Foreclosure happens when a home owner, who has obtained a mortgage or other financial assistance from a lender such as a bank or mortgage company, does not or cannot make the monthly payments required on the loan. When this happens, the lender will begin the foreclosure process. Priya, this should appear as a paragraph on this page with drop down boxes below it. Thank you.
When properties are purchased with the financial assistance of lenders, borrowers are legally obligated to make mortgage payments within a specific period. If the buyer/borrower defaults, the lender begins the foreclosure process. The time that takes place between the legal foreclosure notices is issued to the home owner and the date of auctioning the property, is referred to as the “pre-foreclosure” period.
Acquiring pre-foreclosure property can offer thousands of dollars in savings. Pre-foreclosures often boast closing price bargains, as the investor pays cash in order to bail out the homeowner. Potential buyers can then negotiate for a loan or draw up a contract with the current owner.
When negotiating with the previous owners, who may be in dire financial circumstances, be sure to proceed with prudence. If the owners can suddenly make their mortgage payments, make sure you have an exit strategy. It rarely happens, but you must be prepared for the worst when dealing with pre-foreclosure properties.
The Federal Housing Administration (also known as the FHA) assists low to moderate income families and first time home buyers. FHA offers lower down payments and lower than average interest rates, helping people who wouldn’t normally be able to afford a home. Unlike bank-owned properties, the federal government owns FHA foreclosures, and they are subsequently more widely advertised and easier to locate.
FHA loans usually have a lower foreclosure rate than mortgages generally. However, as a result of the real estate market crisis, FHA borrowers are also running into tough times. Due to the increases in home ownership over the past several years, a correspondingly high number of FHA foreclosure properties are on the market.
HUD auctions off affordable properties that are meant for first time home buyers, and low to moderate income families. At HUD auctions, these properties are sold for less than the market value. These foreclosed properties are auctioned off because of mortgage delinquencies.
HUD itself does not give any financial help, and the homes are sold as-is with no warranty. The best way to purchase a HUD home is with the help of a real estate broker who is registered with the department. You are required to use a real estate agent to buy these foreclosure listings.
You can qualify for a HUD home based on your income and age. Expect to pay up to 5% of the purchase price for buyer’s closing costs. A real estate agent with experience buying HUD home foreclosures can help you come up with a number that HUD will accept for a foreclosure listing.
The Department of Housing and Urban Development (HUD) offers homes first to people who are buying the home as their primary residence, and then to investors if no potential owner-occupants bid. All HUD properties are available for purchase on Internet listings sites. These sites provide complete information on HUD rules, programs, and properties and can direct you to HUD-affiliated realtors in your area.
HUD homes range from average condition to terrible. The former owners may not have done a good job with home maintenance, and in some cases, may have even vandalized them in anger. If the properties have been empty, there may be mold, rodents, or other issues that are often the result of long-term vacancy.
When a HUD home is in bad condition, you may be able to get a fix up price reduction or loan from the department. With financing in place in advance, you can get a real bargain. Be sure to familiarize yourself with HUD rules and regulations before bidding on foreclosure properties.
Real estate owned (also known as REO) properties are the dominion of banks and asset managers. The asset manager assigns each REO property to a listing agent. These realtors are required to submit a BPO (broker price opinion), estimating the fair market value of the property. Only buyers that can pay cash can purchase REO’s.
The completion is often fierce to buy REO’s, particularly when they are priced below fair market value. Some investors bid on multiple properties within hours of the house being listed on the MLS. When there are multiple offers, the realtor will contact potential buyers and will ask for their best offer.
Purchasing REO’s is potentially profitable for investors who have enough cash to purchase the house and a proof of funds note. Most people who buy REO’s are investors who are looking for rental properties or houses that can be fixed up and resold. With a record number of these properties on the market, today’s REO marketplace offers an unprecedented opportunity.
Properties repossessed by the bank or mortgage company are often available at low prices, though they may be in need of work. Consider seeking a property with minor cosmetic defects (but not major structural issues), as they’re not as sought-after and are subsequently priced lower. Homes with lots of curb appeal are often sold at inflated prices after bidding wars.
There are an increasing number of opportunities for buying a repossessed home with a low interest rate. Auctions are an excellent place to buy them. You must be aware and wary of the pitfalls of the property in question because as soon as the hammer hits the table at a property auction, the purchase becomes legally binding.
When bidding on repossession properties, be sure to have a maximum dollar figure in your head, and never go above that number. Repossession auctions can be competitive, and it can be easy to get carried away in the moment. If no bids are made on a property, consider approaching the auctioneers nevertheless. You can still bid after the action has adjourned.
Repossession properties currently represent about one fifth of all homes sold at auction. Banks and lenders move quickly when it comes to repossessed houses. They want to sell them on the first day they are listed at auction.
Banks and lenders are willing to sell low so they can recoup funds with a short sale. Before purchasing a bank repossessed property, it’s important to do some research. Make sure you know the areas you’re buying in, and check the market rate in the neighborhood.
Take a builder with you to the bank repossessed property in order to get an idea of how much renovations may cost. Arrange your mortgage before you bid on a repossession property, as you risk losing your deposit if your application is rejected. Also be sure to factor in all costs including the survey fees and insurance costs.
Distressed properties are sold by lenders to collect the outstanding debt owned by a homeowner who has gone into mortgage default. Another by-product of the collapse the real estate market, distressed homes can be purchased at great discounts. Be sure you understand what accounts for the low prices before making a bid.
The lenders are anxious to sell these distressed homes and will offer a low price. Distressed homes agents may drop the price until you reach an offer, allowing you to save up to 50% off the fair market value. Your savings may need to go into necessary renovations, so these bargains come at a price!
Some distressed properties may only need minor repairs, while some require major structural renovations. When bidding on distressed properties, be sure to get a professional estimate on the cost of the required repairs before you sign your name. Getting pre-approved for a loan will also put you at the head of the bidding class.
If you’re new to investing or real estate and don’t know the first thing about interest rates, here’s a good tip: the higher the interest rate, the more expensive it’s going to be. High interest rates mean you will have to pay back more on the money you borrow. Another good rule of thumb is that affordability increases if you use an adjustable rate mortgage (it’s easier to qualify this way). Of course, there will be a wide range of prices that you can choose from, depending on what kind of financing you chose.
The Federal Government holds a considerable amount of power, but they can’t control everything. Mortgage interest rates are affected by many unpredictable political, economic and social events. So there is no guarantee what direction interest rates will go, despite the forecasts of the experts. Therefore, make your financial decision based on where things are today including your budget, your needs and your future plans.
If you do decide you want to lock in at a certain interest rate, you will need to complete a loan application and send it to your lender as soon as possible. This must be done so that your commitment doesn’t run out before your loan is approved. Follow up and be sure that the lender is receiving all of the necessary documentation. Get a property appraisal, which usually costs about $300, through your loan agent as soon as possible. Don’t obsess and miss a good real estate deal. Although rising interest rates can create more problems for home buyers, waiting and hoping for low rates is not necessarily a smart move. You may end up paying a higher price. Also, refinancing is always an option in the event that interest rates dome down.
1. The Notice of Default or Breach is the first public notice (document) that announces a loan in default, so it makes sense to start there. Access these notices at the county courthouse, newspapers that routinely advertises these notices or through a reputable Foreclosure Service Provider. You know the default amount from the legal notices or service provider’s information. Now you must estimate the property’s market value. Subtract the default amount from the estimated market value to determine the gross equity in the property. This figure also reflects your gross profit potential. If there is little or no difference in the amount of debt and the market value, move on to another property. If there is a big difference, there may be enough equity in the property to make a sizable profit.
2. Contract the Homeowner. This is easier said than done. The homeowner is probably being bombarded with letters and calls from attorneys and bill collectors and has creditors showing up at his door. The only way to contact the homeowner is by phone, mail or in person, and chances are it will be difficult getting in touch with him.
Start with mailings. Indicate in a letter that you’re a private investor looking for property in that part of town. Let the property owner know that you may be able to help him with his financial problems.
Demonstrating an understanding to the homeowner’s dilemma will help your efforts. Indicate in your letter that you may be able to stop the foreclosure, save his credit rating and provide cash for use in paying his bills and/or for relocating.
Invite the homeowner to call at his convenience. If you don’t hear from him in a reasonable amount of time, say three or four days, follow up with another letter, perhaps worded a bit more urgently. As you get closer to the auction date, you may need to send two or more letters per month. Follow up with phone calls. Be courteous, never pushy. Never interview the owner on the phone. State that in order to determine whether or not you can help him, you will need to meet with him at the property. Make sure he understands that the meeting will be more productive and less time consuming if he will have the loan, mortgage and insurance documents available, as well as the foreclosure notices.
If you are going to make an offer on the property, you must have the loan, ownership, and debt or lien information. You must also assess the condition of the property and the property owner. Combined with the market value and the default amount, you have all the ingredients necessary to formulate your offer.
If you feel comfortable with it, you can visit the property in person. You may be confronted by an angry homeowner. Be polite and leave if you are asked to. Never, under any circumstance, snoop around, inspect or generally trespass unlawfully on somebody’s property. A special note in contacting the Homeowner. This is usually an emotional time for the homeowner and more than likely significant outside forces have placed him into this situation. A significant number of homeowners in this situation will use denial as a coping method. Be sympathetic but also firm in that the outcome if the situation will be worsened should they not deal with it head on and be proactive. “No one is going to be coming down the street and just pay off your loan so you can stay here for free.” Wouldn’t you prefer having money in your pocket and time to find another place to live, over being evicted by the police and not having any time or money to find another place to live?”
3. Meeting the Homeowner. Use common sense and dress appropriately, something casual but not sloppy. Be sympathetic. Does the homeowner need cash? Is he waiting for a bailout? Will he go bankrupt? Find out. Review the loan and mortgage documents. Verify the loan amount, monthly payments, interest rates, taxes, etc. Review the insurance policies as well. Get all the penitent information you can. Ask the owner if there are any other liens or judgments he may be aware of. Inspect the property with the homeowner. Never comment on the owner’s lifestyle, just the physical condition of the property. Point out the obvious defects or items in need of major repair. Use an inspection checklist and record your information and estimated costs of repair. Make no promises at this point. Make no offer or give the homeowner any money. Make an appointment to meet with him again if you think you want the property.
4. Preparing Your Offer. Determine the net equity in the property. This is the difference between the market value and the default amount plus liens and repair amounts. Negotiate with the lien holder. You may offer to satisfy the lien for 20% of the amount. Chances are the lien holder will lose everything when the property sells at auction. Buying out the lien puts more equity in the property and more money in your pocket.
Remember to include closing costs in your calculations for the purchase and sale if you intend to flip the property. Also included the carrying costs, the mortgage payments and taxes and insurance, while you hold, repair, and then resell. Also include a seller’s commission if you use a broker. Calculate every legitimate expense associated with buying, repairing, carrying and selling the property. If a large enough figure remains, you may have a very nice deal. This bottom line figure has to pay the homeowner for his property and produce a profit for you.
How much do you offer the homeowner? Some investors itemize every expense, show their calculations to the owner and offer to split the profits. Some itemize the expenses and pay the owner the remainder on the bottom line. The investor then earns his profits by the reduction in lien amounts as negotiated, savings in repairs by doing them himself, negotiating a lower seller’s commission, or selling the property himself. Others still make offers based on the bottom line, and negotiate from there.
5. The Purchase Contract. When the owner decides to sell, you will both need to sign an Equity Purchase or Real Estate Purchase and Sale Agreement? All parties recognized in the mortgage contract must sign. Check with your attorney before signing any contract and make sure he is knowledgeable in real estate equity purchases.
Investing experts agree that the terms of the agreement must be clearly stated in the contract. Leave nothing to verbal understandings. Your best defense against future problems is the manner in which you present your evidence. Have everything documented properly. This is probably one of the main reasons to use a Realtor to write up the offer. The cost is insignificant when you compare it to the overall cost of the property and your potential loss or gain. The following clauses should be included in your purchase agreement:a. “Subject to” clause that allows you to bow out of the deal if something is not as originally agreed upon. This could be for unknown damages, general condition of the property or loans, termite damage, etc.
b. A statement that allows you to show the property
c. A statement indicating that the property has to appraise at a certain value.
d. The property must be vacant, all tenants and possessions out by the specified date.
e. An agreement between buyer and seller that the payments for the current loans equal “X”.
f. A statement indicating the sale is subject to the condition of the loan and/or encumbrances against the title.
g. A statement indicating the buyer shall pay all closing costs.
h. A statement indicating the seller shall: Deed the property to the buyer…Authorize the buyer to record said deed at the appropriate time…Be aware that the purchase price may be below market value…Leave the premises in good condition and pay for damages incurred after the contract has been signed and before the seller has left…Agree to pay for any damages or repairs necessary as discovered by termite and roof inspections…Vacate the premises on the date specified.
i. A statement indicating all net proceeds paid to seller will be paid at closing
j. A Realtor that specializes in pre-foreclosures should have most of these clauses included into their Real Estate Purchase Agreement, along with all the other forms that may be required by State law.
6. Closing. Inform your attorney or Title Rep that you have a signed contract and that you need representation at closing. Have him prepare a Release of Lien, to be recorded at or just prior to closing, if you have negotiated a settlement with a lien holder.
7. Arrange your financing. If you assume the loan and have been in contact with the lender, make sure the foreclosure process is stopped before the sale date. Order your certified appraisals and inspections as required before closing. Order the termite and roof inspections as well. Verify from a title search that there are no other lien holders against the property. If all goes well, you probably just bought real estate well below market value!
When it comes to investing, everybody has certain goals and aspirations. However, we have found that there are certain guidelines every aspiring real estate investor needs to know:
1. Compare Property Values and Rents. Financial statistics only go so far; the best measure of a property’s market value is often the sale prices of nearby properties. The same holds true for area rents. A low price can often be justified by a reasonable rent; renters who can afford a high rent can afford to buy instead, so reasonably priced rent is a need.
2. Be careful-Tax laws may change. Don’t base your tax investment on current tax laws. The tax code is constantly changing, and a good investment is a good investment regardless of the tax code. The right property with the right financing is what you should look for as an investor.
3. Specialize in something you know. Start in a market segment you know. Whether you focus on fixer-uppers, foreclosures, starter homes, low-down payments properties, condominiums, or small apartment buildings, you’ll benefit from experience by specializing in one aspect of investment real estate properties.
4. Know the costs going in! Know the financial statements inside out. What are operating expenses? What are loan payments? Vacancy costs? Taxes? What does the cash flow statement look like? These are key issues that must be addressed before making a solid investment.
5. Know where your tenants are coming from. If the last rent increase was recent, your tenants may be considering a move. If tenants have a short-term lease, they may be living there simply to attract unsuspecting buyers. It is also important to collect the tenants’ security deposits at closing.
6. Assess the tax situation. Taxes are an integral part of successful real estate investing, and they often make the difference between a positive cash flow and a negative one. Know the tax situation, and see how it can be manipulated to your advantage. It may be a good idea to consult a tax advisor.
7. Investigate insurance coverage. If seller’s coverage is based on lower-than-current replacement value, your insurance cost may increase when you pay a higher purchase price.
8. Confirm Utility Costs. Ask the local utilities to verify recent utility expenses, especially if any of these costs are included in your tenant’s rent.
9. Consult Your Accountant. Taxation is a key element of successful real estate investing, so be sure to find an accountant who is well-versed with the constantly evolving tax code.
10. Inspect! Make sure that you always perform a thorough inspection of the property before buying it. Never, ever buy any property without at least examining the site. In some cases, hiring professional inspectors to examine the structural mechanical system may be a sound investment. Should you be interested in seeing what the Pennsylvania areas has to offer in investment properties like bank owned or REO, HUD, VA or other Foreclosures and the like, please feel free to send me an email at: REOSRUSINPA@gmail.com
Looking for a Realtor in South Central PA? You’ve come to the right place! The PA foreclosure market has seen a sharp increase in the competition to purchase them. You need a real estate company that specializes in the foreclosure market. Cavalry Realty LLC maintains a strong working relationship with lending institutions and asset management companies and many of them task us with the disposition of their non- performing assets. We actively list and sell foreclosures in South Central PA. We provide our buying clients with an extra edge that most real estate companies can’t offer. If you wanted to get a deal done, wouldn’t you want to be talking to the broker that has the experience you need to talk to the seller and communicate with the lender? We will represent your best interests and help you close the deal!
1580 Robin Hood Dr.
Etters, PA 17319