buying distressed properties
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Buying Distressed Properties
Monica FlorioLong & Foster, Realtors
May 21, 2011
What is a distressed property?
• A property in any stage of the foreclosure process
• Foreclosure is a legal process by which a defaulted borrower is deprived of his interest in a mortgaged property
Stages of foreclosure
• Pre-foreclosure: begins at property default and ends when the property is sold
• Foreclosure sale: property sold to the highest bidder at auction
• Real Estate Owned (REO): the bank sets a reserve price at auction; if that price is not met, then the ownership reverts to the bank
What options does a distressed homeowner have?
What options does a distressed homeowner have?
• Refinance or modify existing loan• Offer deed in lieu of foreclosure• Sell and bring cash to closing• Request a short sale• Let the property go into foreclosure
What is a short sale?
• A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan
Why a short sale?
• For buyers: may not damage distressed owner’s credit or ability to obtain financing in the future as much as a foreclosure – Can obtain a conventional mortgage after two
years• For lenders: it costs less than a foreclosure• For community: lessen impact that foreclosure
can have on surrounding community
How are short sales priced?
• Listed at the low end of fair market value• After buyer and seller agree on sales price, the
bank (the seller’s lender) must approve the sales price – Banks determine what they’ll accept for the
property based on a broker’s price opinion (BPO): an opinion of fair market value from an independent analyst
Buying opportunity: Low interest rates
18%
5%
Buyer and seller negotiation
Seller concerns• Price is too low – lender
might not approve• Possible deficiency that
the seller will have to pay
Buyer concerns• Price is too low – lender
might not approve• Wasted time and
possibly money
Both agents have a duty to negotiate the best price and terms for their clients before the contract goes to the lender for approval
Questions to ask before you write a contract
• How many liens are on the property?• If more than one lien, what are they? • Is the seller delinquent on condo dues? (Many
lenders will not pay these)• What is the status of the short sale package? • What is the plan to satisfy all the lien holders?
Timing
• How much time a seller has to accomplish a short sale is impacted by: – The seller’s lender’s process– How many liens are on the property– State foreclosure laws– Whether foreclosure date has been set
Short sale addendum
• As-is• Expiration date: allowing the buyer the option
to walk away after a certain date• Lender approves SHORT SALE, not contract
What does it mean to buy a property “As is”?
• What are the risks? • Property disclosures still in effect• Home inspection is VERY IMPORTANT• Is the cost to make the changes worth it?
Negotiation with seller
• Price• Timing of home inspection• Time for lender approval• Timing of mortgage application• Earnest money deposit amount
Your lender must understand the needs of a short sale buyer
• Because of the long time frame involved, consider locking in your interest rate.
• Costs money up front to lock in a rate.• Ask what your lender’s experience is with rate
locks and short sale properties.
Broker’s Price Opinion
• The mortgage lender will order what's called a "broker's price opinion," which gives the mortgage lender some idea of what the property is actually worth in the current market. A broker's price opinion will be based on:
• * the value of comparable properties in the same neighborhood
• * the general condition of the neighborhood• * the condition of the specific property in relation to
neighboring houses
Average approval time
• Wachovia 2-4 weeks• GMAC 4-8 weeks• Bank of America 8 weeks• Wells Fargo 8-12 weeks• E*Trade 8-12 weeks• CitiMortgage 8-12 weeks• SunTrust 8-16 weeks
Buying a bank-owned property
• Sold as is (an excellent home inspector is a MUST)
• Bank must approve sale – faster than short sale but more time than a normal resale property
• Property may be in poor condition
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Location:Long & Foster Fair Oaks13135 Lee Jackson HighwayFairfax, VA 22033703-651-2502
Monica Florio Long & Foster, Realtors 703-651-2502 monica@LNF.com www.urbanlivingintheburbs.com
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