Foreclosures

Foreclosure Investing 101 – Foreclosure Auction – Part 3 of 8

Why Foreclosures Sell for Less Than Market Value:

In real estate, you hear the term "market value" quite a bit when discussing properties.  Everyone seems to know what market value means,  Most would say "it is the price that a given asset or property would fetch in the marketplace." and they would be correct. 

But you cannot stop there.. 

Market Value is the price that a given asset or property would fetch in the marketplace, subject tot the following conditions:

1. Prospective buyers and sellers are reasonably knowledgeable about the asset; they are behaving in their own best interests and are free of undue pressure to trade.
2. A reasonable time period is given for the transaction to be completed.

Given these conditions, an asset’s fair market value should represent an accurate valuation or assessment of its worth.

The foreclosure process and resulting auction do not come close to meeting the above criteria of a market value transaction. In fact, they are structured in a way as to virtually guarantee the lowest possible sale price. The following table will help illustrate my point:

Many investors would look at that and say "no thanks". "Too risky, and where would I come up with all that cash anyway." It is that attitude which explains why there are so many deals to be had at the auction. 

But what about the risks?

Granted, there are risks associated with purchasing property at the auction. But you can overcome the risks of bidding!  At Real Estate Investment Firm we have worked tirelessly to help open up the foreclosure market to the average investor. By providing our clients with detailed property status tracking, property research, title analysis and insurance, value assessment, auction bid calculator, access to foreclosure financing and much more we have helped our clients minimize the risks while maximizing their profit.

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Foreclosure Investing 101 – Pre-Foreclosure & Short Sale Investing – Part 2 of 8

One of the most popular ways you can buy a foreclosure property is in the Pre-foreclosure stage.  Buying properties in pre-foreclosure can be a very profitable segment of a real estate entrepreneur’s business!

The foreclosure process allows the lender to foreclose on any liens or encumbrances in order to take the property and become the legal owner of record, thus allowing the lender to resell the property and recover the original loan amount plus expenses associated with the foreclosure. The foreclosure process can be lengthy, but up until the public auction, the homeowner owns the property and has several options available.

It’s important to realize when talking about pre-foreclosures, we are talking about acquiring the property any time before the public auction sale.

Many people have the misconception that people buying homes in foreclosure are taking advantage of another person’s misfortune. This is simply not true. The lender made a loan in good faith and the borrower agreed to repay the loan. If the borrower does not make the required payments they have broken the agreement and the lender must protect their financial interests and may foreclose on the property as agreed to by all parties when the loan was originally made. Anytime there is a foreclosure, the borrower has broken the terms of the agreement and your involvement solves a problem the homeowner created.

When facing foreclosure, many homeowners bury their heads in the sand hoping it will just go away. No action by the owner ensures a foreclosure, losing the house, a severely damaged credit profile, and a loss of all equity in the home. When dealing with an owner in pre-foreclosure it is important to explain the benefits of avoiding foreclosure if possible:

1.   Protecting Their Credit Profile. Many times a person in foreclosure is overwhelmed with life-changing events happening and has multiple financial challenges. By working with an investor, it may be possible to stop the foreclosure and start rebuilding their credit profile or prevent their credit profile from getting worse. The foreclosure will come to pass, but in today’s credit-conscious society, a credit rating affects everything from buying a car to getting property insurance.

2.   Protect Equity. When a home is foreclosed all of the equity is lost. By working with an investor it may be possible to recover some of the equity and prevent the foreclosure.

3.   Rebuilding Their Life. The pressure and strain of a foreclosure affects all areas of a person’s life. Under such pressure it is not uncommon for people to become depressed, be unkind to loved ones, or make poor personal and business decisions. Stopping the foreclosure allows a person to remove an albatross from their neck and move on with life.

For the real estate investor there are many ways to financially profit and it can be a great feeling to help people move on with their lives. If not for investors, lenders would foreclose on most properties and the homeowners would lose all equity and have a foreclosure on their records. Investors provide the vital role of helping homeowners salvage some equity, can often help the homeowner’s credit, and help people start rebuilding their lives.

In order for an investor to be involved, there must be a profit, or there is no reason to be involved in the first place. When working with sellers, we let them know up front we expect to make a profit, and for us to make a profit we need to be able to stop the foreclosure.  By being direct, the seller understands our incentive and motivation and this helps establish trust and rapport. When dealing with pre-foreclosures there are three main ways to profit:

1.   Purchase Property From a Seller At A Discount. Many times, a seller is willing to sell the property well below market value because they recognize it is better to cut their losses and move on instead of hanging on and going down with the ship. If the seller has enough equity, we can structure a purchase where they receive cash at closing, the balance of their equity in payments, or a balloon payment due at a later date.

This can be a good option for sellers with enough equity. Unfortunately, in today’s society the majority of sellers owe close to the value of the property and when an we take into account acquisition costs, sales costs, holding costs, and repairs there is not enough equity in the property for an investor to make a profit.

2. Take Over The Loan And Make Up Back Payments. When a seller is in foreclosure it is possible to buy the house from the seller, take over the loan, and make up the back payments. The advantages for the seller are the foreclosure is stopped and the property is sold to an investor that will make the payments. A drawback for the seller is the loan remains in their name until paid off by the investor or a third party at a later date.

The process of buying a home and taking over a loan in another person’s name is commonly referred to as buying a property “subject to.” In such a transaction, the title of the property transfers to the new owner, but the loan remains in the seller’s name. Lending institutions frown on buying properties “subject to” and include a due on sale clause stating the lender can call the loan due upon a transfer of title. In practice, lenders rarely enforce a due on sale clause and are more interested in receiving timely payments then enforcing calling the loan due. Selling “subject to” is not without risks to the seller since the loan remains in their name and if payments are not made their credit can be affected at a later date. The benefits for the investor are acquiring a property with little money out-of-pocket, no loan costs or appraisal fees, and their credit is not affected or put at risk by the loan they are taking “subject to.” This is a powerful investing strategy unknown to most investors and one that should be used by ethical individuals. Like many powerful tools, it has the ability to be used for good or bad depending on the individual. When purchasing “subject to” there are documents that must be signed for the protection and understanding of all involved.

In today’s marketplace, where many borrowers with less than perfect credit bought there homes using sub-prime financing, there is less of an opportunity for the investor to buy properties “subject-to”.  Many homeowners have high loan-to-value ARM loans with high interest rates that make it unattractive for an investor to consider taking over the payments.

3. Discount The Loan(s) From The Lenders. Commonly referred to as a “Short Sale” this is nothing more than negotiating with the lenders to accept an amount less than they are currently owed. A fair question is why would lenders discount their loans? There are a couple of reasons. 1) Lenders do not want to own properties. If a borrower does not pay the loan, a lender’s recourse is to foreclose on the property and if the property is not bought at public auction they become the new owner of the property. Lenders are in the business of loaning money and when a loan is not being paid, it is considered a non-performing asset and affects their lending ratios. Also, as owner of the property, the bank is responsible for property taxes, insurance, association fees, Realtor commissions, and closing costs. 2) Cash now is better than cash later. Many times a bank would prefer the certainty of accepting a discount instead of the unknown holding costs, liability, and unknown sales price at a future date. The bank understands that a discounted offer today could net them more than a higher offer at a later date when considering the closing costs, Realtor fees, and lost opportunities of lending money based on their ratios.

While banks and lenders do have motivation to consider a short sale, successfully negotiating a short sale, often with multiple lenders on the same property, can be a complex and very time consuming endeavor. Experience is key to negotiating a successful short sale.

Weekly Foreclosure Auction Re-Cap

Last Friday’s (11-09-2007) auction featured several fantastic deals. I had selected 11 properties last Thursday for my weekly “hot sheet”. Here is a re-cap of what happened to those 11 properties. 

7 properties were postponed. Five were postponed to a date in December and two were postponed to dates later this month.

1 property reverted to the lender. 

3 properties were sold to a third party.  Below are pictures of those houses and how much they sold for.

If you are interested in purchasing properties at the foreclosure auction then visit Real Estate Investment Firm and click the link for investor register.

Foreclosure auction

Foreclosure Filings Skyrocket 100% in Third Quarter

The third quarter of 2007 saw a dramatic jump in the number of foreclosure filings when compared to the same quarter last year.  According to RealtyTrac, the number of properties entering foreclosure spiked almost 100% during the last quarter and increased 30% from last quarter.

All indications point to a continuation of this trend as well.  In March 2008, the highest level ever of sub prime ARM mortgages are scheduled to re-set which will increase mortgage payments for hundreds of thousands of homeowners.  Many can expect to see there payments increase as much as 25%.  If the homeowner cannot refinance to a more conventional loan product, many will not be able to make the new, higher payment and thus continue the cycle of foreclosure.

Foreclosure,mortgage default

Distressed Property Owners Stop Foreclosure Now!

stop foreclosure

If you are a home owner facing foreclosure, you have probably lost sleep at night wondering what, if any, options are available to you. Some homeowners adopt the unfortunate “ostrich syndrome” and bury their head in the sand.  When they do finally decide to take action, many times they find out that their options have been drastically reduced as the clock continued to tick. If you are facing a foreclosure, you do have options available to you, however you must take action immediately!

The sooner you decide to take action, the more options you will have available to avoid foreclosure.  So, what are the possible solutions to stop foreclosure?

1.  Forbearance:  A payment plan is worked out with the lender where the amount you owe is paid back over a period of several months. In order to qualify for this option you will have to be able to show the lender that you are now in a position to make the monthly payments.  Remember, your payment will likely be more than your current monthly payment and many lenders will usually require a substantial down payment before agreeing to a forbearance.

2.  Loan Modification: This option actually changes the terms of your loan.  This could mean a lower interest rate and/or extending the term of your loan resulting in lower payments. Each lender is unique in how they handle requests for loan modifications. You should seek expert professional help to assist and advise you regarding this option.

3.  Refinance existing loan: This option is usually quite difficult qualify for.  Most homeowners in foreclosure are anywhere from 3-6 months behind on their payments making it extremely difficult to qualify for a new loan. If they are able to qualify, the interest rate is very high leading to a more expensive mortgage payment than before.

4.  Deed in lieu of foreclosure: In this option the homeowner signs a deed giving up all rights to the property and the property is conveyed to the lender. This will not save your home but is less damaging to your credit and is an alternative to going through the entire foreclosure process.

5.  Sell the home: For many, this may be the best option if you can no longer make the mortgage payments. Remember, time is not on your side.  The foreclosure process does not stop when you decide to list your home for sale.  If you choose this option make sure you seek the help of a qualified real estate agent who understands your situation and time constraints.  If your home ends up sitting on the market and does not sell for several weeks or months, you may end up losing any equity you had in the property and the lender will proceed with the foreclosure sale.

6.  Short Sale:  If you owe more than what you could sell the house for then you may be able to negotiate a short sale with the lender.  This is when your existing lender(s) agree to accept less than the total amount owed to them.  A qualified buyer is required before the lender will agree to a short sale.  Negotiating a short sale is a complex process that requires in-depth knowledge of the forms and documentation the lender will require.  At Real Estate Investment Firm we have the experience and knowledge to help you through this process.

7.  Bankruptcy:  Bankruptcy should only be used as a last resort and after a consultation with a qualified attorney.  Remember, bankruptcy usually only delays a foreclosure proceeding, it does not stop it.  This is also the most damaging to your credit.

The key for any homeowner facing foreclosure is to act immediately. You do have options available to you but only if you act now.  Contact the professionals at Real Estate investment Firm today to discuss your situation and the options you have available.

Is Foreclosure Auction Investing Right for You?

If your a real estate investor or property flipper and are wondering how you can still make a substantial profit in today’s softening real estate market you should consider purchasing your next property at the foreclosure auction.  The dramatic rise in defaults and foreclosures nationwide and the general downturn in the real estate market have created a “perfect storm” for real estate investors to make substantial profits by purchasing distressed homes at the foreclosure auction.  Every week a small group of savvy investors throughout King, Pierce and Snohomish Counties are routinely buying these properties for 25-40% off market value. 

For most investors, however, the foreclosure process can prove daunting. Excellent buys are available, but they require research, preparation, patience and persistence.  Without the right experience and specialized local knowledge the process of finding and evaluating properties, bidding at auction and funding the purchase can be intimidating and costly.  There is an awful lot of information to know in order to avoid the potential problems and pitfalls one can run into when buying foreclosures.  It is extremely important for an investor to get up-to-date auction information and act on it as quickly as possible.  A solid tracking system must also be in place since the chances are an investor will be evaluating and pursuing several properties at once often over a period of several months.

 Some of the important items every investor needs to consider when evaluating properties are 

1.  What is the market value?  What can I turn around and sell the home for?
2. What is the condition of title?  Are there unpaid liens and judgments you may become responsible for paying?
3. What is the condition of the property?
4. What should my maximum bid price be?

With the proper knowledge and the right team and resources on their side an investor can greatly reduce the risk inherent in purchasing foreclosed homes at the auction and reap the rewards time and time again.

Large Profits Can Be Made Buying Foreclosure Property at the Auction

With the dramatic rise in foreclosures over the past year and no end in site to this trend, savvy real estate investors have an opportunity to realize substantial profit from buying property at the foreclosure auctions. Take the following example from last Friday’s King County, Washington auction.

This home, on Beach Drive in West Seattle, has spectacular views of the Puget Sound. The current market value of this home is between $810,000-$840,000.  You could have purchased this home, last Friday, for $623,311.00.  That amounts to an immediate gain in equity of between $186,000 – $216,000. 

That is just one example of many of the kind of deals you can get when you purchase at the auctions.  This type of investing is not for the novice or faint of heart, but the rewards can be tremendous.

Matt Steel is RISMedia’s Bellevue WA Real Estate News Author

Matt Steel, the founder of Real Estate Investment Firm, is the new RISMedia Local News author / sponsor for the city of Bellevue Washington. He’ll be writing about local real estate news in Bellevue and covering everything from market tips to real estate investment advice. You can view and read his RISMedia local area here.

Matt Steel and his team of real estate agents are foreclosure and distressed property experts. They work with both owners and sellers of distressed properties in the Bellevue Washington area. . Matt has helped a countless number of sellers, who through various reasons such as foreclosure, divorce, job relocation, layoff, or bad tenants need to sell their homes quickly.

Find the Value of Your Home of Your Distressed Bellevue WA Home

If you have a distressed or home or property in Bellevue WA or King County I (Matt Steel) can help price and put your property or home on the market for a quick sale. If you need to find out the value of your home go to my “Your Home Value” page and submit a CMA request. I will research the value of your home or property for you. This is a free service provided by Matt Steel of Real Estate Investment Firm.