The Better Bargain: Foreclosure or Short Sale?

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Short sales and foreclosures have flooded the housing market in recent years, and buyers are often drawn to the bargain prices but may be hesitant to jump into what usually is a difficult transaction and a long process.

Bankrate.com recently tackled the question of “Which to Buy: Short Sale or Foreclosure?” in an article that helps buyers weigh the pros and cons of a distressed property. Experts note that the question largely depends on buyers' situations, how quickly they need a home, and their tolerance for fixer-uppers.

Foreclosure Pros and Cons
Buying a foreclosure is often faster than purchasing a short sale. Plus, buyers often can negotiate closing costs and price in foreclosure sales, Elaine Zimmermann, a real estate investor in Memphis, Tenn., told Bankrate.com.

However, abandoned homes in foreclosure can deteriorate very quickly so the buyer may need to weigh the condition of the home and whether they want a fixer upper. Scarred walls and carpets and appliances that were damaged by the former owner are not uncommon in a foreclosure, says David Richardson, an inspector in the Detroit area who's certified by the American Society of Home Inspectors.

Short Sales Pros and Cons
A short-sale home is still owned by the occupant, so it tends to be in better condition than a foreclosure, experts say.

"The short sale is, in my opinion, far better than buying a foreclosure because the home is generally in better condition because it's been occupied," says Gwen Daubenmeyer, a certified distressed property expert with RE/MAX in Detroit. "The utilities have been maintained, usually the lawn is maintained, those kinds of things."

But short sales often can take a longer time than a foreclosure to close. However, the federal Home Affordable Foreclosure Alternatives program, or HAFA, may be able to help speed up the short-sale process since it has created a timeline to hold mortgage lenders accountable, but still “it’s not perfect by any means,” Daubenmeyer says.

Source: “Which to Buy: Short Sale or Foreclosure?” Bankrate.com (June 2011)

Shadow Inventory Falls 18% from Peak

Here is a little footnote on "Shadow Housing Inventory shrinking".

At the current sales pace, those properties working their way through the foreclosure process represent a five-month supply. According to the Mortgage Bankers Association, home loan delinquencies slid to 8.32 percent in the first quarter, down from a record 10.1 percent a year ago. The NATIONAL ASSOCIATION OF REALTORS® says foreclosures and short sales accounted for 31 percent of existing-home sales in May compared to 37 percent in April.

Source: "Shadow Housing Inventory Shrinks,"
Boston Globe (June 23, 2011)

Waiting to catch a wave? Surge of REO listings is unlikely.

When I speak to people about real estate, I often here buyer's tell me that they are waiting for banks to release their shadow inventory. Here is an article about Banks and the so called Shadow inventory.
Waiting to catch a wave? Surge of REO listings is unlikely.

Right now is a great time buy a home or investments property. Call me and I can send you a list of Bank owned properties.

Why do REO Agents never call back?

At Open Houses the common question, I here is why do REO Agents never call back?

"How can they stay in business and not answer their phone?"

Answer: It's not just buyers who are treated this way. Many REO agents don't call buyer's agents, either.

We first have to understand how REO Agents Work:

To understand why agents don't call back, let's look at how many REO agents operate. While the following is not true for every single REO agent, many of them adopt similar procedures. REO agents are often simply too busy to handle the volume of phone calls.

REO agents take many bank-owned listings.

The top-producing REO agents list anywhere from 50 to 300 or more foreclosures a year. For many, that equates to writing one listing a week at minimum to one or more listings per day.

REO agents often pay a fee to the asset managers.

Asset managers may receive up to one-third of the listing agent's commission in return for hiring that agent to work for the bank. This means the REO agent must produce volume to offset the discount in fee.

REO agents are responsible for securing and / or fixing up the bank-owned home.

The REO bank typically wants the locks changed on the home, so the REO agent hires a locksmith to rekey. In addition, some homes are flooded or repairs need to be done before the home is habitable. Agents contract out the winterizing and oversee removal of debris.

Types of Phone Calls REO Agents Don't Answer

REO agents value their time. Every minute spent answering questions is a minute that could be used to take a new listing. There are only so many hours in a day.

Here are types of calls REO agents receive:

Is this bank-owned home still for sale?

REO agents say they keep MLS up-to-date, and if a home is pending, MLS will reflect that status.

How much will the bank accept?

The REO agent has no idea of the bank's bottom line. Often it's the asset manager who speaks with the bank's management, not the REO agent.

How can I write the highest and best offer?

The REO agent works for the seller, not the buyer. Buyers are advised to check the comparable sales. Most REO agents will not disclose the price of competing offers.

How long has this bank-owned home been on the market?

That information is typically available in the MLS listing.

How much will it cost to fix up the home?

The REO agent has completed a visual inspection but is not a contractor and cannot give buyers an estimate.

What types of repairs will the bank make?

Banks generally sell foreclosures in "as is" condition and will make no repairs.

As you can see, it's almost pointless to call the REO agent and expect to get any answers. That's why foreclosure buyers may fare better by hiring a buyer's agent with experience in foreclosures to help them buy a bank-owned home.

Do your due diligence, write a clean REO offer and don't expect the REO agent to call you back unless your offer is accepted. At a minimum, though, REO agents should acknowledge receiving your offer. But beyond that, their duty is to the seller.

Tired of finding the perfect home on the internet only to find out its already sold? Do not want to deal with agents who do not understand foreclosure market or don't have access to REO deals?

Call me today at 408.476.5442 and let me go to work for you.

Interested in purchasing a foreclosure, short sale or other home that needs work?

Then you need to know about a special loan program administered by the Federal Housing Administration.

The Section 203(k) program provides approved borrowers with the funding necessary to not only purchase a home but also to rehabilitate or repair it. Normally, when a buyer purchases a home in need of repair, he must first obtain financing for the purchase and then get additional financing for the rehab. The 203(k) program was designed to eliminate the hassle and cost of two separate loans.

The 203(k) program has become increasingly popular over the past year because so many properties—particularly those under foreclosure—are in need of repair.

Here are some details on the program:
· The home financed must be at least one year old.
· Part of the loan proceeds are used to pay the seller (or if used for a refinance, to pay off the old mortgage) and the rest are held in an escrow account and released as the repair work is completed.
· The cost of the rehab must be at least $5,000, and the total value of the property must fall within FHA mortgage limits for the area.
· One- to four-family dwellings and condominium units are included (if the condos are in approved projects). Coops are not eligible.
· The repair work can range from minor repairs (as long as they cost $5,000) to virtual reconstruction. Luxury improvements are not eligible.
· Applications must be submitted through an FHA-approved lender.
· Investors are not eligible; the property must be owner-occupied.
For more information on 203(k) loans or available properties in your area, call Phillip Lopez Today!

Number of Delinquent Mortgages Declines

The number of delinquent mortgages declined 8.6 percent in March, says LPS Applied Analytics, which tracks the performance of loans for investors. Totals also declined in February. The biggest decline was in loans more than 30 days past due, which are now at about the same level as they were in spring 2008. "We're not out of the woods, but this appears to be a turning point," says LPS Applied Analytics President Ted Jadlos. "This is the first time we've seen improvement across all stages of mortgage delinquency." Source: The Wall Street Journal, Ruth Simon (04/19/2010)

What is R.E.O. ?

Foreclosed property held by a lender.

When a property is sold through a foreclosure auction, its owner usually owes more to the lender than the market value of the property itself. This is often a barrier to selling the property, and sometimes such foreclosure auctions do not draw any bidders. As a result, not many foreclosure auctions end with the sale of the property, rather the title reverts back to the financial institution holding the lien.

The bank takes possession of the property, the mortgage loan disappears and the financial institution deals with any items owed by the prior borrower, such as homeowner association fees and any IRS tax liens against the property. Properties in this category are referred to as REO (Real Estate Owned) properties.