreclosures and abandoned homes were causing blight in neighborhoods across the country and hampering nearby property values.
The temporary waiver to the anti-flipping rule will allow buyers and investors to quickly resell refurbished homes and not have to wait 90 days to do so. Since the waiver took place in 2010, FHA has insured nearly 42,000 mortgages worth more than $7 billion on homes resold within 90 days of the last purchase, according to HUD.
“It’s certainly an inducement to move real estate and reduce inventories,” says Don Cameron, a real estate investor who owns a franchise of We Buy Ugly Houses in South Florida. “Why wait 90 days before you can close on a home?”
The waiver, however, still prevents predatory flipping, and sellers must justify any increases in value if the sales price of the property is 20 percent more than what the seller had recently purchased it for (such as by providing extra documentation on renovation expenses). Sales also must be in “arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.”
Source: “Government Extends Waiver of Anti-Flipping Law, Allowing Homes to be Bought and then Sold in 90 Days,” McClatchy-Tribune Regional News (Dec. 29, 2011) and HUD.gov
Foreclosure Information for Buyers, Sarasota, North Port, Port Charlotte
If you thought that owning a home in the land of sunshine, tropical breezes, white sandy beaches, and swaying palm trees was just a dream, it’s time to pinch yourself and look at all the opportunities that are NOW available in Paradise.
For investors and individual homeowners the time to buy is TODAY! Florida’s foreclosure rates are some of the highest in the United States.
Recently, the State of Florida ranked 2nd in the nation, with foreclosure filings rising 93% in the Southwest Florida region alone. In another adjacent county, it is estimated that for every 363 households there is one foreclosure. In another, one in every 221 properties is a foreclosure. Many of these properties are newer, pristine homes, some never even lived in!
We have access to thousands of foreclosures and short sales throughout Sarasota and Charlotte County as well as all of central and southwest Florida. Our site provides you with FREE information on available foreclosures and short sales, with NO obligations.
How can Buyer’s benefit?
Buyers can obviously benefit from buying foreclosures at deep discounts off market value. Buyer’s may also look at foreclosed properties as investment opportunities. Buying a foreclosed property often means the Buyer must be able to pay with cash (or be pre-approved for a mortgage), and it is important that the Buyer works with an experienced and knowledgeable Broker who understands the local laws surrounding foreclosures, bankruptcy and REO’s.
Perin Realty & Associates, LLC is ready to help you find your piece of paradise, at a fraction of what it would have cost 1-2 years ago. Since 1979, Bill Perin, Broker, has served thousands of clients and customers in Florida. Our company is committed to providing outstanding service and value to our Buyers and Sellers. We are known for developing quality long-term working relationships with our clientele….relationships based on respect, integrity, and trust.
HUD has approved a program aimed at putting foreclosed homes back into the hands of owner-occupant buyers.
In select states (Florida), from now into October of next year, buyers need a down payment of only $100 to purchase a HUD-owned REO home.
The buyer must be an owner-occupant, utilizing financing insured by the Federal Housing Administration (FHA). Standard FHA underwriting guidelines apply, and the sale must be for the full amount of the current list price.
The $100 down payment incentive program has been approved for two of HUD’s four national regions – the regions managed by the Denver Homeownership Center and the Atlanta Homeownership Center. HUD homes in the states listed, as well as the Caribbean are currently eligible for the program.
HUD’s $100 down payment incentive program can also be applied to an FHA 203k loan, which can be used to fund repairs and renovations on the home. The 203k program allows buyers to finance both the mortgage and additional money for rehabilitation needs with a single government-insured loan. This is one of the most exciting features of the new incentive program and should drive a lot of exposure to FHA’s 203k offering.
With an FHA 203k loan, “buyers can find a property that needs some TLC, fix it up however they want to, and finance the whole thing for $100.”
In addition to $100 down instead of FHA’s typical 3.5 percent down payment, HUD says it will also cover up to 3 percent of the closing costs in most cases.
5 Tips on Buying a Foreclosure
In a housing market that’s as lousy as this one, it makes sense that prospective buyers are becoming increasingly interested in foreclosures. After all, some of these properties – which accounted for 24 percent of home sales in May, by the way – are selling at up to 50 percent less than comparable homes. Interested in rummaging through the bargain bin? Here’s a primer:
Find listings – This is the easy part. You don’t need to show up at courthouse auctions or search through legal filings. All you need to do is look on sites that allow you to search for foreclosed properties, like Zillow. Just use the Listing Type search filter to narrow down to these sales.
Work with a specialized agent – A real estate agent who specializes in foreclosures is not only a time saver, but a necessity. They will guide you through the process, help you find the best properties, tip you off to the various issues/challenges/risk, and do the nitty gritty along the way, from researching property title documents to recommending reputable inspectors and contractors.
Understand your buying options – While you can buy directly from the owner (before they’re officially foreclosed on), or try your hand among the seasoned investors at an auction, the safest way to buy a foreclosed property is to buy it back from the bank (bank foreclosed properties are also called real estate owned, or REOs). That’s because you can inspect the home before you buy it, and you can finance the purchase with a mortgage. Furthermore, when a bank takes back a home, it will clear any outstanding liens.
Budget for repairs/renovations – Don’t underestimate the amount of work that may be needed to restore the home to a “livable” condition as these residences are sold “as is.” You can easily factor in 10 percent for updates and repairs on any foreclosed purchase.
Make an appropriate bid – Banks aren’t necessarily selling foreclosed homes at the kind of fire sale prices you’d find at a pre-foreclosed sale or at an auction, but that doesn’t mean you shouldn’t haggle – particularly if the bank has a huge inventory of foreclosed homes, and the property has sat vacant for some time. Just make sure you’ve done your homework, taking into consideration not only the price, but also the condition of the property, and the surrounding neighborhood. (Ideally, you want to find a foreclosure in a neighborhood that doesn’t have very many of them.) Also, get your financing pre-approved before you bid or you could delay the process and ultimately miss out.
My team has been diligently working on dozens of short sales. Recently we have seen that some of the banks are setting the values and demanding the listing price of the home be much higher than the actual market price of the homes in the area. They claim that the price they are asking for is the appraised value. I am not sure what appraisal company they are using, but there are no offers coming in when the list price is $15,000 less than the “appraised value.” So, I can’t imagine that raising the list price is going to make this any better.
So it begs the question, “Why are banks holding out for higher offers when they currently have an offer to negotiate with?” The answer is simple – banks have insurance. The borrower has typically paid either private mortgage insurance or it is insured through Fannie/Freddie. So rather than accept the lower offer price, they would rather go through the foreclosure process and then collect the insurance on the home.
We are seeing this happen more and more as lenders get appraisals that are really much higher than market. There is little incentive for the bank to accept the true market value when they can collect the insurance premium for closer to the full value of the loan.
The harder part to all of this is that it really just hurts the borrower. Rather than be frank with the borrower and tell them to do a deed in lieu or accept the foreclosure, they are dragging their feet and providing a false hope that they might get it resolved with less impact. In reality, the banks prefer to foreclose, take the insurance money and get the non-performing asset off their balance sheet.
This is why you have seen an increase in the cost of mortgage insurance. More and more lenders are cashing in on their insurance policies and then the cost gets passed through to new borrowers to make up for the losses on previous bad loans.
So, if you are working on a short sale transaction right now and wondering why the bank didn’t accepting your market value offer, now you know!
FHA extends suspension of ‘anti-flipping’ rule for another year!
The rule was intended to prevent speculators from defrauding the government, but it also stifled the purchase and renovation of foreclosed homes by legitimate investors.
For years the federal government prohibited the use of Federal Housing Administration mortgage financing by buyers purchasing homes from sellers who had owned the property for less than 90 days. The idea was to prevent speculators from defrauding the government through quick flips of houses – often involving straw buyers and corrupt appraisers – at wildly inflated prices.
One side effect of that policy had been to stifle purchase-and-renovate projects by legitimate, small-scale investors who buy houses after foreclosure or loan defaults and then resell them in substantially improved condition. In many parts of the country, first-time and moderate-income buyers often sought to buy these fixed-up houses using FHA-insured mortgages with 3.5% down payments, but were prevented from doing so by the “anti-flipping” rule.
Now you can continue to sell to FHA buyers which is huge in today’s lending environment. These are great loans to use for wholesale homes to first time home buyers and for wholesaling pretty houses.
Interest in buying a foreclosed home is on the rise, but so are concerns about the risk involved in the process. In a December survey, it was found that 49 percent of Americans were at least somewhat likely to consider buying a foreclosure, up from 45 percent in May 2010. But the number of US adults who believed there are disadvantages to buying foreclosures had also increased, from 78 percent to 81 percent over the same time frame. Among those folks who had qualms about purchasing a foreclosure, the top concerns were:
- that buying a foreclosure might involve hidden costs,
- that the buying process itself is risky, and
- that the home might continue to lose value, after escrow closes.
While there certainly are risks that run with buying a foreclosed home, the most risky way to do it is also the least common method: at the foreclosure auction itself. Auction buyers often don’t have the opportunity to fully vet the foreclosure to ensure that they are receiving clear title and/or to make sure they’re not getting a lemon. With that said, most foreclosures are resold not at the foreclosure auction, but as an REO (short for Real Estate Owned – by the bank), listed by a real estate broker on the Multiple Listing Service. Here are my Top 4 Tricks and Traps for Foreclosure Buyers:
When you buy an REO in this way, you have lots of opportunities to use some tricks of the trade, so to speak, to avoid some of the traps you may fear.
1. As-is means as-is, period. (Most of the time.) Banks have very little interest, inclination or even the logistically necessary resources to execute repairs on your home. Many of these homes are managed by an asset management company in another state, and may not even have a local person besides the agent who can handle large repairs. Generally speaking, bank-owned homes are sold on a very strict “as-is, where-is” basis, which just means that you should expect to take possession of it, if you buy it, in exactly the position and location it is, no matter how defective. Do not walk into a viewing of a foreclosed home, notice how the plumbing is all ripped out of the wall, and make an offer for it, assuming you’ll be able to get the bank to “fix” the issue later. Usually, if the bank is willing to do any repairs to a foreclosed home, they do so, on the advice of the listing agent, prior to the home being listed.
Out of hundreds of foreclosure transactions I have personally been involved in, I have seen exactly four where the bank did agree to do some level of repairs at a buyer’s request. Every one of those times, the repair was to fix a health-and-safety endangering property defect, like a gas-leak or an electrical fritz. And every one of those times, the property defect was highly non-obvious – not something even a diligent buyer could have detected visually prior to making an offer. Maybe another few times I’ve seen a bank agree to a small price reduction due to surprising condition problems. And dozens of times, I’ve seen transactions fall apart or buyers take on the property’s repair costs, when they request repair credits, price reductions or actual repairs from the ban seller.
If a foreclosure you’re considering has obvious property damage, have your contractor stop by with you or gather whatever information you need to get as comfortable as possible with your offer price, assuming that the bank will not be chipping anything in for repairs, before you make the offer.
2. The bank speaks no evil. When it comes to real estate disclosures, the fact is, the bank speaks not much of anything! Many states exempt banks and other types of corporate homeowners from making substantive disclosures about the condition of the property. Even in jurisdictions where the bank is not legally exempt, most banks will simply write across the required disclosures something to the effect that the bank has no knowledge of the property’s condition. (Before you protest with a “that’s not fair!!” keep in mind that the bank never lived in the property, so most often truly does have no idea of any important facts or details about its condition or location, the things an average home seller would be required to disclose.)
Even in a normal transaction, it behooves a buyer to be thorough in having the property inspected and meticulous about reviewing the resulting inspection reports. But buying a foreclosure ups even that ante, as you have no seller disclosures to highlight particular problems you should have looked at, and none of the usual legal recourse you would have if a “regular” seller made incomplete disclosures. Get a property inspection. A pest inspection. A roof inspection. A sewer line inspection. A pool inspection, if you have a pool and care about its condition.
Yes – all these inspections cost money, but the drama and thousands each of them can save you is well worth it. And read your state’s buyer inspection advisory or similar document (ask your agent), just to make sure you’re aware of all the inspections that are available to you, and work with your agent to determine which ones make sense, and which are not appropriate.
Some insider tips:
- Vacant foreclosures often have their utilities disconnected. Work with your agent to make sure the utilities get turned on – even for a single day – so that your property inspector can run the water taps, test the stove and dishwasher, see if the water heater and electrical outlets work, and so forth.
- If appliances are there, the bank will probably leave them there, even though they may not have technical “legal” ownership of them, so they may not be included in the contract, like in a “normal” home sale.
- However, the bank will not give you any sort of warranty on appliances, so try to obtain any warranty coverage you want or need elsewhere – from a home warranty company or, potentially, the original manufacturer/retailer.
3. The contract terms, they are a changin’. One thing squarely in the wheelhouses of local real estate pros are local market standard practices. From negotiating practices to which party pays which closing costs, every market is different, and experienced local agents are experts on this information. If you’re buying a foreclosure, though, the bank will often require you to use it’s own purchase contract, rather than the more commonly used state forms. Many times, this is done to advise the buyer of the bank’s refusal to make substantive disclosures (see above) and to change some of the normal practices for your area to the bank’s standard practices. When you buy a foreclosure, you might end up working with the bank’s escrow company, instead of a company you or your agent selects. And the bank’s escrow provider might be slow or disorganized. Too bad! The bank might rush you for your deposit money, but take their own sweet time coming up with the necessary signatures on their end to close the deal. Par for the course. You might expect that the bank would be desperate for buyers, and instead find out that there are 20 offers on the same REO. Or, you might be the only offer and still get your aggressively low (but still reasonable) offer rejected, only to have the bank reduce the list price of the home to the same price of your offer! (They often want to see if exposing it to other buyers at the new, lower list price might generate more interest and higher offers.)
When you’re buying a foreclosure, expect glitches, expect your calendar to be derailed, expect the bank to be inflexible and possibly even unreasonable. It’s not overkill to ask your broker or agent to brief you on the common complications they see in REO transactions. Having realistic expectations may keep you from pulling your hair out. And if the transaction turns out to run smooth as silk? You’ll be pleasantly surprised.
For instance, if you are buying a home in a contingency state, where you would usually have to sign a document proactively releasing contingencies, the bank’s contract will probably change that, so that your transaction operates on an objection period. In “objection” based transactions, you have a certain period of time in which you must either speak up about your concerns with the property and/or cancel the deal, or you will automatically be presumed to be moving forward with the deal and your deposit money will be forfeited if you change your mind after that date.
If you’ve been making offers on non-foreclosures on the standard contract form, or you’ve bought homes before and think you know the drill, please – I implore you – READ every word of the contract you sign when you buy a home from the bank, and ask your broker, agent or attorney to explain anything that doesn’t make sense.
4. Expect the unexpected.
As 2011 kicks off, there’s ample reason to feel upbeat about the New Year. Buoyed by the strongest holiday spending since 2006, retail sales will end 2010 on a high note. Meanwhile corporate earnings are up, there’s growth in the manufacturing sector; and the number of people applying for unemployment benefits fell last week to the second-lowest level since July 2008.
Forecasts from such closely-watched sources as Moody’s, Standard & Poor’s, Wells-Fargo, the Mortgage Bankers Association, Forbes, Morgan Stanley, Bloomberg News and the Wall Street Journal call for an increase in home-buying activity during 2011, if only a modest one. The past few years have been fraught with tough economic lessons, prompting most of us to save more and spend prudently. The world goes on, however; and in a Florida, whose on-going growth has just earned it two more seats in the House of Representatives, new Buyers (along with those trading up, down or sideways) will help further diminish our inventory of properties.
But, one thing is known for sure. Local home prices are at levels not seen since 2001, well before the housing bubble sent them soaring. At this point, the savviest buyers are paying closer attention to what the home will cost over the life of the mortgage; as a modest up-tick in interest rates could potentially blunt the benefit of any additional price declines.
Mortgage rates should remain historically low – for now – but are forecast in many circles to increase between now and the end of the year. For this reason, buyers should think about securing a mortgage closer to the beginning of 2011, rather than later on in the year in order to get the very best rate!
By Michael Braga (Sarasota Herald-Tribune)
Published: Monday, November 8, 2010 at 1:00 a.m.
CONDO SALES HAVE SLOWED dramatically in Southwest Florida during the past three months.
From Palmetto to Punta Gorda, 808 units have changed hands — a nine percent increase from the 742 sold during the same period a year ago.
While that may not sound terrible, the numbers are way down from the first six months of the year, when 2,324 units changed hands — a 68 percent increase from the 1,123 sold during the same period in 2009.
Economic uncertainty, the end of homebuyer tax incentives and a dearth of lenders are the main reasons for the slowdown, real estate agents and analysts say. But for cash buyers, there are still plenty of deals, and a growing number of investors have noticed.
Pennsylvania residents Craig and Mark Troyer, for example, gradually have purchased 13 units at the once-troubled Bermuda on Osprey complex near downtown Sarasota for just under $64,000 per unit, a fraction of what the dwellings were selling for during the boom.
Local residents Martin and Joann Nowak have paid out $2.5 million to buy three units at Seaplace VI on Longboat Key for $2.5 million, while Nashua, N.H, investor John Picard picked up three units at the The Beach Retreat condo complex at 105 Casey Key Road for $468,000.
There are dozens of other examples.
But few have attacked the condo market with more ferocity than Sarasota real estate agents Ross Bryans and John Petitti.
Not only have the long-time partners bought 13 individual units at the Garden Walk and Sanctuary complexes in Bradenton and two at Central Park in Sarasota, they have also bought entire apartment complexes — paying $2.03 million for the 50-unit Pinecrest Arms and Beneva Village complexes off Beneva Road in Sarasota.
Bryans, who sold converted apartment units to investors during the boom, said he does not want to play that game any more, now that prices have plummeted.
“I couldn’t see going around convincing people to buy units for $30,000 that I was selling for $150,000 in the boom,” Bryans said. “So I stepped out of the business. These days, I’m busy being a landlord.”
The secret to being a condo investor these days is to buy units in the $40,000 to $60,000 range and to remember that 50 percent of whatever you charge in rent will be eaten by expenses, Bryans said, adding that buying for appreciation is not a good idea right now.
“I don’t think anything will appreciate around here for a while,” he said. “You have to look for cash flow.”
Of course, not all condo buyers are investors.
“There are a lot of attractive deals for traditional buyers too,” said Perry Corneau, a condo specialist.
But cash remains king, and the biggest impediment to sales is Fannie Mae’s lending guidelines, Corneau said. The giant government-backed mortgage buyer will not insure loans to buyers if too many of the units in a complex are in default, or if more than 10 percent are owned by a single investor, or if the condo association has not set aside 10 percent of its budget for reserves. Units in those condo complexes that do not meet Fannie Mae guidelines sell at deep discounts to those that do, he said
What’s Better – Bank-Owned REO or Courthouse Auction?
Big nationwide auctions have recently made headlines, but what is actually better for the average short sale investor…REO or bank/courthouse auctions? Let’s take a few minutes to examine the pros and cons for each.
Title – Purchasing a property via bank or courthouse auction frequently entails a commitment to all outstanding debts including unexpected liens and other judgments in addition to those for which the auction is taking place. However, by purchasing a bank-owned REO property you will typically have assurance of clear title or at least a complete awareness of other fees or liens due.
Occupants – Property sold at auction frequently has tenants or prior owners still in place, causing new owners to engage in immediate legal action in order to take possession. Bank-owned properties have often evicted former occupants thereby eliminating the need for out of pocket legal expenses. Just keep in mind, this is changing, and some short sale investors have encountered squatters as well. On the other hand, depending upon you plans for the property, having paying tenants may be a strong positive.
Finance Terms – Auctions require advance funding to be in place while bank owned properties may actually offer added terms or beneficial interest rates in order to move a non-performing property off their portfolio. Since it can cost a lot of money for a bank to keep a property on their books, one way they entice others to purchase is by negotiating the terms of the finance offers. This is especially true in areas where lenders may be limited by the number of homes they can release on the market (ie, federal regulations prohibit “dumping” in certain neighborhoods – often the same ones where many non-performing loans were originally written). By offering highly favorable financial terms, banks are able to shift properties off their books without continuing to drive down prices.
Bottom line – Short sales are perhaps the best bargain of all, but don’t underestimate the value in bank-owned properties, which can usually be closed quickly, whereas short sales generally take 3-5 months to close. Auctions are a lot of fun but not always indicative of the best value especially for those just starting out or who only intend to purchase one or two properties.
