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REO vs. Foreclosure
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale. Scottsdale bank owned
Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney’s fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier’s check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in “as is” condition, which may include someone still living in the property. There may also be other liens against the property.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property “reverts” to the bank. It becomes an REO, or “real estate owned” property.
How to buy a Scottsdale Bank Owned Foreclosure or REO
If you’re a first-time homebuyer and you’ve never purchased a home, let alone a foreclosure property, it is beneficial to contact a local real estate agent who can guide you through the process of buying a foreclosure. If you work with an agent, make sure they know your priorities. Ask any potential agents if they have experience with foreclosures. Especially for first-time buyers, a good agent can be a comforting and helpful resource.
You can contact an agent using the RealtyTrac Agent Network. There is no cost to contact an agent, although you should ask the agent how much he or she charges for commission. Subscribers can click on the Contact An Agent tab on any member page after you log in or click on any corresponding links on the Search Results or Property Details pages.
How to buy pre-foreclosures
When a property is in pre-foreclosure (NOD, LIS), the owner still has a chance to stop the foreclosure process by paying off what is owed or by selling the property. The pre-foreclosure period can last several months, so you may need to be patient when trying to contact the owner in default.
The first step is to call the trustee or attorney listed on the Property Details page to confirm if the property is still in foreclosure. The trustee or attorney has the most up-to-date information if the owner has sold or reinstated the property. The trustee or attorney cannot answer other questions about the property.
If you haven’t done it already, you’ll want to evaluate the property’s value and check for any additional loans or liens encumbering the property so that you can make an informed decision about whether the property is a wise investment. On the Property Details page, click on the comparable sales section to view a report that evaluates the home’s market value based on comparable sales in the neighborhood. Click on the loan & lien history section to view a report that lists additional encumbrances on the property.
If the trustee confirms the property is still in foreclosure, and you believe the property could be a wise investment, you should contact the owner in default as soon as possible. The quickest way to make contact with the owner using RealtyTrac is to click on the “Contact Owner” link on any Property Details page to send a postcard to the owner. You can print a postcard and mail it yourself or have RealtyTrac mail a postcard for you. You can choose pre-written wording for the postcard or type your own wording. If you save a property to My RealtyTrac, you will be able to view a record of when you sent a postcard for the property.
If the owner does not respond to a postcard you can try to send another postcard (the owner may have a change of heart as the end of the pre-foreclosure period approaches) or you can wait to see if the property is scheduled for auction and attend the auction.
One option is to call the owner if you can track down the phone number. Another option is to go to the property and try to contact the owner in person, as long as you recognize the ownership rights of the owner. We don’t recommend either of these options if you don’t have previous experience.
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Here are a few tips for foreclosure investors and homebuyers seeking Scottsdale bank-owned properties:
- Real estate investing, like any investment strategy, is part of an overall financial plan. Before jumping into buying bank-owned real estate, understand the real estate laws, tax ramifications and other financial issues.
- Consult with a tax or financial adviser who can help you assess your financial situation. Get your financial house in order first — that way, you know how much house you can buy.
- Don’t think that foreclosure investing is easy. For every successful real estate investor, there are countless others who have failed. Make sure you spend time studying the market.
- Seek professional help. Hire a real estate agent with foreclosure experience. Look for a mentor who can walk you through your first deal.
The Safest Deals
Scottsdale Bank Ownedproperties offer the safest deal for inexperienced foreclosure buyers, Beitler says: “There’s no risk. There are no taxes, no liens, no tenants to evict.”
A lender that’s eager to sell might be willing to offer attractive terms, says George Tribble, broker of record at Jetstream Mortgage in Oakland, Calif., and past president of the California Association of Mortgage Brokers.
The lender might offer to finance the property at a below-market rate or with a lower-than-usual down payment. Because the bank already has done an appraisal, the buyer might not have to pay an appraisal fee, Tribble says. And lender deals typically include title insurance, which removes much of the risk that accompanies buying homes earlier in the foreclosure process.
The costs of getting Started
With good credit, many banks will loan the full price of the foreclosure or more. If the home is to be used as a rental, many banks will require only a 10% down payment.
Individuals with a large amount of equity in another home may get a line of credit from their bank to purchase a foreclosure. When they convert the line of credit to a mortgage, no down payment may be required.
Foreclosure homes bought in good areas at below market values that appreciate annually can be a sound investment strategy for many investors. The appreciation of the homes is tax-exempt until the home is sold. If the home is a primary residence, the appreciation may be tax-free.
Homes used as rental properties give most investors valuable tax deductions while the house increases in value and builds equity. With many stock portfolios down, foreclosure real estate investing may be the alternative many people are seeking.
Forget about chasing down short sales and dealing with lenders who don’t want to deal. Instead, I suggest going straight to the source, which is often the very same lenders who refused to deal but now must. These are lenders who have taken back a home in foreclosure.
Regardless of government-sponsored voluntary bail-out programs designed to help home owners in foreclosure — the programs which are rightfully called “too little, too late and too voluntary” by The New York Times — foreclosures will continue to rise throughout 2008. This means more banks will end up owning properties, which is bad news for sellers in default and bad news for the banks but could mean good news for first-time home buyers and investors. Scottsdale Bank Owned Homes
The deals are out there. But don’t make the mistake of thinking the bank is going to hand you a home on a silver platter. Banks hire lawyers to draw purchase contracts that favor the bank. And banks hire hard-nosed negotiators. Make sure you hire a real estate agent versed in dealing with REOs, an agent who will represent your interests over the bank’s .
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A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don t get caught up in a bidding war and pay over market value. It s an old myth that foreclosures are a bargain. How Banks Sell REO sEach bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in dumping real estate cheaply.
Generally, banks have an entire department set up to manage their Scottsdale Bank Owned inventory.Once you make an offer to purchase, banks generally present a counter-offer . It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer. Your offer and counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like subject to corporate approval with 5 days. Property ConditionBanks always want to sell a property in as-is condition. Most will provide a Section 1 pest certificate, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.Even though you agreed to as is , always give the bank another opportunity to make repairs or give you a credit after you ve completed your inspections.
Sometimes they ll re-negotiate to save the transaction instead of putting the property back on the market, but don t take it for granted.Banks do not want to see a lot of proprietary disclosures; they are exempt from the California s Sellers Transfer Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank, those agents are required to provide you their disclosure statements.
Most banks will not provide financing on their REO s but it doesn t hurt to ask. Especially if the property has extensive damage and you are purchasing it as is . Making an OfferBefore making an offer, have your agent contact the listing agent and ask the following Are there any inspection reports? What work has the bank agreed to? Is there a special as-is form? How long does it take the bank to accept an offer? How does your agent deliver the offer?Offers are usually FAXED to the bank. The listing agent needs your originals. There is no formal presentation. Keep in mind: nothing happens evenings and weekends (banks are closed).Since there is no face-to-face presentation to the bank, provide the listing agent with pre-qualification, or better yet a pre-approval letter and your buyer biography.
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Finding and filing properties
Develop a system to keep track of properties that interest you. A good tracking system is important as most foreclosure buyers pursue many properties, sometimes over a period of several months.
After you find a property online, it’s a good idea to drive by the property to get a better idea of the property’s condition and the type of neighborhood. Some buyers and investors who have driven by the property have found notices posted there that provide more information about the bank who now owns the property. You’ll also see if the property is listed with a real estate agent.
Researching the potential bargain
When you find a property that interests you, perform some preliminary research to make sure the property represents a good bargain opportunity. Your research should not take more than one or two days because you do not want to delay too long before contacting the foreclosing bank. The key pieces of information you need to gather are the estimated value of the property and the bank’s break-even amount.
The bank’s break-even amount includes the unpaid balance of the loan, any fees and costs incurred during the foreclosure process and any other liens the bank had to pay off to take ownership of the property. The unpaid loan balance plus any foreclosure fees and costs are included in the opening bid.
Contacting the bank
You or your real estate agent should initiate contact with the bank to express your interest in the property. Before you expend the time and effort to contact the bank, make sure you’re fully prepared to buy.
At this stage of foreclosure it’s more likely the property will be listed for sale on the Multiple Listing Service (MLS), so make sure you or your agent checks the MLS. If the property is listed for sale, you can contact the listing agent directly. Keep in mind that the potential bargain often diminishes if a listing agent is involved.
If the property is not listed with a real estate agent, you’ll need to take some pro-active steps to contact the foreclosing bank directly. The bank’s main focus is not selling property, which means you may need to do some digging to find the department or person at the bank who manages repossessed property.
When you call the foreclosing bank, you should ask for the REO (Real Estate Owned) department, Scottsdale bank owned homes department or asset management department. Be patient and persistent at this point because it may take some time to get through to this department.
If you have trouble contacting the bank by phone, another option is to overnight or fax a letter to the bank stating your interest in the property. Some buyers and investors include a check made out to a local escrow company to get the bank’s attention. This check is usually a small percentage of the total purchase price and should be refunded if no transaction takes place, but it shows you’re a serious buyer.
Getting wett with your first Scottsdale Bank Owned deal
So you’ve taken the plunge and either have been trying to make foreclosure investing work for you or you’re still on the fence and wading in the pool trying to get a feel for the waters as it were.
You feel inundated by the apparently endless supply of strategies and gobbledygook involved in foreclosure investing and in real estate in general.
One of the main factors in determining your success in foreclosures and in business in general is in the market research. Let me put it this way: you have to be able to spot and examine whether a deal is a deal or not. Now I can probably ramble for hours on all the different details, strategies, opinions, schools of thought, gurus, books, etc.
But ultimately market research is something that it highly tied into your own experience. Try to get some good books on real estate market research it as much as probable to a point (without overanalyzing) get a handle on it so that you may get involved and practice and learn and eventually you will become a master deal analyzer. It’s like riding a bike.
So that was one asset of the foreclosure investment system. Now the second huge aspect of it is in how to finance the deal in question. Are you going to pay for it out of your own pocket or are you going to try to find wealthy investors and work out a deal with them involving coownership, etc.
In this is a big topic in itself which is sometimes labeled as a creative financing. Alternately the bucks has to come from somewhere either from yourself or from others.
And lastly putting the circle in full-bloom, you’ll need to figure out your exit strategy. In other words, how are you going to profit from this property now that you have the rights to it?
Of course it’s impracticable to teach you everything about foreclosure or investment in one little article but if you were to study those three major components: market research, creative financing, and exit strategy. Then you will be well on your way to having at least having a guideline to learn and study from and build upon as you increase you’re real estate expertise.
There’s no one right way to do things, just get a good system and begin implementing it. Within a few months or a years time (depending on your determination), you will probably surprise even yourself with how masterful you’ve become with real estate foreclosure investing.
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For more information about Scottsdale Real Estate Please contact:
George Miro
RE/MAX Achievers
6424 E. Greenway Parkway
Scottsdale, AZ 85254
Office: (602)214-2675 Email: georgemiro@cox.net
Website: http://www.scottsdalerealestate-az.com
Blog: http://www.scottsdalerealestate-az.com/blog/
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