Category Archives: Short Sales / bank owned

What Does a Foreclosure Auction Look Like?

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What does a foreclosure auction look like? How many realtors have attended one? My guess is the percentage is low. Yet our clients want to know more about buying a home at auction. I’ve been wanting to attend an auction just to see the event and potentially learn more. I’ve even followed a few properties in the near vicinity which were up for auction, only to hear (in some cases over and over again) that the auction was cancelled or postponed. So like many of you, I’ve never attended one but that all changed a few days ago.

A client o mine who was watching a property in foreclosure and did try to attend an auction almost a year ago, only to hear it was postponed, finally got lucky  The home (a condo unit) has sat vacant now for over two years.. They live in the complex as a renter and has been trying to purchase a unit there.

Well last week we got word that the auction was back on – In truth they  should have known as she gets the paper where it was posted – as required – in three separate issues – Yet she heard about it via the grapevine – Does anyone read those required newspaper postings?

With less than 48 hours before the auction – it was too late for a thorough title search – We did what we could researching the property and liens via the Registry of Deeds. We visited the town hall and got info on whether the taxes and other town bills were up to date – We were able to get info on the condo fees and whether they were up to date so we were ready for the formal auction.


Hear Ye Hear Ye Hear Ye – is about what I expected – – I expected the auctioneer to be unapproachable and too busy to spend with a neophyte like me. Nothing could be further from the truth. He was quite helpful in answering all the questions I prepared beforehand.

There were 6 or 7 bidders out there and all seemed to know the auctioneer. I was told they were all working for investors and their bids would be lower than what the bank was expecting before it would take back the property. The auctioneer asked us what our bid would be – I said I’d like to know the minimum bid (which was over our planned top number) –

Long and short of it, we decided to come up to minimum plus $100 and the Memorandum of Sale was filled out – It was all over in 15 minutes – very anticlimactic for me!

I believe the property sold somewhere between 10-20% below market value – Remember we’ve been watching every sale at that complex for many months – At this point the buyers are working with a real estate attorney to wrap up the loose ends. This was too easy. Should we expects more bumps along the road?  I know liens can be posted up until Close – But how often does that happen when a home has been vacant for so long?

If you’ve had some experience with a foreclosure auction – I’d like to hear your input!

Part 3 of our 203 K loan Process

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If you’ve read part 1 and part 2, you know that I’m following this 203k Loan Saga  with my son, who is buying a short sale in the LA area which needs quite a bit of rehab so he decided to take out a 203k construction loan. If you’re a realtor and have not done a full blown 203k loan before you probably will learn from our stumbing steps.   

 

This is NOT a streamline loan (under $35k).  Once you exceed $35,000 in repairs, the process gets more complex and you (buyer) have   to hire a consultant to oversee the project.  In fact, he(buyer) originally wanted to keep all repairs and updates under  60k -  If you read part 2 of this journey, you’ll see that was not necessarily possible.  

 

So although I work as a realtor on the East Coast and he’s buying on the West Coast, I did have an opportunity to go out last week and see this home.  I found myself quickly falling into the pattern of a typical parent who has not seen all the comps in the area but THINKS they know value (or in this case – lack thereof).  I had to bite my tongue in order not to say those things we hear parents say all the time when they’re underwhelmed by the home their son or daughter is buying and wonder if it truly is worth what they’re paying.  The fact is that both my son and his fiance with the help of their buyer’s agent went thru an enormous effort in finding this house and verifying value.  And I finally decided I was not in a position to second guess their analysis.

 

After a challenging negotiation with the bank on the price of the home when they found another major flaw to the sewerage system and finding out the bank would not help them on it, they had to decide whether to proceed with the purchase of the home or not. All players (realtor – mortgage person – contractor ) agree once repairs are done, the home will be worth hopefully 10% or so  more than the costs that went into purchase and rehab so they decided to proceed.  With the sewer issue, they’re clearly taking on more of a risk, but they feel it’s worth it.  This process is NOT without risks! If you’re risk averse, the process is NOT for you!


 

 

I seemed to have come to visit just at the critical point – I met all key players including their CONSULTANT who will be watching over the project and making sure the critical work gets done.  They’re rolling in over $80,000 of repairs and rehab into the mortgage amount.   Once done the home will be for the most part, totally new and I’m sure very lovely.  The consultant fees which sounded high to me, are set by HUD and are based on how much work will be done to the house.  They can be paid (I believe) as part of the loan or paid out of pocket as my son and his -soon to be- wife has decided to do.  They actually believe they can close on this home before end of December and move in probably early in February after all the work is done. 

 

I’m learning about the role the consultant plays and about the paperwork the contractor must prepare for the consultant and mortgage provider. This contractor has never done a 203k loan and he too is learning he needs to get up to speed on the required paperwork and timelines that are very stringent.  I’m learning that 203k loans are now used not only for rehab loans but also when a buyer finds something in a home they don’t like and want to change – even if the house is  currently in good condition.    I’m learning how stressful this can be for buyers and how hard it is to keep to an original plan in terms of work to be completed and dollar amount spent.  

 

My son and his fiancé are getting married this weekend and yet throughout  the past few days, they’ve been  hit with a LOT of deadlines, decisions to make, paperwork to get submitted all around this major project.  The milestones and timelines don’t stop – even if you have a major event like a wedding! This is a  significant challenge to complete.  I continue to remind them of the benefit at the end of it all – to have a home that’s totally new and know you’ve already gained equity in the home.  

 

So at this point, contractor has been picked, repairs to be done have been decided upon, a consultant has been hired and the overall plan is almost in place.  We still have to get thru the appraisal process – Stay tuned for that one! How did I forget to take interior pics when I was there ?   That will follow in in our next Part.  Stay tuned!  

To Read PART one CLICK HERE     To Read Part two Click HERE

Part TWO of our REHAB LOAN Diary -

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Part two of our Rehab Loan Diary – Just to recap, my son is in the midst of trying to buy a home thru a short sale in the LA area. This home needs to be totally renovated. So he’s planning on rolling the cost of renovation into his primary loan (a 203k loan) This is a recap of the process they’re going thru – week by week – real time!  If you’d like to read Part 1, of this story click here.

So week two brings us to more contractors coming in. So far quotes have ranged from $70k to $150k. This is a 3 bedroom / 1 bath home! But we’re told electrical, plumbing, and heating and cooling systems all should be totally replaced. This week we found out that neighborhood is notorious for needing sewerage upgrades – And sure enough this last contractor found a sewerage blockage adding additional cost for sewer repair – to the tune of over $15,000!

What have we learned thus far?       see saw process of a home renovation purchase

1) Home Buyer Initial Estimates of work needed is ALWAYS DRAMATICALLY UNDERSTATED - Many of the items found defective by contractors would not have been picked up even by the most savvy of buyers. Remember he made his offer to the bank based on what he thought it would cost to rehab in round numbers – He’s finding now he was totally wrong on those assumptions

2) Have a detailed plan of needs / wants – and try not to deviate from that - As you meet with contractors, you’re going to hear their ideas for renovations and interior design. If you start adding to your requirements based on the last meeting with a contractor, you will find your quotes will be all over the place. Example: First quote included a very basic rehab, but as my son heard the ideas of contractors he decided to remove a wall which added expense. Later he decided against it – Result? Some contractors went on that assumption, others didn’t – Not a good thing – Keep your requirements consistent.

3) Whatever time you think this will take – Quadruple that number - This is an enormously time consuming process for the buyer. At this point he’s had 5 quotes. Each meeting with a builder can cost money but always costs time. This week they’ve had to take 2 half days off from work to meet with contractors – And hours upon hours of evening hours reading and comparing quotes. Not to mention the hours on the phone finding contractors who will take this on (only a few contractors will consider doing 203k loans – more on why in a separate blog)

4) Get your realtor to determine “future” value after the home is renovated – As your renovation starts to take form, you’ve got to keep talking to your buyer’s agent to be sure the renovation will be cost effective. In a 203k loan scenario, an appraiser will come in and analyze future value, but you don’t want to waste your time (or the time of the MANY players helping you out in this process) if this is not feasible for you.

5) If the numbers don’t work – Go back and present your case to the seller/bank selling the home – Present another Counter - Even if you think you negotiated a great price, once you find out all the blemishes of this house you need to re-assess if this is still a good deal – If the numbers don’t work (If the cost of the house plus the cost of renovations is GREATER than the future value of the home), you should go back and talk to the bank doing the short sale and renegotiate price. Don’t give up until you do that – With all the info you can provide the bank about issues with the home, they may be willing to lower the price to keep this deal together.

4) Be ready to walk away – If you can’t resolve this, you have got to keep the emotions out of it and walk away - If the numbers don’t work (Again, if the price you pay for the home plus the cost of renovations is MORE than the anticipated future value of the home – OR – more than you feel you can afford) – Don’t PROCEED – The lender funding your 203k loan (based on the appraisal of future value) won’t let you proceed anyway but you’re wasting more of your valuable time and the time of all the players on your team if you find out early in the process the numbers just aren’t working.

So where is my son and his fiancé in this process? He is now talking with all the contractors – Reviewing what he thought was a necessity (like taking down that wall) verses what he now knows is a necessity – He’s quantifying those costs and trying to make a decision on 1) Can he proceed and does it make sense to proceed and 2) If he does proceed, with what contractor and what will be done to the house. And 3) he expects he’ll need to talk to the bank holding the current mortgage to lower the price one more time based on what he’s learned.

More next week, folks – Next week I will be in LA and I get to see this house for the first time – We’ll either have Pics to share or we may know by next week that the deal does not make sense to proceed – it’s still teeter tottering -

A 203k Loan Diary – Come Walk with Us as We LIVE the process PART 1

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If you’re a realtor then you’re most probably well aware of 203k loan options for buyers who are considering homes that may not be liveable or may need some repairs before someone can move in.  As a realtor you know, onlly certain lenders do 203k loans and that your client will need to bring in contractors (who are certified to work in this environment) to assess the condition of the home and to help quantify exactly what should be done and what it will cost.   You may even know there appear to be two flavors of 203k loans, one for less than $35,000 worth of work and one that requires repairs in excess of $35,000.   

And IF you’re a realtor like me, you spend a fair amount of time telling your clients about these options – but you may not have ever had a client move forward with a 203k Loan.   That is all changing with me – No, my client has not chosen to go this route, MY SON has! 

I have to admit, I do believe these loans will expand options for buyers.  Yes, it does cost a bit more in terms of the mortgage rate but the buyers can eventually remortgage – and consider the low rates now.  If your rate goes up a 1/4 of a point or even a 1/2 point, it is a way to get into a home that is totally ready for you.  

SO IN THEORY – I’m totally behind this approach –  But I wish I had more experience in the process –  That will all be changing these next few months as I walk thru the process with my son.   

So EACH SUNDAY from now until my son moves in – I will be writing a diary of his 203k challenges – Starting today - 

So Here Goes…

Four months or so ago – my son made an offer on a short sale on a home in the LA region –  The home needed major repair – It’s a small home with 3 bedrooms/1 bath but with a large 2 attached garage.  If you knew my son, you’d know why a garage is quite a bit more important than a 2nd bath.   

He KNEW that if they accepted his offer – he would absolutely need to go 203k to include the repair/remodel project into the primary mortgage amount.  The home was built in the 50′s and hasn’t been substantially updated since.  

Well, 2 weeks or so ago, he got the permission from the owner and the bank to bring contractors in.  With the help of his realtor he found contractors who would come in and bid for the work.  My son hoped that as part of the process, the contractors would identify actually WHAT needs to be done.  And to a certain extent, they did.  His 3 quotes so far range from $70k to $150k – That was a shock! 

In the past week after receiving some of the quotes, the owner and bank ACCEPTED my son’s offer – so now he has to complete the formal inspection process, the termite/pest inspection and finish getting quotes –  along with taking care of the details of getting paperwork to his lender (who by the way he’s so happy with – more on that later) 

Take an arial look at the home – Next week I’ll post some interior pics.   I’ll also tell you more about the process – and some of the challenges in finding contractors who will do a 203k and why. 

REALTORS, LENDERS, BUYERS – ANYONE who has had good or bad experiences with 203k’s I’d love to hear from you -

What Can I do When I Owe More than My House is Worth?

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What Can I do When I Owe More than My House is Worth? 

It is estimated that as of the end of 2010, 23.1 percent of all U.S. homeowners with a mortgage owed more on their homes than their homes were worth.  So you’re certainly not alone!– And it may not be the end of the world.  Let us help you wade through your options and possibly learn of  resources and options that are available to you

 First and foremost – Did you plan on being in this house for 5 or more years and can youworries afford the mortgage?  If that is the case, there is a good chance that you will see equity increase over time and your short term worry may simply vanish over the next few years.   Possibly making improvements may increase the value more quickly, especially if you’re able to do the work yourself.   If the house is working for you, try to put market value aside for now.  Take a look in a few years and you may be pleasantly surprised! This market WILL turn around. In fact in some areas of the country and yes, in some areas of Massachusetts, we’re seeing some pockets of appreciation.

However, if you feel you can no longer afford your mortgage, and you’re feeling the weight of the situation on your shoulders, you may want to re-assess your next steps.  First – Has your situation changed since you initially took out the mortgage?   For instance, is there an illness, or has there been a job loss or job reduction, or was there a divorce or separation where one owner is no longer contributing to the mortgage? This life change is considered a Hardship and documenting that hardship for your lending institution may help your cause.   The important thing is to GET HELP NOW – Open those letters from your bank and talk to your lender about your situation.

Loan modifications can be sometimes worked out with your Lender and it’s worth the effort of documenting your situation and talking to the bank about your inability to proceed with the current mortgage.  Remember that most banks are inundated with requests and you will need to be strong and proactive – DON”T WAIT until you’re months behind – Your decisive action will demonstrate to the lender, your level of commitment to try to address your situation.  But if you simply don’t think you can proceed with this home, that over the long term the home is simply no longer affordable to you, a short sale may be your best option.

                                                                                                                                                    Stressed

A short sale is defined as a sale of your home where the sale price is less than what is owed to the bank.  The bank must agree to this reduced price and your realtor and their team of professionals (possibly an attorney and/or a short sale negotiator)  will work with the bank to come to some resolution on price.  Once a price is agreed upon, you, the seller, will be forgiven the difference between the sale price and what is owed to the bank.  You are about to start your new life.   This process with the realtor and his/her team of professionals is paid for by the bank.  There is no cost to you.     

Avoid scams. Be careful of ads like  “We Buy Houses for Cash”  or “Avoid Foreclosure.” They may try to o convince you to sign over ownership as part of a complex refinancing arrangement.  They are trying to make a quick profit – or in some cases are actually trying to commit fraud. 

Consider your options -  The Mass Association of Realtors has a great flyer on avoiding foreclosures.  You can get a copy by clicking here.

  

Talk to a Realtor who understands your options – And can talk to you about how to proceed so you can get on with your life.    Call me so I can answer all your questions about this process.      smile