Random Act of Kindness

In the cold, cruel world of foreclosures, here is an amazing story of a random act of kindness by a Foreclosure Angel.

Buying Forclosure Property

If you are in the market for buying property, there are many advantages available to the fist time home buyers, including incredibly low prices, very low interest rates, the highest affordability and a $8000 Tax Credit. Along with all these advantages, it is hard to ignore the glut of foreclosures that have been priced well below the market rate of comparable homes. However, there are many things to consider when buying foreclosures as each one tends to offer different challenges. What is commonly referred to as "Forelcosures" fall in to smaller subsets that can be classified as Pre-Foreclosures, and Real Estate Owned (REO).

Buying Pre-Forclosure properties

Pre-Forclosures stage is the period prior to lender forclosing on a defaulted property, where the seller can sell the property to pay off the defaulted loan. The seller would generally be willing to sell the home instead of going into foreclosure. Keep in mind that you may have to buy the property ASIS as the seller may not have the abilty to fix repairs due to hardship. If your offer is below the current mortgage amount, this may leads to a Short Sale where the property is sold at a lesser amount than the current mortgage obligations. If this is the case, it needs the approval of all lenders. However, as the time is a constraint, the property may go into foreclosure.

Buying Short Sales

A Short Sale is generally negotiated by the Seller's Agent (on behalf of the seller) and the Lenders such that the Lender agrees to take a loss on the mortgage and forgive the difference between the sale price and the mortgages. The Lender is only acting in self interest in minimizing their loss so that they can take the lesser loss of a Short Sale or letting the property go into Foreclosure. Unlike in a traditional sale where only the buyer and the seller needs to agree to the sale, Short Sales require that the lender agrees to the sale as well. If the Lender does not agree to the conditions of the sale, there will not be a sale on the property, despite both the Buyer and Seller agreeing to the sale. Due to this reason, Short Sales can be the most frustrating and time consuming and often may not lead to a sale. Additionally there can be a lot of interest from bargain hunters, but if the offers on the property is too low, the bank may let it go into foreclosure instead of giving it away.

Buying foreclosed properties at the Court House

Another option is buying the forclosed properties at the court house where foreclosed properties are auctioned off every month. Foreclosed properties are generally auctioned off on the first tuesday of every month at the County Court House and the Lender has the first right to purchase. It is generally up to the buyer to clear any clouts on such properties and can be a risky option for the uninformed buyers. Additionally, you may be buying property with people still living in the property, and you may have to go thru the process of evictions, which will not be a pleasant process for all invovled.

Buying from an Auction

You can also buy properties from auctions such as REDC, but be sure to view the properties first to find out about the condition of the property. From what I have seen so far, these properties generally gets sold on impulse, so may not always be a great deal. Be sure to do your home work before going to the auction.

Buying REOs/Bank Owned properties

Buying REOs are generally a safe option as you get a clear title to the property. However, some of these properties may require a lot of work due to neglect and vandlism. When buying REOs you run into several different ways of how the offers are handled. Sealed Bids is where highest offer is selected by a given date and generally practiced by HUD and BidSelect. Other REOs may counter offer, or request for the Highest and Best offer when multiple offers are present and may even counter offer on your Highest and Best offer if there is sufficient interest.

Since these properties are listed at prices far below the market prices, there is immense competition at these price points as many bargain hunters are searching for "great deals." If your idea of a "great deal" is "buying property under the listed price," you may have to change that definition to mean "buying property well below the current market price, but not necessarily below the listed price." This is not to say that you wont be able to buy properties below the list price, just that those you find below list price is generally ones most would ignore and require significant work.

My advice to clients has always been that by giving low offers for already bargain basment prices, you are only letting some one else get the bargain. You dont know how many others are making offers and you dont know what they are offering. Trying to save a few thousand dollars will be what stands between you getting the home you want and some one else getting it.

If you can get a $250K home for $165K even if the property was listed for $150K, you still got a great deal. If you have to do a bit of repairs for $10K, you've got $75K of instant equity. I am putting emphasis on this, because this is what I have been seeing with the many offers my clients have made. You can always find great deals if you didnt have any criteria and are merely looking for a bargain. However, most people have some criteria such as good schools or good curb appeal. Once you factor in these criteria, there are a lot of others that are looking for similar criteria as yours.

I absolutely have no problem making low offers on behalf of my clients and instead of refusing to make low offers, the approach I have taken is that I have the patience to let my clients find it out for themselves. After making several such offers and getting rejections, or no response at all from the banks, they eventually come to terms with it. I'll give you right the advice, but its up to you take my advice or not.

Buying HUD Homes

HUD offers deeply discounted properties in order to encourage home ownership. When buying HUD homes, you can seach for homes on BidSelect.com and place bids through a HUD approved agent. When placing bids, there are several things to keep in mind

1. If you bid as "Owner/Occupant" you are given priority over other types of bidders such as Investors. However, this comes at a cost of you having to live at the property for a period of 1 year. Failing to live up to these obligations can lead to steep fines.
2. There is a List Price and a AS IS Value. List Price is less than or equal to the AS IS Value.
3. If you bid over the AS IS Value, you will have to pay the difference in cash.
4. Closing costs you request are deducted from the offer price. If you are asking for closing costs, be sure to add it to the offer price, so it can become part of the offer to be financed.
5. Due to the lower priced properties, your agent is entitled to a 5% commission, this also is deducted from the offer price.
6. What is important to HUD is the final offer price after all the deductions.
7. If the property has a Repair Escrow amount and you are financing the purchase, you have to find a lender willing to handle the Repair Escrow. Not all lenders do so.
8. All offers require signatures and changes to be in Blue Ink, so faxing back and forth will not work and meeting face to face is the quickest approach.

Even with these restrictions, HUD homes offer great deals, especially if you are a first time home buyer willing to put in some sweat equity.  Whether you are out in the market for your dream home or looking for great deals in investment properties, I can help you with your search for an ideal home in a no pressure environment.

Housing blues

MarketWatch is reporting that four states, Nevada, Florida, California, and Arizona (in order of the number of foreclosures) are the main culprits in dragging down the housing prices. These four states contributed 193,659 of the 342,038 foreclosure filing nationwide. This equates to these four states contributing about 60% of all foreclosures in the nation. Due to these foreclosure issues, these states are also contributing to dragging down the national median home price by a record 14% to $169,000.

Buy now or wait?

The real estate market has been in a downward trend for a while and many buyers have been holding out for the market to bottom out. While this is a good strategy, it is worth your while to figure out what its going to cost you to wait for the market to bottom out. Here are my thoughts about it. I want to make the disclaimer that I am not advising you to go out and buy a home. As always, you should do your own due diligence in figuring out what is best for your unique situation.

Lets assume that you are currently renting at $1200 a month, which is reasonable for a descent 2 BR apartment in Atlanta. Lets also assume that you consider buying a $200K house, but want to hold out longer with the hope of buying cheaper. In the buyers market of today, you can buy a very nice home in Atlanta today for $200K, of course depending on the location in the city. The monthly payment for a $200K, 30 year fixed rate mortgage at 5% would be below $1200 a month.

According to the CNN's Real Estate forecast for Atlanta, the decline so far from a peak in second quarter of 2007 is -11.3%. The total decline when we hit the bottom is expect at -14.6% from the peak. This means the house you can buy today for $200K has already declined $25,479 from a high of $225,479. The -2.4% drop expected this year will put the home at a bottom out price of $195,200 which is a drop of $4800. Something hardly worth the wait for a year.

Now lets look at what it will cost you to wait a year to see the bottom. At $1200 a month, it would have cost you $14,400 in rent alone. That is 7.2% of the price of the home. Now lets add to it the $8000 tax credit available to the first time buyers this year to get the sum of $22,400, which is 11.2% of $200K. Which means your effective price of buying the $200K home today is really $177,600. You could say that even if you were to buy the home today or a year from now, you would still have to pay either the mortgage or rent, so it is not a complete waste. However, the difference is that with rent, the money is gone out the window, while you can use the interest paid on your mortgage as a tax deduction and build equity in the home. I recommend talking to a CPA for the tax advantages of owing your home.

The scenario I drew above is assuming that the interest rate for a 30 year mortgage remains at historic lows. When you factor in interest rates which can change quite dramatically, what you save from one end may get sucked out from another. If the rates were to go up as a result of all the financial hiatus we are in today, the interest alone could become a huge disadvantage to make your wait worthless. However, if the rates were to drop down drastically, which I think is quite unlikely, you could come out a winner. Additionally, successfully calling the bottom and the peak is very hard... if it were that easy, many of us would have become millionaires in the stock market! I don't have a crystal ball, but my take is that waiting for the bottom in housing market may not work out for every body.

Citigroup to give a break to unemployed

I read this article titled "Citi to Allow Jobless to Pay Less on Loans" on The Wall Street Journal, that would be welcome news to those who have undergone financial hardships in this ugly and uncertain economy. Citigroup's program claims to lower the mortgage payment for those who have lost their jobs and are at least 60 days behind on mortgage payment. The offer applies only to loans serviced by CitiMortgage that are $417,500 or lower. What is not clear to me about the 60 days behind on mortgage payment requirement is how it applies to title theory states like Georgia, where the majority of the foreclosures are non-judicial. Could it be possible that the lender forecloses on you before you get 60 days behind on your payment??? I dont know the answer, and I am not going to speculate either, just pointing out a possibility. I found this well written article on Georgia Foreclosure Law, written by McCurdy & Candler, LLC. If you are facing the unfortunate prospect of foreclosure due to a job loss, and your loan is serviced by Citigroup, you may be in luck.  However, if you are thinking of falling behind on your mortgage payment in oder to take advantage of this opportunity, I would suggest consulting a lawyer that knows and can advice you about the full implications of how this may apply to you. Please note that posting the article on "Georgia Foreclosure Law" by McCurdy & Candler, LLC is not a recommendation or an endorsement as I am not familiar with them. I have written another other article on foreclosure prevention that may be worth a look.