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Pre-foreclosures; Getting There
First
Can Reap Rewards
By Elaine Zimmermann
Buying a foreclosure can be a lucrative investment.
Finding a foreclosure before anyone else or a “pre-foreclosure” allowing you to
be the only person negotiating with a motivated seller, can give you an additional
advantage.
Understanding the foreclosure the process gives
you some insight into locating foreclosures at their earliest stages.
The Federal government forecloses on hundreds of
thousands of homes each year that have been financed through several of its funding
source: Veterans Administration (VA), Housing and Urban Development (HUD), FANNIE
MAE and Federal Depository Insurance Corporation (FDIC). These homes can make lucrative
investments and there are many special programs to allow purchasers to buy these
homes with little or no down payment and many have repair allowances.
Once the homes are taken back by these federal agencies they appear on the
http://www.foreclosuresus.com database.
Banks and financial institutions take back homes
that they have loaned funds against. They refer to the properties
they retrieve as REO’s or real estate owned. Within larger banks,
they are REO departments solely devoted to the resale of these properties.
Banks supply their REO listings to the foreclosuresus.com database.
Most contain the bank’s name and the contact person’s name and phone
number.
New homes can also appear on bank REO lists.
Builders who build “spec” homes, homes not presold but built “speculatively”,
finance the construction through banks. Sometimes when a builder
has several homes that have remained unsold for an extended period of time, the
bank will take back the homes. These homes will also appear within the bank’s REO
listings.
Extra Effort Can Reap Big Rewards
In some cases and with some additional effort, you
can find these homes prior to going into foreclosure or pre-foreclosures.
In the case of bank REO’s, when reviewing the list of banks and their contacts
become familiar with local contacts of REO departments at banks in your city.
As you become acquainted with these contacts, you can tell them the type
of home you are looking for and the area. If you check back
on a regular basis, you may obtain information on homes prior to it being added
to the public database.
When you review the database further, you will notice
that many smaller banks do not include their REO listings. They may have too few
foreclosures to have a REO department. You should contact these
institutions directly and ask who is the person designated to dispose of these properties.
Again, your effort may reap you information about properties that are
not in any public database.
Another source for finding properties prior to foreclosure
is real estate agents. When you have decided on an area where you wish to purchase
a home for yourself or as an investment, you should contact an agent familiar with
the area. Many times real estate agents have clients who need to sell quickly.
As you become familiar with an area, you may notice
homes that appear to be vacant without any “for sale” sign. You
can obtain the phone number for the address from a reverse directory.
Many times, when people leave a home they forward their calls to a cell phone or
other number. You may reach an owner ready to sell quickly.
Your local newspaper can be another source of pre-foreclosures.
Check for “For Sale By Owners” and “Homes For Rent”. Sometimes
these are the last efforts of homeowners who are struggling, but cannot afford to
sell their home through a real estate agent.
You can also use your newspaper proactively to find
pre-foreclosures. When you have identified the area in which
you wish to purchase, place an ad in that section. If you wish to obtain investment
property your ad will be “Will Buy Your Home, You Stay in Your Home and your phone
number”. In this case you purchase the home from the seller and
then either lease or lease/purchase it back to them. If you
wish to purchase the home without tenants, you can run a similar ad without the
option of the seller remaining in their home.
Finally, public court documents give you information
about homes 30-180 days from foreclosure, pre-foreclosures. In
every state, a legal notice must be filed before a foreclosure can be finalized.
The length of time between the initial legal action and the final resolution
varies nationwide, but the procedure is the same. In most states, a “forcible detainer”
is filed. It may indicate the property address, name of the homeowner
and amount owed. This action is filed prior to the actual foreclosure
and gives you enough information to contact the homeowner directly.
In many states, forcible detainers are also used to evict apartment dwellers, so
you must check the address of the property to determine if it is a home or an apartment.
Buying a foreclosure or a pre-foreclosure from a motivated
seller can be a good investment for you and in the case of pre-foreclosure a good
solution for someone else.
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Investing in Foreclosed Real
Estate
for a Higher Return
By Elaine Zimmermann
With savings interest rates at a 30-year low and the stock
market looking too perilous for small investors, many people are putting money in
an asset they understand -- real estate.
One of the best places to invest is in foreclosure and bargain
residential real estate.
The current market conditions make it a perfect time for
a small investor to purchase one or more foreclosure properties for their private
residence, rental or resale. In this difficult economy, more upscale homes are going
into foreclosure, so the notion that foreclosure homes are only available in crime-ridden
areas is inaccurate. Beachfront and homes in affluent areas are part of the mix
of foreclosed properties available.
Homes valued at $200,000 to $400,000 regularly appear in
the national listings that can be found on http://www.foreclosuresus.com.
The availability of more desirable properties combined with the reduced interest
rates allow many people to qualify for the mortgages on these homes.
Last year, one man purchased a Florida ocean-view, four-bedroom
townhouse in foreclosure for about $100,000. He renovated the home in his spare
time, spending about $12,000 for materials, cabinets and fixtures to bring it up
to "like new" condition. He recently sold it for $197,000, giving him an $85,000
before-tax profit.
He also purchased an inland foreclosure property that after
renovation has also doubled in value. He decided to rent the second one. The inland
property's rent exceeds the monthly mortgage note and expenses by about $500 a month,
giving him $6,000 annual income from the property.
Many owners of homes that go into foreclosure have been
struggling financially for almost a year before they give up, which usually means
that the house has not received needed repairs or general maintenance for a while.
This may include everything from light bulbs not being replaced
to roofs leaks not being repaired. Tree limbs in front yards, broken appliances
and windows and dirty carpets, floors and walls are found in very affluent-area
foreclosures.
The first rule of real estate, "location, location, location,"
applies in these situations. If there is trash in every room of the house, but the
foreclosure is in a good area with high property resale values, hold your nose,
walk through the entire house and consider making a low offer.
Hidden foreclosures
Not all foreclosures are previously owned
homes. Some foreclosed homes are new. These homes are not as easy to identify and
rarely appear on national lists.
The slow economy has left many builders of new mid-scale
and upscale homes without a market to purchase them. With thousands of homes for
sale in every city, some builders have reached the end of their construction-loan
periods without finding buyers for their homes.
In these cases, the banks that issued the construction loans
take possession of the homes and attempt to sell them, using real estate agents
to handle the deals.
These too are foreclosures. They are "hidden" foreclosures
because no one associated with the sale of these properties will refer to them as
foreclosed homes.
In some cities, competition is fierce; in other cities it
is nonexistent. In Mesquite, Texas and Collierville, Tenn., foreclosure homes are
sold in one day to the top offer among many anxious bidders. In other cities, valuable
properties sit for days without receiving one offer.
The climate of the competition for properties is largely
dictated by the number of professional "rehabbers" in the area.
Rehabbers buy properties and renovate them quickly to resell
them for a profit in 30 to 60 days. They have contract crews that help them complete
the renovation work. They are constantly purchasing properties to keep their crews
working.
But even in cities where rehabbers are present, a foreclosure
home can be purchased. Many rehabbers had a maximum home price they'll pay that
is very low compared with the value of other homes in the neighborhood. If you are
willing to exceed their price by $3,000 to $5,000, you may obtain the home at a
very low price but slightly above what a professional pays.
If you plan to do most of the repairs yourself and not employ
a crew of subcontractors, you may have paid about the same amount for the home when
you consider your savings on outside labor.
Getting started costs less than people think. 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-percent 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 30 percent in the past 18 months, foreclosure real estate investing
may be the alternative many people are seeking.
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Preforeclosures, Short
Sales/Buying
From the Bank
By Elaine Zimmermann
Finding a foreclosure before anyone else or a “pre-foreclosure”
can be a worthwhile investment. Buying a preforeclosure from a bank as a “short
sale” can guarantee the purchaser equity on the day of closing. A “ short
sale” or “short payoff sale” is one in which the lender allows the property to be
sold for less than the exiting loan balance.
Understanding the foreclosure process gives you some insight
into locating foreclosures at their earliest stages.
The Federal government forecloses on hundreds of thousands
of homes each year that have been financed through several of its funding source:
Veterans Administration (VA), Housing and Urban Development (HUD), FANNIE MAE and
Federal Depository Insurance Corporation (FDIC). These homes can make lucrative
investments and there are many special programs to allow purchasers to buy these
homes with little or no down payment and many have repair allowances. Once
the homes are taken back by these federal agencies they appear on the
http://www.foreclosuresus.com database.
Banks and financial institutions take back homes that they
have loaned funds against. They refer to the properties they retrieve as REO’s
or real estate owned. Within larger banks, they are REO departments solely
devoted to the resale of these properties. Banks supply their REO listings
to the foreclosuresus.com database. Most contain the bank’s name and the contact
person’s name and phone number.
New homes can also appear on bank REO lists. Builders
who build “spec” homes, homes not presold but built “speculatively”, finance the
construction through banks. Sometimes when a builder has several homes that
have remained unsold for an extended period of time, the bank will take back the
homes. These homes will also appear within the bank’s REO listings.
In some cases and with some additional effort, you can find
these homes prior to going into foreclosure or pre-foreclosures. In the case
of bank REO’s, when reviewing the list of banks and their contacts become familiar
with local contacts of REO departments at banks in your city. As you become
acquainted with these contacts, you can tell them the type of home you are looking
for and the area. If you check back on a regular basis, you may obtain information
on homes prior to it being added to the public database.
When you review the database further, you will notice that
many smaller banks do not include their REO listings. They may have too few foreclosures
to have a REO department. You should contact these institutions directly and
ask who is the person designated to dispose of these properties. Again, your
effort may reap you information about properties that are not in any public database.
“Preforeclosure Short Sales” are not handled in the REO
departments of banks, but rather in the “Loan Loss Mitigation” Departments. You
can find current, nationwide preforeclosures at
http://www.ipreforeclosures.com
Bank Loan Loss Mitigation Departments
When a borrower begins to miss payments the loan is sent
to the bank’s loan loss mitigation department. Most banks also consider short
loan payoff sale requests in their loss mitigation departments.
Lenders only will approve a short sale as a last resort.
The circumstances that would lead a lender to resort a short sale for a property
are directly related to the property’s value as it relates to the amount owed to
the bank. If a property was purchased in an inflated market that has experienced
a severe downturn, the home may have decreased in value and the loan maybe “upside
down”—more is owed than it is worth. The lender may consider a short sale.
The same holds true if a property was refinanced at 100 percent plus leaving the
property without equity. Another circumstance where a bank may consider a
short sale would be in the case of a deteriorating property with would require extensive
repairs to make it marketable.
Lenders also require borrowers to show hardship before they
will approve a short sale.
These can include financial hardship bought on by: catastrophic illness, death or
divorce of a spouse, employment loss or incarceration of the borrower or borrower
financial insolvency without any realistic chance of improving in the near future.
Cash Only
A short sale is always a “cash only” sale, which will keep
many investors away. Also, it is an “arm’s length sale”, meaning you cannot
purchase a home of a relative. If you do you are open to a lawsuit and the
sale being reversed.
Buying a foreclosure or a pre-foreclosure from a motivated
seller can be a good investment for you and in the case of pre-foreclosure a good
solution for someone else. A “short sale” is one way to purchase a home with
guaranteed equity to the investor.
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Foreclosure Tips & Traps
By Elaine Zimmermann
Buying a foreclosure can be a lucrative investment.
Your goal is to buy property far below market value so your investment already has
substantial equity on the day you close.
Understanding the foreclosure the process gives you some
insight into locating foreclosures at their earliest stages and avoiding some of
the pitfalls.
The Federal government forecloses on hundreds of thousands
of homes each year that have been financed through several of its funding source:
Veterans Administration (VA), Housing and Urban Development (HUD), FANNIE MAE and
Federal Depository Insurance Corporation (FDIC). These homes can make lucrative
investments and there are many special programs to allow purchasers to buy these
homes with little or no down payment and many have repair allowances. Once
the homes are taken back by these federal agencies they appear on the
http://www.foreclosuresus.com database.
Banks and financial institutions take back homes that they
have loaned funds against. They refer to the properties they retrieve as REO’s
or real estate owned. Within larger banks, they are REO departments solely
devoted to the resale of these properties. Banks supply their REO listings
to the foreclosuresus.com database. Most contain the bank’s name and the contact
person’s name and phone number. These are people you should meet in person
and tell them the type of property and zip codes you prefer. Bring a letter
of credit or prequalification with you. In the case of bank, be sure you are
prequalified at
their institution.
Pitfalls
Not all foreclosure listings are bargains. In some
cases, financial institutions will price the property based on the amount of outstanding
loans on a property. With 100% equity lending now available, this amount may
be very close to the value the property. If you purchase the property at this
price you will have no equity at closing.
Auctions
Home auction companies are nationwide. Many of these
companies require a minimum bid, which is almost the appraised value of the home.
Many times these homes are purchased by anxious buyers who get caught up in the
excitement of the bidding and overbid on a property. They pay the appraised
value or more for a home.
Auctions by municipalities offer far more lucrative opportunities.
These homes are sold for back taxes and to clear liens. Homes worth $250,000
can be purchased for $100,000. Successful bidders must fund the home purchases
within 24-48 hours. This means that a bidder must have a line of credit in
place when bidding. Because the properties are usually sold “as is”, with
utilities not turned on; no appraisals can be done. This combined with the
rapid requirement for funds, makes traditional mortgage financing unavailable.
Unlisted Foreclosures
When you review the
www.foreclosuresus.com database further, you will notice that many smaller banks
do not include their REO listings. They may have too few foreclosures to have
a REO department. You should contact these institutions directly and ask who
is the person designated to dispose of these properties. Again, your effort
may reap you information about properties that are not in any public database.
Determining the Best Bargains
The key to obtaining a bargain is knowing the value of the
property minus the required repairs and comparing that to the asking price/starting
bid.
Online appraisals are now available throughout the Internet.
For about $10 you can receive a summary of the recent sale of homes in the immediate
area. These appraisals are compilations of public records of property sales
and are meant to be used for estimating purposes only.
Review the sales using the most recent and those closest
to the property you are interested in as the most reliable. Remember to adjust
for differences in square footage and features. Overestimate the cost of repairs
in your calculations. As any home renovators will tell you, repair costs always
exceed what you anticipate by 30% or more.
Properties that have been vacant for an extended period
of time may have many hidden problems not seen during an inspection. If you
can, ask a neighbor about a property.
Also, if there are contractors working on the property, ask them about the property.
I have had contractors tell me about termite damage and mold problems that were
not visible. Of course, do not bid on properties with these types of problems.
The repairs are far too expensive.
Your Goal/Residence/Rental/Resale/Retirement
Your goal in buying a foreclosure is to benefit from the
sale of property at below market value to use as your residence, as a rental property
or to resell for a profit. You must do the investigative work yourself to garner
a solid investment. Many investors have merely purchased 2-3 good investments
in their lifetime and completely funded their retirement with the proceeds.
Whatever your goal is, it is worth the effort it requires.
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