New Homes

There is nothing wrong with buying a new home, but before you walk into a builder’s sales office, you must understand what to ask for:

1.   Does the community have Mello Roos and/or Community District taxes and if so, what is the total tax rate?
2.   What are the standard upgrades vs upgrades that will increase your purchase price?
3.  What incentives are you being offered? Closing costs or for upgrades?
4.  Do you have to go with the builder's lender? 

Keep in mind that the sales person representing the builder is an employee of the builder and thus, representing the bottom line for the builder.   Mello Roos and Community District Taxes can almost double the tax rate.

 

GREAT NEWS FOR FHA LOAN LIMITS IN 2014….THE GREAT NEWS JUST CAME IN

Just this morning, the Federal Housing Finance Agency (FHFA) announced it will keep the 2014 maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac at $417,000 on one-unit properties in most areas and a cap of $625,500 in high-cost areas.

C.A.R. applauds the FHFA for keeping with the law and retaining the existing Fannie Mae and Freddie Mac conforming loan limits.  The FHFA recognizes that home prices have rebounded in California, especially in the high-cost areas, where lowering the loan limits would have reversed the housing recovery.  Retaining the higher loan limits is critical to providing liquidity in today’s housing market and is essential to a full housing recovery.

Earlier this year, the FHFA announced its intention of lowering the loan limits.  Since then, C.A.R. and the NATIONAL ASSOCIATION OF REALTORS® (NAR) aggressively fought to prevent a reduction in the loan limits.  C.A.R. and NAR both have long advocated for making higher conforming loan limits permanent, and as a result of our combined efforts, Congress made permanent the maximum conforming loan limits at $625,500.

Without the extension of the higher loan limits, many California borrowers would have a harder time obtaining financing for new home purchases and refinancing homes. 

My great experience at La Costa Film Festival!

I had the good fortune of being invited to the first ever La Costa Film Festival in Carlsbad, CA by my good friend and client, Nick DeNinno, a local video and film producer.  The red carpet was rolled-out; there were lights, music, plenty of food and drinks and of-course, special guests and the press.   The best part was to be given the opportunity to appreciate the art of filmmaking amongst friends.  

At the opening night gala, we were privileged to view the screening of “The Short Game” produced by Justin Timberlake and his lovely wife, Jessica Biel.  Attending the inaugural Film Festival in La Costa was Josh Greenbaum, the director of “TheShort Game” and with whom I had the opportunity to chat a little bit. I also had the opportunity to meet Ameri Avery, one the young ladies starring in the film and winner of the 2012 Junior Golf‘s World Championship for girls under 7.

For me, what makes a good film is not only the acting, but the stories that are told and the clever use of the camera to create suspense or to foreshadow an event.  “The Short Game” nicely reveals the stories of 8 very young children competing for Junior Golf‘s World Championship. It was amazing to learn through the film that not only are these children under seven years old, but they come from 54 different countries, different backgrounds and social status’s seeking the same goal:  to be the best of the best at such a tender age.   All eight children casted for the documentary displayed a deep passion for the game, extreme talent, the willingness to sacrifice their childhood for the game and an uncanny ability to learn through their mistakes.

The film takes you into the daily lives and homes of these families, allowing the audience to experience the families’ backgrounds, the hard work these children have to put forth and their dedication to achieving their goals.  The sacrifices they make to train and the amount of pressure each child puts on him/herself -   along with the pressure exerted on them by their parents – is unimaginable.  It was heart-breaking to see the children lose their composure during practices and throughout the Pinehurst Tournament where each of them was vying to be the winner.  The film-makers allowed the influence of the social status of each family to come through the film.   The financially wealthy lived in gorgeous mansions and stayed in luxurious resorts.   Those with lesser means appeared in their modest homes and stayed in VERY inexpensive hotels.  

As a parent of three beautiful children, I could not help to question, if the parents had too much vested interest in helping their children to perfect the game: be it for their financial benefit, for pride or was it pure love for the child?  I was delighted, however, to see that these talented and driven children were still allowed to be children.   Away from practices and tournaments, these matured seven year-olds become vivacious and silly, just as any other 7 year-old would.  

As the backgrounds of each child and his/her family are being presented, I found myself rooting for Zama Nxasana from South Africa.  He was buoyant and infectious with his laugh and his responses were priceless.  I was happy to learn that he was a awarded “most improved player” in the 2012 Junior Golf‘s World Championship.

For someone who knows nothing about Golf, I found the film to be flavorful and enlightening.   It was not only about golf but the intricacies of life.   The viewer’s emotions were powerfully evoked through the children’s behaviors and the responses of the parents.   For example, I did not like Augustin’s mother.  Augustin Valery was the seven-year old French golfer whose days in the tournament were not going as desired.  It was upsetting to see any adult - specially a MOTHER - put such insurmountable pressure on her 7 year-old son.   On the other hand, I could feel the raw emotions of Ameri Avery, the winner of the 2012 Junior Golf‘s World Championship tournament for the 7 and under, as well as the poor responses from her caddy and dad.


Ameri Avery and Soledad

Next time you hear there is a film festival in your city, try to attend. There is much to enjoy and to make it even better; the LaCosta Film Festival benefited our local Boys’ and Girls’ club.

 

 

HELPING HOMEOWNERS KEEP THEIR HOMES

 

BECAUSE WE ALL NEED A HELPING HAND!

In these times, we all know someone who is in distress for various reasons: job loss or loss of income, family sickness, high interest mortgages that are resetting or are about to reset. While most people are not comfortable discussing their financial hardships, here is some information that I believe might help someone you know.

CURRENT PROGRAM HIGHLIGTHS:
The federal government has allocated funding to help pay the mortgages of qualified homeowners who are unemployed or underemployed through no fault of their own. Troubled homeowners throughout California who want to apply for HHF financial assistance will be able to do so via this website listed below. If you are in other States, there will be programs available to you, as these are federally funded programs.

Unemployment Mortgage Assistance Program (UMA)
Mortgage assistance of up to $3,000 per month for unemployed homeowners, who are collecting or approved to receive unemployment benefits from the State of California’s Employment Development Department.

Mortgage Loan Reinstatement Payment (MLRP) Program
For eligible homeowners who have fallen behind on their mortgage payments.
Funding of up to $25,000 to help qualified homeowners catch up on their mortgage payments

For additional information (including detailed eligibility criteria) and/or to apply for these programs, visit the HHF website at http://keepyourhomecalifornia.org/programs/

While NOT all homeowners may qualify for this program, it would not hurt to navigate through the above website to explore all the available options before being forced to a short sale or a foreclosure.

In the event the above programs are not helpful, a short sale is a better option than a foreclosure; as the foreclosure is a harder hit to one’s credit worthiness. In addition, there are other government initiatives that currently make short sales much easier and attractive to homeowners. Another viable option for upside down homeowners is another goverment initiative that allows home owners to refinance their home without an appraisal, this is the HARP program.

Because of my extensive experience with distress properties, I keep up with the current legislation that helps homeownership in the challenging CA housing markets.

NOT ALL SHORT SALES ARE CREATED EQUAL

WHAT IS A SHORT SALE?
A Short Sale occurs when lenders or banks agree to allow a homeowner to sell their home for less than the home owner owes on their home loan.  This kind of a sale has to be approved by the lender any time the sale price of the home will not be enough to pay off the associated home loan.  Someone has to take a loss, and it is usually the lender/bank in the form of the approved short sale.  This is one of the options a borrower may have to avoid foreclosure of their home.

NOT ALL SHORT SALES ARE CREATED EQUAL

Simply stated, all lenders have their own set of rules to approve short sales.  The number of lien holders on a home, the type of liens on a home, the level of seller cooperation and who is negotiating the short sale on behalf of the seller all can impact whether a short sale becomes lender approved or not.  For example, many of the major banks have streamlined their procedures to efficiently approve short sales.   Wells Fargo, Chase and Bank of America take less time to process a short sale than GMAC or a smaller bank or credit union.   A home could even have three liens with three different banks; you can imagine how the stars have to align to get all three lenders to agree to take losses.

A seller has more to lose if he goes into foreclosure but completing a short sale is a personal decision.   For Buyers, however, Short Sales must also be carefully evaluated:

In Today’s market, purchasing a short sale does not necessary translate to purchasing below market value.   Banks understand that values are going up and the inventories are low with homes coming to the market with multiple offers.   With that, banks expect to sell the home at the current market value, at minimum;

• If you are willing to put an offer on a short sale, you MUST exercise patience.   A response may take from a week to 6 months, depending upon who the lenders are and how many lenders have a claim on the property;
• Keep in mind that a short sale home is a distress home and it may need some deferred maintenance issues resolved.  However, the repair issues in an occupied home many times are less severe than the repair issues with a bank owned home or a vacant home being sold a short sale;
• The Seller will generally provide seller’s disclosures outlining the history of the home, for buyer’s review during contingency periods;
• Buyer will be able to get a marketable title instead of insurable title which is usually granted when buying a bank-owned home.

PATH TO A SUCCESSFUL SHORT SALE

 

• A complete short sale package will include a listing agreement, the seller’s financial information, a hardship letter, the buyer’s offer, proof of funds from the buyer - among other documents;
• A complete short sale package must be submitted to the lender or lenders in a timely manner;
• An offer at the current fair market value will be an incentive to get the lender to approve the short sale.   Lenders will review the best exit strategy for your loan - including but not limited to foreclosure - if they feel the listing price and offer are too far below the fair market value;
• An experienced listing agent that knows how to push through the short sale is essential;
• A patient buyer who will ride out the wait for their offer to be approved is important too.

WHY DO BANKS ACCEPT SHORT SALES?

• When a home becomes vacant, lenders are required to pay higher insurance premium fees, there is more deferred maintenance and there is an increased possibility of vandalism;
• Remember, vacant homes = vandalism = lower values for the community;
• It is costly to complete foreclosures.  With a cooperating seller, lenders avoid more fees on possible eviction or damage to the property securing their loan.

 

DO SHORTSALES WORK?
Yes, they do work, but you must work with an agent that understands the intricacies of short sale transactions and the current market trends.   There are many things that need to be taken into consideration when assessing if you, as a buyer, want to put an offer on a short sale home.  For instance, your agent must find out how many lien holders there are, who the lien holders are and if there are any offers in the works.  Is the property going to be taken off of the market while the bank decides if the sellers accept you offer?  Is the listing agent well versed in Short Sales? Is the seller really looking to complete the short sale or just stalling the inevitable: Foreclosure?

UNDERSTANDING THE HARP PROGRAM

What is the HARP program? If you are current on your mortgage payment but upside down on your home, you should at least read my blog. 

HARP is short for Home Affordable Refinance Program and it is federal government program that aims to help responsible underwater home owners to refinance their current mortgage, even if the current market value of your home is lower than what you owe on the mortgage loan.   How does this help you?

1. If you have a high risk loan, such as a 5 Year Adjustable or Interest Only loan, HARP will allow you to convert your mortgage to a fixed-rate mortgage.
2. Themortgage payment is reduced to a much lower interest rate; thereby, lowering your payments AND the total you will pay while you have the loan.

For example, if your current mortgage payment is based on 5.5% but you could lower the interest rate to 4% your payment would change by about 263.00.  See the illustration below – this is only an estimate and your lender will be able to calculate your savings based on your credit worthiness, income, assets, and liabilities

HARP Program Requirements

• Your home mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac;
• you must be current on your mortgage, and cannot have made a payment more than 30 days late in the past year;
• You must have negative home equity (you owe more on your mortgage than your home is worth) and do not have a limit to how much you are underwater
• Refinancing must help the affordability or stability of your mortgage;
• You must have the ability to continue making payments;
• Mortgages owned or guaranteed by the FHA, VA, or USDA are not eligible for HARP.
• Your property must be 1-4 units;
• Your property can be a primary residence, second home or investment property.Your property can be a primary residence, second home or investment property

Why is the government doing this? HARP prevents further housing meltdown while rewarding responsible home owners who are upside down in the homes and who have low “teaser” rates.  This program stabilizes mortgages by converting high risk homeowners into more stable situations.  This benefits entire communities.  Most participant lenders do not charge origination fees. For more information visit:

https://www.fanniemae.com/content/faq/harp-du-refi-plus-faqs.pdf

Disclaimer: The interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible for Federal income tax purposes: and the consumer should consult a tax adviser for further information regarding the deductibility of interest and charges.

HAPPY FRIDAY!
How is the market in Central Florida? Here are some numbers for you to think about...

From May 28th, 2009-Present, there were nearly 30,000 homes sold in Central Florida . This number includes sales in Seminole, Orange , Osceola and Polk counties for single family homes under $500,000. 43% of the sales were bank-owned properties and 20% short sales.

Currently, we have 15,000 homes listed for sale in Central Florida. 42% of the active listings are bank owned and 30% are short sales. Of the 10,000 properties currently pending (under contract) 60% are short sale properties and 20% are bank-owned.

Short sales tend to stay pending for a while due to the length of time required to obtain third party approvals.

For more specific numbers or information, please contact the Reaves Team Orlando and will be happy to drill down these numbers.

The numbers are originated from Multiple Listing Service (MLS) for Central Florida.

WHAT IS A SHORT SALE?

A Short Sale occurs when lenders agree to allow a homeowner to sell their home for less than the home owner owes on their home loan. This kind of a sale has to be approved by the lender any time the sale of a home will not be able to pay off the associated home loan from the sale. Someone has to take a loss, and it is usually the bank; in the form of the approved short sale. It is one of the options a borrower may have to avoid foreclosure of their home.

The seller is still the owner of the property in question; however, in order to transfer title to potential purchaser, the lender must release the lien on its collateral to the loan given to the borrower, which is the house.
Not all lenders will accept short sales or discounted payoffs, especially if they believe they will get more money from foreclosing and selling the home themselves.
Not all sellers or all properties qualify for short sales.

Why A Short Sale:

For Buyers:
Prices might be lower than with a bank owned property becuase the competition on short sale homes is less than with a bank owned;
While the home may need some deferred maintenance issues resolved, the repair issues in an occupied home many times are less severe as the repair issues with a bank owned home;
Seller will provide seller’s disclosures outlining the history of the home;
The buyer will be able to take possession of the home on the same date that they close;
The closing will be handled by a title company and the buyer will be able to get marketable title instead of insurable title.

Do Short sales work?
Yes, they do work but you must work with an agent that understands the intricacies of short sales transactions. There are many things that need to be taken into consideration when assessing if you as a buyer want to put an offer on a short sale home. For instance, your agent must find out how many lien holders there are, who the lien holders are, are there any offers in the works, is the property going to go be taken off of the market while the bank decides if the sellers accepts the offer? Etc.

For Sellers:
Short sales appear on your credit report as "pre-foreclosure in redemption", not as "debt discharged due to foreclosure"
A short sale can help homeowners avoided further collection activity or a foreclosure action;
Sellers can help maintain property values by ensuring that the listing agents are doing their homework with the listing price;
Sellers that remain in their home help decrease vacant homes in the neighborhood which attracts vandalism and subsequently decline in values;
There is a new law that comes into effect April 4th, 2010; where seller might qualify for 1500.00 relocation fees under the HAFA PROGRAM.

On the sale side, a good listing agent will list the property at a reasonable price; otherwise, the bank that has a lien against the property will not approve the sale price in the short sale. The property must be heavily marketed and once an offer is received the listing agent must submit a “short sale package” to the lien holder as soon as possible. This package is quite extensive, but is necessary if the lender is going to agree to take a substantial loss on a short sale. Sellers must consult with a CPA for possible tax ramifications.

President Obama Signs Into Law New Tax Credit for Current Home Owners and Extension of New Home Buyer Tax Credit

President Obama just signed a bill TODAY to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010 and includes a new tax credit for people who already own a home. Following is an overview of the law. If you or anyone you know has questions, please have them contact me.

TAX CREDIT OVERVIEW

Who Gets What?
First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000. Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years. Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of the credit has been increased. Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap and up to $145,000 can receive a partial credit. Single filers who earn $145,000 and above are ineligible Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap and up to $245,000 can receive a partial credit. Joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of $800,000.

What is a Tax Credit?
A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

Who is Eligible fort FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible. This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as a principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.

Above Information obtained from The Mortgage Market Guide.

CREDITO PARA PRIMER COMPRADOR DE CASA

No hay muchas personas que saben o entiende que el congreso enacto un credito para el primer comprador the vivienda...

Este credito es para primeros compradores de casa o personas que no han tenido una casa en los tres ultimos anos;
Este credito no deber ser repagado a el govierno;
El credito es el 10% de la compra de la casa sin exceder $8000;
Este credito is para las casas compradas de Enero 1st a Diciembre 31st 2009;

Para oir mas en espanol, visite la link the IRS Credito para el primer comprador the vivienda

The First Time Home Buyer Credit for 2009

Not many people are aware or understand that Congress enacted a bigger and better Home Buyer Tax Credit.

A tax credit of up to $8,000 is now available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. Unlike the tax credit enacted in 2008, the new credit does not have to be repaid.
The tax credit is for first-time home buyers only.
The tax credit does not have to be repaid.
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
For those homes purchased between January 1st and April, 2009, buyers may use the tax credit in their 2008 tax filing. If a buyer has already filed their tax they may amend the 2008 taxes if they want the benefit today.

For more details on this benefit, you may call Soledad or Eric Reaves.

Are Real Estate Auctions good for me?

Are Real Estate Auctions good for me? That is a question that is often raised by our clients and our answer is they can be if you have the stomach for it. We can find SCREAMING deals through these auctions; however, there are a number of things that have to be considered:

Most auction companies have similar terms to the ones outlined below:

For instance, Hudson & Marshall will require the greater of 5% of the purchase price or $2,500.00 as Good-Faith-Deposit if you are the successful bidder. They also require that you bring a minimum of $2,500 in the form of Certified Funds or Cash, just to bid in the auction. Another auction company, REDC, will require the greater of 5% of the purchase price or $5,000.00 as Good-Faith-Deposit if you are the successful bidder on your first property and the greater of 15% of the purchase price or $10,000.00 as Good-Faith-Deposit if you are the successful bidder on any property after the first one.

The purchase of auctioned homes are treated as cash transactions which means that the purchase is not contingent on loan approval. If you are not be able to obtain financing after being the successful bidder, then you forfeit all of your good faith deposit.

Homes purchased at auction are purchased in an “As Is-Where Is” condition. This means two things: What you see is what you get AND Buyer Beware. This criteria is not because the seller is trying to hide anything, it’s only because these properties were acquired through a foreclosure action and the seller (usually the bank) does not have any knowledge of the condition of the property.

To protect itself and its agents, the bank will utilize its own contract where it outlines, over and over again, that the seller and its agents cannot make any warranties or representations about the condition, title, location, or anything else associated with the property.

Once you have bid, you waive the right to cancel the transaction based on any condition of the property. So if you desire to bid on a particular property, it is highly recommended that you do a personal inspection of the property prior to making bid on line or at the live the auction. Once you are the successful bidder, the good-faith-deposit is not refundable on the basis of the condition of the property.

The seller will choose the closing agent and will pay for the title policy.

The total price paid for a home at auction is the high bid amount PLUS a buyer’s premium fee of 5%. In other words, if your highest bid is $146,000, you must add 5% of $146,000 to the total purchase price making your total purchase price $153,300. That 5% is the fee collected by most auctioneers and it stays with them.

Any commissions for a purchase at auction are paid by the seller and it does not affect your bid. That just means that if a buyer does not have representation, the bank, will get more than it budgeted for.

Most auctioned properties are sold under a RESERVED AUCTION procedure. The bank provides an UNPUBLISHED minimum bid that it will accept for each property ahead of the auction. During the bidding, if the current bid meets the reserve price, the auctioneer will cry out: “this property is now an absolute sale”. This lets everyone know that if they bid from that point on, the final bidder has an automatically seller approved price. Unless the auctioneer declares that the reserve has been met in this fashion, ALL other winning bidders have to wait for the seller to give their approval for the sale at the top bid price. This approval can take 10 minutes if a bank representative is at the auction, or up to a week if the selling bank is not at the auction. Therefore, the officers of the bank must review the highest bid and determine if they want to accept it, reject it or offer a counter-offer to the highest bidder.

To gain access to the properties, it is much easier to work with a buyer’s agent who can easily arrange the viewing of the properties. If you do not feel comfortable having representation, then, you must wait for the open houses that will be held by the auctioneers...

DO YOU NEED A REAL ESTATE AGENT TO BUY PROPERTIES AT AUCTION?
Although is not required to retain the services of an real estate agent to buy properties at auction, it is highly recommended because of the additional risks in buying at auction. A good agent will help you consider all aspects of buying at auction, provide you with updated pricing information and give you pointers on auction behavior. Your buyer’s agent can also give you access to homes you want to bid on at your convenience, not only during specific open house hours.

After you succeed at being the high bidder, your agent will know how to navigate through the process to make the transaction as smooth as possible. But buying ANY bank-owned property takes patience! The sellers are large companies that are not emotionally involved in selling the homes.

Buying a home is stressful as it is, but if you take it on your own, the stress can be exponentially multiplied. With professional guidance, you will get a great deal, approach home auctions like a pro and buy a home that really fits what you want.

Should I buy an REO Property?

SHOULD YOU BUY A BANK-OWNED HOME?

Before you set out to find the perfect bank owned property, there are some things that Eric and Soledad would like you to know based on their inside experience:

• The bank is the only seller on a bank-owned (also known as foreclosure) property; the old owner is out of the picture.
• Bank acquired title to the property through a foreclosure action; thus, they depend on local agents to secure the property and to market them at the fair market value;
• Seller will transfer the title to the property free and clear of all liens and will issue “insurable title vs. marketable title”
• The seller will select the closing agent, but will pay for the title company as customary per local customs (there are few exceptions);
• Banks will not make repairs to the property.  The property is sold in its “AS IS” condition.  However, buyer has the right to inspect the property and determine if buying a particular bank-owned home makes financial sense.

Banks do not want to own Real Estate because they only lose money while they own real estate. Banks make money by lending out their money.  The bank looks at a foreclosure property as “stuck cash”; money that they cannot use for their main function until the property is sold and the new buyer gives the bank cash for the property.

By the time the foreclosure action has been completed, the banks costs include any or all of the following:

• attorney fees for the foreclosure;
• the delinquent property taxes and all the penalties attached to the taxes;
• the cost to place hazard insurance on the property to protect them against any damage to the property while they own it;
• association dues likely are delinquent;
• city liens for city ordinance violations might have also been attached;
• and to top it all, the price that the home can be sold for today is much less than the amount of the loan the bank gave to the previous owner.   

Every month that a bank holds a property in their name, costs the bank more money in maintenance fees and insurance.  When Soledad worked for GMAC, she sometimes reviewed foreclosure expenses that were over $20,000 for just one property!  To minimize their losses, banks market their properties at the lowest prices in the area to sell fast and free up their cash.

How Do You Know IF Buying a Bank-owned property is right for you?

Of course, everyone thinks that buying a bank-owned property is right for them initially because they know that the prices on bank properties are the lowest of the low. But before you go stampeding toward bank properties, ask yourself a few questions:

Are you willing to take the property in its current condition?

Contracts for bank properties are clearly outlined as buying as-Is, Where Is.  This means that the price you negotiate is your agreement that you will take the property in its current physical state.  Now, you do have the opportunity to have the property inspected by a professional after you are under contract, but before you close.  If you find something in the inspection that you did not know when you negotiated the contract, you may cancel the contract (within the allotted time) and get your deposit back.

How much repair work and cosmetic upgrading are you willing to make after you buy?

Typically the uglier the colors, the dirtier the grout and the smellier the carpet, the better deal you are going to get on a bank-owned home.  Everyone has their own threshold for filth.  Knowing your limits in this area and conveying your preferences to Eric and Soledad will help immensely in focusing only on properties that you might consider buying.  There is a lot of JUNK out there and there is no need to see it unless it’s the kind of junk you would want to turn into something nice.

If the property is a fixer-upper, do you have cash or have you lined up a rehabilitation loan to buy the property?

To get a regular loan on a property, the property must be inhabitable.  The definition of inhabitable are slightly different for an FHA loan and a conventional loan, but in general, the property must be free of all wood-destroying pests, all floors must have floor covering, appliances must be in place, the roof must keep rain off of the inside and electrical and plumbing must work.  If the property is not inhabitable by your lender’s definition, you will not be able to get your loan approved until you find another property that does fit your lender’s definition of inhabitable.