Posts Tagged ‘Bank Owned’

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Proof of Funds

Monday, February 18th, 2013

real estate contract lockboxHave you ever wanted to make an offer on a home and have the seller or their agent tell you that they need a “proof of funds”?  Probably…and when that happened did you question who it is really for?  Aren’t agents obligated to submit every offer…without additional requirements?   Agents today are relating to their buyers that the demand for a “proof of funds” (actually evidence that current funds exist in cash or loan commitment) is something selling agents are demanding for their own protection.  Well, if your cynical side is running the show on this issue please take a minute to finish reading this post.

It is true that many of the major servicers/owners of defaulted mortgages and foreclosed properties are now utilizing on-line offer systems that allow the seller to have a complete snapshot of all bids for a property.  In most cases these bidding systems do not have an initial method for uploading proof of funds.  So, the conclusion some are reaching is that this requirement is one that the selling agent is creating and enforcing.  This is no closer to the truth than Lance Armstrong’s multiple claims to not be using PED’s.

While the electronic bidding systems are now a large part of the foreclosed property landscape, ultimately there still is a contract package that must be submitted.  With that contract package, there are certain supplementary documents.  Jennifer Wilmoth, my partner and one of the largest volume REO brokers in America, stated  “We must have a proof of funds statement when submitting final contracts for a seller to execute in all cases for the clients we work for.  No exceptions.  So, why would we want to submit a bid for an agent or buyer unless we know that a satisfactory proof exists?  With the time lines these offers must follow, and the competition for many homes, if one does not exist when submitting a bid it likely will not be available when completing the contract package.”ing

Lets look at HUD homes for an example.  A buyers agent can submit a bid electronically for a HUD home and in that process they acknowledge that the buyer has funds to perform on the proposal.  Their bid could be accepted the next morning and then there is only two business days for a HUD contract package (including the Proof of Funds) to be in an office in another part of the country.   The entire contract package needs to be completed when submitting the electronic bid!  Same goes for Fannie Mae bidding at HomePath.com.  Much the same for other servicers also.

Bottom line is that proof of a buyers ability to perform on an offer is still very much a part of the corporate seller’s requirements..even when using an electronic bidding platform.  The listing agents are relaying sellers requirements, it is just that the delivery method has changed.

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Posted in Buyers, Buyers Agents, Good Offers, Offers | No Comments »

Low Ball Bids

Friday, November 2nd, 2012

Nobody wants to pay more than they have to for anything.  If we are talking about groceries, where a combination of the lowest prices with the best quality and shopping experience are important factors,  price will usually  trump.  Buying real estate though involves a bidding or offer process.  Bank owned real estate is even a little more different.  Many of the institutions and government entities with properties for sale have converted to electronic bidding systems.   In many instances, these systems have eliminated the concept of a counter offer.  The bidder has one shot.  The sellers are dismissing the low ball offers while seeking to work only with the competitive bidders.

From the seller’s perspective, they have valuations from appraisers and brokers to  consider.  They are also not like a typical seller who might just be desperate.   The banks are NOT desperate to move or give away their real estate owned!  They want to contribute to a housing recovery by selling their properties at near market prices.  Market prices mean similar to the range of prices the immediate area yields.  The buyers with the low ball offers that are being sprinkled all over town, looking for a bite, will not get far with the institutional sellers.

I also run into buyers who want to make their low ball offer with a letter of explanation.  This letter includes comparative sales they have used to determine value and a list of repairs needed to the property.  I fully understand why somebody wants to present their case…we just have no way to facilitate this.  The bank seller has their own comps and their own list of repairs.  We have no way to submit a letter like this and, even if we did, I seriously doubt it would be read.

My suggestions to potential bidders for bank owned homes:

Make your best offer the first time.  Don’t expect a counter offer.  If you do, and you made your best offer, stick to it.  See what happens.

If the property is one you want, for a home or investment, don’t wait.  Bank owned properties sell quickly.  The reason- they are priced appropriately for the market and their condition.

If you are looking for an investment-review the aged inventory.  This is the best place to find a property where there will be consideration of any offer presented.

Offer expiration dates mean zilch to bank sellers.  Sometimes offers are held until the bank has enough to review several.  I have seen banks come back three weeks after an offer is presented and ask if the buyer was still interested.   The bank would now like to bring their offer under contract.

Finally, whatever else you might do, DO NOT fail to provide a current proof of funds with all the details to make it very clear that the buyer has the resources, or an adequate loan approval, in place to perform on their offer.

 

 

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Posted in Buyers, Buyers Agents, Good Offers, Offers | 1 Comment »

Multiple Offers

Friday, October 5th, 2012

One of the major improvements in selling bank owned homes over the last five years is the systematization of the multiple offer scenarios.  So many agents in the past insisted that they be told how many offers a seller had received…like it was a right that existed for the buyer.  There also was a belief that the first offer submitted was the only one a seller could respond to before moving to another offer.  Both of these beliefs were wrong..but I still run into them today.  Usually, it is a misinformed buyer who is confused by the process because it was not adequately explained by their agent.

The Multiple Offer dialogue begins and ends with an understanding that disclosure of any other offers is only to be done by a listing agent when given that permission as part of their listing or other written agreement.  It is not a violation of the Code of Ethics to decline such requests from other agents.  In fact,  Article 1, Standard of Practice 1-15 of the Code of Ethics of the National Association of REALTORS®, requires that listing agent disclose the existence of multiple offers ONLY with the seller’s approval.   An addition to the Code of Ethics in the last few years added the following requirement: Where disclosure is authorized by the seller, REALTORS® shall, if asked,  also disclose whether the offers were obtained by the listing broker, another licensee in the listing firm, or by a cooperating broker.  For a buyer or agent to expect this information is not correct.  A seller must authorize it.  Most of the bank sellers now authorize, with a certain set of procedures for how disclosure of multiple offers are to take place.  Please remember these are not laws but pledges anybody who is a Realtor is expected to conform to as part of a Realtor Code of Ethics.  You may be working with a licensee who is not a Realtor.  In that case, these same ethical duties may be ignored.

Educating your buyer is the best thing to do about this process.  It is a very common part of the bank owned home purchase process.   It should not cause buyers or agents to shy away from making an offer on a property.  A good understanding of the process, with expectations set accordingly, will result in the best experience for all.  The most important thing for a buyer to understand?  A low offer may never have a second chance.  Sellers often select the most competitive offers and allow them a “highest and best” period to submit one more offer.  There is no requirement that every submitted offer will receive this opportunity.

The National Association of Realtors has published an excellent guide for Realtors to use when advising sellers and buyers in multiple offer situations.  Click here to download “Presenting and Negotiating Multiple Offers.”

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HomePath Renovation Properties Offer One Of A Kind Opportunity

Monday, October 3rd, 2011

Since the demise long ago of the FHA 203k for investors, the ability to purchase a home with money for repairs has been much trickier.  The investor needs cash or a private lender loan.  The private lender loans came with huge price tags, which worked when homes were appreciating at 6% or more per year.   The end result means owner occupants and investors with cash who truly can absorb the risk of putting that cash to work, are the only buyers for many properties.

The need is great, considering the amount of foreclosure inventory, combined with the lengthy time period these homes sit vacant and the ensuing deterioration.  The retail local investor should be provided a chance to purchase and improve properties utilizing some type of all-in-one loan.  What does not seem as well known is that there is a way for the retail investor to purchase Fannie Mae foreclosures and participate in the renovation with the financing.

Called the HomePath Renovation mortgage, it is available on select Fannie Mae properties all listed at HomePath.com.  Properties listed at this site, with the above HomePath Renovation Mortgage logo qualify.  The borrower needs to work with an approved HomePath lender and they are listed by state on the site.

Here are the reasons why you should consider this option for your residential investments or investor buyers.

The following are some additional notes sent to me by a HomePath lender regarding the program in general.

  • Buyers are eligible to add up to 35% of the as renovated value or $35,000, whichever is less, to their loan for renovation expenses.
  • The buyer must choose one credible General Contractor to complete the renovation bid and project.  Do it yourself projects are not allowed.
  • The minimum credit score for a down payment less than 20% is 660.   For down payments of 20% or more the minimum credit score is 620.
  • An “As Completed” appraisal is required for HomePath Renovation Mortgages.
  • The current interest rate is less than 4.50%.
  • Closing costs vary depending on the loan to value, credit score, property type and down payment, but typically run an extra $2,000 over standard fees.
  • The minimum down payment is 3%,  however 5% is almost always the right option.
  • No mortgage insurance required. Compared to FHA the payment is always lower.
  • Seller can pay up to 6% of the sales price towards closing costs.
  • Investors and second home purchases are eligible.  Second Homes require 10% down.
    Investors require 15% down.

 

 

 

 

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Posted in Buyers, Financing, HomePath, Investors, mortgage, Remodeling, Return | No Comments »

Lockbox Codes to Buyers Is An Ethics Violation

Tuesday, March 8th, 2011

For years now, the most common phone call to our office is the agent who shows up at a property and the lockbox has been removed or the key taken.   Of course, we can’t fix that problem immediately for the agent so they can’t show the property, making everybody a little unhappy.  Not at all coincidentally, we almost always then know an offer will be coming in immediately.  It is a game that is played and because I still have a lot of faith in my fellow Realtors, I chose to believe this is occurring when Buyers are given access with no Realtor, and they want to stop the ability for anybody else to see the property while they submit their offer.   By the way, this disappearing lockbox and key act does not just happen to Wilmoth Group.  It also requires a lockbox code to perform either act.

So, I am pleased to learn that recently the Realtor Code of Ethics addressed this very issue.  From a recent posting of the Metropolitan Indianapolis Board of Realtors:

A new Standard of Practice 3-9 was added to Article 3 of the Code of Ethics which states:  “REALTORS® shall not provide access to listed property on terms other than those established by the owner or the listing broker.”

Standard of Practice 3-9 serves as a reminder that it is unethical (not to mention unprofessional) for REALTORS® to access or allow access to a property outside of the showing policy established by the listing broker.

This could happen in a number of ways:

  1. Entering a vacant or occupied property without an appointment;
  2. Re-entering a property at a later time without making a second appointment;
  3. Giving a lockbox combination to unaccompanied buyers.

While I have never filed an ethics complaint against a Realtor, I have decided if I learn of this practice occurring and can identify the Realtor, we will proceed with an Ethics violation report.   This act causes much lost time and frustration for many parties while creating a temporary uneven playing field.  I have often wanted to suggest to the bank they reject offers that come in when we suspect the buyer or agent of tampering with the access. Now at least we have a process we can follow that can result in discipline to the participating agent.

 

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Posted in Buyers Agents, Ethics, Showing | No Comments »

Surveys When Buying A Foreclosure

Tuesday, March 1st, 2011

Recently we have seen buyers opting out of the expense of a survey prior to closing on a bank owned foreclosure.  While a survey may seem like a necessity in rural areas, even in suburban areas it is a good idea.  Some kind of survey (staked or at minimum an improvement location report) will help identify potential issues.  Always remember that you are likely waiving a number of your remedies for solving survey issues when you sign the bank documents.  Title companies will argue that they only insure the property that was foreclosed on when no survey is obtained.  At minimum a boundary dispute will cost you many hours of frustration.  It might actually cost you much more if you find the boundary lines of the property you have acquired run through your three car garage!

In discussing this particular issue with a title company last week I was told this is the single biggest issue they are finding with cash buyers of foreclosed homes (if you are getting a mortgage-no worries.  The lender won’t extend your loan without a survey!).   In order to save a little money they waive their right to a survey.  Later they discover they did not actually buy as much land as was advertised or the barn in the back does not really belong to them.   Foreclosed homes come with no representations or warranties.  Tax records are the basis for the representations made in a listing.  It is all we have to work from.   Tax records often just describe a parcel in terms of acreage.  Not boundaries.  And believe it or not, improvements get built without permits and anybody paying attention to boundary lines. 

Or, as we saw in Florida, a builder created an agreement with neighbors to allow for him to cross their properties to access the city water and septic.  This was important because the property he was building on was to small for permits to be issued to dig a well or have a septic system.  Unfortunately, the builder went bankrupt and lost the property to foreclosure.  The neighbors contended the agreement no longer applied as it was with the builder and not the bank.   A survey might have helped to discover this issue.  Fortunately, we were made aware of the issue and combined an agreement with the neighbors so the property could be sold with access.  These things happen. 

Don’t be penny wise and pound foolish.  Discover all you can prior to closing by having a complete survey of the parcel you are acquiring.  For good measure make sure the title company is presented with the results.

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It Is Getting Harder to be an Investor

Monday, February 28th, 2011

An investor who wants to purchase a foreclosed property that is.  Whether it is the owner-occupant preference periods practiced by the big three (Fannie, Freddie and HUD) or just the crazy events that involve legal issues like the robo-signing, or the offer made and then told the property is going to auction, it just seems like investors are all telling me the same thing.  It is getting harder and they don’t feel any love from the default industry.  Last week Reuters even published a piece describing this issue and some of the root causes other than just the preferences.

Are investors getting an unfair slap in the housing recovery?  When lending standards have tightened up  so much, and the economy has produced record amounts of un/under employment, there is a strong appetite for investors to create rental housing.  I do not know many experienced investors looking for the big flips today, but most people involved in the housing market know that the demand exists for rental homes.  And there are plenty of investors  ready to move the foreclosure inventory and provide an alternative to ownership.  They just are operating with one hand tied behind their backs.

Sure, I am all for our neighborhoods being rebuilt with owner occupants.  The reality does not always match the objective.  I think as the institutions search for ways to move foreclosure inventory, and rebuild communities, maybe some of the preference periods could be shortened and some deed restrictions created prohibiting flipping a property over the first 180 days of ownership.  This would help keep the capital flowing into housing, and many of the afiliated businesses such as contractors, suppliers, and groups like HOA’s and taxing authorities.

What do you think?  Are you a frustrated investor..struggling to buy foreclosures with cash to burn?   Please comment and share your experiences in today’s foreclosuremarket.

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Posted in Economy, Investors | No Comments »

Study States Rehab Cuts REO DOM from 223 to 70 Days Average

Friday, January 21st, 2011

Field Asset Services is a legitimate, major player in the REO industry.  While this DS News story does not explain Field Assets methodology, it does indicate a large sample size of over 17,000 properties were studied over the first half of 2010.    From my experience, like most things real estate, this is a local decision.  There is no doubt in my mind that the probability of improving a properties turn will be significantly impacted by providing pre-marketing rehabilitation…in certain communities.  As we enter a year where projections are for record amounts of foreclosed properties to be gracing the market, the key is identifying where rehab will pay off. 

In this regard, it seems to me that there are three options for the institutions holding defaulted mortgages. 

  1. Utilize an experienced broker to assert whether the rehab decision is the correct decision.  If it is the correct decision, I think a program like Field Assets is the way to go.  The old idea of having a broker run a rehab program was full of problems from lack of experience to outright fraud.  But serious rehab programs need to be in the tool box and considered.
  2. Find financing options to allow the owner occupants, who want to pick out their own paint and floor covering, and are not challenged to see the possibilities and excited by such, to participate in this process.  Why do people like to build homes?  So they can make their own choices.  How can rehab programs be marketed to allow the purchaser to be involved in the selections?
  3. Or, the property seller/bank, offer programs like the HomePath Renovation Mortgage  program from Fannie Mae.  Or, educate REO brokers to have an FHA lender ready to help market the 203B or 203K options.

I think it is safe to say that this year is going to see a lot of new foreclosed properties hitting the market..at a time where housing prices are fighting to stay on solid ground.  It is the responsibility of all involved in the process to discover how to make these homes attractive to the owner-occupant purchaser and help stabilize the communities so affected by these foreclosures.

Lets start at step one..who is the likely buyer of this foreclosed home if it was made to be in habitable condition?  If the answer is an owner-occupant, Field Assets and my recommendations above, are pretty good paths to pursue to rebuild our communities.

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Posted in FHA, Financing, HomePath, Rehabilitation | No Comments »

Foreclosure Controversy Spooks Potential Buyers While Solutions Offer Opportunity Today

Wednesday, November 24th, 2010

As I feared when the issue first raised its head, potential buyers of foreclosed properties have started to either wait on their purchases or look elsewhere. In a clear sign that the servicing issues associated with the “robo-signing” of affidavits will have an affect on the overall housing market,  the National Association of Realtors have announced existing home sales declined 2.2% in October while Campbell Surveys found that 14% of owner-occupant home buyers and 6 percent of investors refused to view foreclosed properties in October.

Most of the problem has been created by the stories of buyers who were left at the closing table and still have no idea when and if they are ever going to be able to close on properties where they have been under contract.  Campbell Surveys show that 12% of all closings scheduled for October were delayed or canceled due to issues associated with foreclosed title. 

A couple things to note if you are sitting on the sidelines waiting for a resolution to this issue.  One is that title insurance has now created a solution to allow closings to proceed with coverage for possible documentation issues.   If a home is on the market today, and it is bank-owned, the possible issues have been reviewed and will be covered by insurance in a sale.   Also, homes for sale from Housing and Urban Development (HUD) have not been affected by these servicing issues due to a different process that has been followed during FHA foreclosures.   What I am seeing today are some tremendous bargains to offset the buyers sitting on their hands.  Don’t throw the baby out with the bath water or you might miss one of these opportunities.

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Posted in Buyers, Foreclosre News, Foreclosure, Freeze, HUD | No Comments »

How To Tell If A Fannie Property Is Available

Thursday, September 23rd, 2010

Fannie Mae was the first of the government entities to implement a “first look” initiative.  In Fannie’s case, only offers from owner occupants and Neighborhood Stabilization Program (NSP) non-profit groups are considered during the first 15 days a home is on the market.

If you are interested if a property is in the “First Look” window, you must visit www.HomePath.com and locate the property.  The First Look logo appears next to each qualifying property and there is a countdown identifying the number of days left for owner occupants and NSP’s to submit offers without investor competition.

The program has now been in place for one year and Fannie announced this week that sales totaled 29,000 to owner occupants and 5,000 to NSP’s since the program’s inception.  As a side note, and practically speaking, unless a foreclosure has been rehabbed so an owner occupant can be financed, the competition for investors in the First Look initiatives are the NSP programs.  If you are in an area with active NSP’s, you may find properties in certain areas purchased by these entities.  The 5,000 homes mentioned above were acquired by 800 public entities.  NSP’s are locally created so depending on the funds awarded from HUD as part of this program, not all areas are equal in the presence of these funds.

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Posted in Buyers, First Look, HomePath, Investors | No Comments »

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