RIVERSIDE COUNTY
SAN BERNARDINO COUNTY
FORECLOSURE PROPERTY LIQUIDATION
SAN BERNARDINO COUNTY
FORECLOSURE PROPERTY LIQUIDATION
What to Expect When Buying Foreclosed Homes
The Myteries of buying REO Repo property explained
The Myteries of buying REO Repo property explained
We are your source for Inside information about buying bank owned homes:
Banks are forbidden from selling their homes on the market themselves so, ultimately a broker
will be involved. Want to go direct to the source? An experienced REO agent can provide all of
the “inside information” you will ever need.
There is no mystery to the REO market. There is no one with a secret “in” or “system” that you
need to buy. REO agent (Both listing and sales) and developing a good relationship with them is
your best way to buying the best homes at the best price. They will be able to provide access to
REO properties as they come available and provide advance notice of properties soon to be
made available.
What about Auctions?
The only “real” auction is the one that happens at the end of the foreclosure process (Trustees
Sale). The lender offers the property for sale on the County Courthouse steps. You can find
information about upcoming trustee’s sales in the classified section of your local paper or, from
the County Courts. The information is free and there is no reason to pay for this public
information as many would lead you to believe.
Buying on the Courthouse steps can be the riskiest way to purchase property, and should never
be attempted by a first-time buyer. Inspections of the property are usually not an option; payment
for the property will usually have to be made in cash or, with a large deposit in cash up front and
the balance due within hours. Even after the sale, you may end up owing any unpaid property
taxes and liens against the property. The foreclosure auction also comes with the possibility that
the homeowner might redeem the home by coming up with the cash to buy the house back within
a specified period of time. The Internal Revenue Service (IRS) also has the right to redeem the
property within 120 days if back taxes are owed. A local real estate lawyer can fill you in on the
redemption laws in your state and advise you of further legal issues if you are still interested in a
true foreclosure auction.
Often, the price offered at the foreclosure auction will be higher than the price it will be ultimately
offered at on the open market (REO (Real Estate Owned)). When buying as an REO through a
real estate agent, you will typically be provided free and clear title, title insurance and also have
the ability to have the property inspected and appraised. You will also have the ability to finance
the property and take advantage of other incentives that may be offered by the lender-owner.
You have undoubtedly seen advertisements in the paper, the mail or online that advertise
properties being sold to the public at “auction”. These are not true foreclosure auctions at all.
They are nothing more than advertising schemes designed to entice buyers into participating in
the “auction experience”. The more that attend these “auctions”, the more excitement, the more
excitement, the higher the bidding. Auctions are great for the seller or to create huge profits for
the auction company yet, rarely prove advantageous for the average buyer. They often entice
buyers to attend by advertising unrealistically low prices and then, only when you have
registered, disclose that the price advertised is simply a suggested starting bid. What they don’t
reveal is that the seller’s reserve price is substantially higher (The lowest price they will sell for).
Are these “auctions” complete scam? Some claim them to be but, you would have to make that
determination for yourself. Other considerations would be that you may also be required to make
a non-refundable deposit immediately after bidding and pay an additional “buyers premium” that
could add 3-6% or more to your purchase price. The fact is that you could buy a similar, and
sometimes the exact same property, without the hype, circus atmosphere, and additional cost,
directly from a real estate agent. No buyers premiums, no additional fees to pay for the
advertising and circus tents and, you may get the bank to pay for your closing costs, pay for
repairs or other credits and provide for inspection periods during which time, your initial deposit
is fully refundable.
Writing your offer for a bank owned (REO) property:
Patience is the name of the game when entering the bank owned property market. If you lack
patience, REO homes are not for you. Long wait times, little communication and competition for
the best homes is routine. Choosing the right agent to represent you will alleviate some of the
problems associated with the process. Even the best, and most experienced, reo agents can not
speed the process.
It is important to understand that, when offering on bank owned homes, you are dealing not only
with a listing and or selling agent, you are dealing indirectly with an “asset manager” who may, or
may not be, affiliated with the financial institution, lender or investor who has completed the
foreclosure process.
When an offer is submitted, your information and offer terms - conditions will be submitted to the
“asset manager” via the listing agent.
You can search for homes right here and then submit an initial intent to purchase a bank owned
home right here. Simply click here to get started.
What does this mean to your offer(s)?
If making offers on multiple homes (With the intention of maybe buying only 1):
If you are making multiple offers, even through different agents, the asset manager may likely be
the same. Although you may think that this is a great way to pick and choose after an
acceptance, you may be actually undermining your own efforts. Once agents and asset
managers see this happening, you will probably find it difficult, if not impossible for any offer you
make to be taken seriously. If you offer is considered at all. Lenders have no interest in playing
games. Their job is to complete the sale, not process make believe offers from “gamers”.
Making offers at far less than listed price:
Lenders and their asset managers price their homes according to their market indicators. By the
time the property is listed for sale, most will have obtained 3 BPOs (Broker Price Opinions) and 1
appraisal for a licensed real estate appraiser. 2 BPO orders and 1 appraisal will be completed in
advance of the listing being placed with an agent and 1 by the listing agent before a price is
ultimately determined. What does this mean to you? When making an offer, the owner-lender has
already done their homework (Right or wrong). The price listed will typically be less than the
value determined by 4 separate individuals. Could their price still be wrong? Certainly but,
lenders seldom accept or counter offers that are far less than the price they have already
determined to be less than fair market value especially in the first 30 days of listing. If you are
making many offers and have yet to receive a response from a lender or, one that you deem to
be agreeable, you may have already been banned. Banned? Yes, some asset managers will
notify their agents to no longer submit offer from certain individuals unless they meet certain
criteria.Again, asset managers are overwhelmed with “investors” who have no real intention of
completing a sale.
Although lenders expect some negotiation, their pricing does not seem to have any relationship
with this expectation. Understand that the “bank” has no emotional attachment to the property
and are only interested in disposing of the asset at the highest and best price with the best
terms….for them. A “cry letter” included with your offer explaining why you are making a
“ridiculous” offer will not be seen by anyone other than your agent. Asset Management systems
are very basic and the “lender” will not see your
written offer during the initial process. Offers are transmitted through an online system that asks
for offer price, concession costs (Closing costs or other items requested by the buyer), the name
of the buyer and room for very brief comment, from the listing agent, about the offer.
How much should I offer?
This is a tough question to answer without knowledge of the property, the price it is offered for,
the bank involved and the region.
As a general rule of thumb, offers will be entertained somewhere between 5-10% of the currently
listed price. In the case of multiple offers, bank owned homes can sell for well over their listed
price.
Hiring an experienced, local REO agent will be able to guide you in the right direction. Offering
far less than the asking price will not typically result in an acceptable counter or even a
response. There are situations that warrant a substantial difference between the listed price and
your offer. A good agent will guide you through the process and provide the information you
need before jeopardizing your future efforts.
Lenders and their asset managers price their homes according to their market indicators. By the
time the property is listed for sale, most will have obtained 3 BPOs (Broker Price Opinions) and 1
appraisal for a licensed real estate appraiser. 2 BPO orders and 1 appraisal will be completed in
advance of the listing being placed with an agent and 1 by the listing agent before a price is
ultimately determined. When listing a home for sale, the owner-lender has already done their
homework. You can agree with their homework and make an offer close to their asking price ( +-5
to 10% ) or, move on to the next property and save the frustration and potentially labeling
yourself as a “gamer”. Offering at far less than the current asking price, unless the home has
been on the market for many months and no activity, is typically fruitless. Even then, 50% off list
offers may do you more harm than good.
It is not unusual to see price drops on homes that have been on the market for some times to
exceed $100,000.00. Good agents will watch potential listings and have clients ready for a
potential, and significant price drop. When this happens, being the first to offer is your best bet to
securing the property. Don’t go in with the idea that, sine the price has been reduced that they
will now take even less. If you, and you agent, see a good deal, it is time to act.
Only an experienced REO Realtor, familiar with the area and local real estate market will be able
to guide you in the right direction when making an offer.
Finding the Right REO agent. Inspect what you expect!
The very best deals are long gone before most even know they are available. The properties
that remain are left for everyone else to sift through. How do you get access to the best
properties? Finding an experienced REO agent is your first step to your success.
Finding the right agent to represent you may be the most difficult part of the process. Keeping a
good agent is even harder. Good agents, that ARE truly familiar with the REO market, will
typically have a long list of clients looking for a particular property types. y. The very best
homes, at the very best prices go to, wouldn’t you guess, their very best clients. It takes a huge
investment of their time to scour through all of the properties entering the market and these
agents, and their clients, will need to make immediate, educated decisions or…. you may end up
last in a long list of offers. The early bird gets the worm! If your agent has called you about
multiple properties and you have not responded immediately or are indecisive, you may just end
up on the bottom of their list of clients to call.
An experienced REO agent WILL ask you more questions than you ask them so, be prepared.
Having a pre-approval through a direct lender or, proof of available cash will be on the top of the
list. Other factors they will consider is whether the home will be your own residence, a rental or
even a “flip”.
If a potential buyer’s agent does not interview you before taking you on as a client, you may want
to stop and ask why. Even if you are their only client, they need to know what to be looking for.
The time to ask questions of your motivation and goals is not during the process. A well qualified
REO agent knows this.
Looking for rental property to add to your investment portfolio?
Sometimes, all it takes is some simple math to see if you have found a great deal on a lender
owned foreclosure. Your agent should have a good understanding of the current rental market
(Another reason that a local agent is necessary to your success) and will be able to provide
information about current and projections of future market rents. Knowing the direction future
rents may take is an aspect often overlooked by potential investors.
If you are able to acquire a property, after your initial investment (Typically 20% for non-owner
occupied investment property), and the market rents for the area are enough to cover debt
service ( Monthly mortgage payment for a conventional, fixed rate, fully amortized loan with
principle and interest payments each month), property taxes (Anywhere from 1.3% to over 2%)
and insurance and, you still retain monthly positive cash flow to cover a pre-determined vacancy
factor and deferred maintenance, you know that you are on the right track.
If you had a mortgage payment of $1300.00 including PITI and market rents were at $1500.00 it
would leave $2400.00 per year applied to vacancy and repairs. Hard to do? Not right now but,
competition for these properties is becoming greater every day.
The ideal situation for an investor is to have someone else make their monthly mortgage
payment and pay for all repairs over the life of the mortgage. The idea is that in 20-30 years, you
will have a substantial estate to draw upon for needed income or, live from the income realized
from the paid for property and leave the asset to your heirs.
If all you purchased were 10 properties and market rents did not increase over the next 20 years,
you would have over $13,000.00 per month in income. Of course, you would have to pay taxes
on this income and $13,000.00 will not mean as much 20 years from now as
it does today but, rents do increase over time. $13,000.00 per month is still quite a bit of income
coming in from something that someone else paid for!
You should consult with your Realtor and accountant or tax attorney to establish a plan that
meets with your investment goal.
Are you a Flipper?
This is one of the most volatile areas of the market and there are many different opinions on the
viability of flipping. Flipping is not for the faint of heart, financially unstable or uneducated
investor. You must have knowledge of the market, rehab costs and processes, a well developed
plan, budgeting skills and the financial ability to complete the process. Even the most
experienced “flippers” run into unforeseen obstacles that can add thousands to your bottom line.
Going over budget and estimated time frames is common and must be avoided through thorough
cost, budget and time estimating. If you are weak in any of these areas or lack general
knowledge of construction methods, you need to bring someone on board to assist you before
even considering flipping a home.
Casey Serin, one of this countries most notorious flipping flops, has become the poster child for
the wrong way to flip. A quick Google of his name will provide a wealth of information and a long
list of what to avoid. Why reinvent the wheel when you can learn from the king of the flip flop?
This market could still bring a good return on your investment (Think 10% as a potential profit
goal). Looking to the rental market, as a contingency plan in case you are unable to sell within 90
days or so, should be part of a well developed strategy. If, after all of your initial costs and re-hab
work, you are still able to rent and cover all of your expenses, you may be able to avoid a
potential disaster while still building future wealth. Barring a rental contingency plan, you will have
to have enough capital to cover holding costs for as long as it takes to sell (Think potential Loss).
If you do not have the ability to do either and must rely on selling within a short time frame to
avoid financial disaster, there are other, less risky, investment strategies to consider.
If you are still ready, able and willing to flip, a Realtor who is experienced in the REO market is an
absolute must and, will help establish a plan that meets your goals. They will also have the
experience necessary to advise you on the right direction to proceed. Keep in mind that no one
can predict the future. Your Realtor is only able to be your guide though the process yet,
ultimately all of the potential risks are yours, and yours alone. Fail to plan and….plan to fail.
The Offering Process:
Asset managers have their own process that must be followed in order to make a successful
offer. Listing agents are given instructions that are conveyed directly to brokers. These
instructions are displayed in the MLS system along with required addendums where required.
This information is only visible to participating Realtors or their brokers and not displayed on the
public MLS system.
Your offer will need to be submitted on the proper forms along with a copy of your deposit check
(Typically 1% of the purchase price), a pre approval letter from a direct lender (Not your
everyday loan broker) or proof of funds when paying cash. Your Realtor will also attach any
required addendums with your offer. All forms will usually be sent via e-mail and fax to speed the
process.
After your offer is transmitted and received by the listing broker, your offer will be entered into an
asset management system online or, in some rare instances where the asset manager (The
banks representative) does not utilize management systems; your offer is forwarded on directly
to the asset manager. In most cases, they will not see your actual offer. What is transmitted to
them is only your name, the purchase price offered and the general terms of your offer (Whether
there is financing involved, the amount of your deposit, the amount of your down payment and
any other contractual provisions ). There is no need to explain your offer or provide additional
details, they will not see it. The simpler your offer is, the better.
Once transmitted, received and entered or forwarded to the bank, all you can do is wait. It is
typical to hear nothing at all for a few days or, up to a week or more. Sometimes a response will
be received in a matter of hours. Patience is a virtue. Hounding your Realtor will not speed the
process. Nothing will speed the process at this point other than a clean and easy to accept offer.
Even then, there is no guarantee your offer will receive a quick response.
When responding to your offer, the banks asset manager will do so using a counter offer. Even if
they agree on all of the terms as submitted, they will provide a counter offer that must be retuned
to them within a specified period of time (Usually 1-3 days) after which their offer will be null and
void. Time is of the essence so, be prepared to respond. If they are not in agreement, the
counter offer will contain the terms that they are willing to accept unless another, more desirable
offer, is received before your acceptance. You can either accept their terms or, have your
Realtor complete a counter offer in return. Rarely will an asset manager complete more than 2-3
counter offers. If you can not reach an agreement after 2-3 counter offers, it is usually time to
move on.
After the offer is accepted:
Once the terms are agreed upon and the counter offers and addendums are returned, your
original offer and counter offer(s) will then be returned to the bank for signatures. It may take an
additional week or more for them to be returned and escrow opened. It is imperative that all the
terms and conditions contained within their final counter offer are followed regardless of being
returned and escrow being opened. Some counter offers will state that your contingency time
frames start from your signature and others will state that these periods start only after escrow
receives the signed documents from the owner-bank. Although rare, it is possible for the lender
to accept another, more desirable offer, before your contact is signed. If this does happen, there
is nothing you can do other than leave your offer as a back up or, move on. Contracts are not
fully ratified until signed by the banks representatives.
Once escrow is opened, the escrow officer will forward initial documents for your review and
completion. These documents need to be completed and returned as soon as possible and
within the time frames allowed by the bank. When obtaining a loan, you will also need to complete
all of the required paperwork that they require as soon as possible. The closing dates set by the
bank are firm and their contract will usually contain a per diem charge for each day beyond the
closing date specified ($100.00 per day or more). During this time you will also need to complete
your home inspection, termite inspection or other agreed upon inspections contained in the
contract. Failure to complete your inspections or other required conditions within the specified
time frames could put your deposit at risk. Time is of the essence. Your Realtor will help you
through the process but, ultimately, it is your responsibility to follow the contract.
When you have completed your inspections, your loan has been fully approved, an appraisal has
been completed and all other conditions have been complete and accepted, your lender will
order loan documents or, when paying cash, escrow will provide a closing estimate which will
include the total amount that will need to be deposited by wire or certified funds to escrow and will
then, after receipt of funds, record and close within 24-48 hours. Once loan documents are
received back to your lender or to escrow, you will need to sign the loan documents before a
Notary Public. This happens either at the escrow office chosen by the bank, at the lenders office
or, on occasion, at your home or office. When returned to escrow, your lender will review the
documents, complete final verifications and then prepare for funding of the loan.
Loans will typically fund, if no issues exist, within 24-48 hours after received and approved. Any
conditions of funding must be completed prior to actual funding. Once funded, escrow will record
and close within 24-48 hours.
Before close of escrow, no work should ever commence on the property. Attempting to start
repairs or, moving into the property prior to confirm closing could void the contract.
After you receive notification of closing, the property is yours. Congratulations!
Banks are forbidden from selling their homes on the market themselves so, ultimately a broker
will be involved. Want to go direct to the source? An experienced REO agent can provide all of
the “inside information” you will ever need.
There is no mystery to the REO market. There is no one with a secret “in” or “system” that you
need to buy. REO agent (Both listing and sales) and developing a good relationship with them is
your best way to buying the best homes at the best price. They will be able to provide access to
REO properties as they come available and provide advance notice of properties soon to be
made available.
What about Auctions?
The only “real” auction is the one that happens at the end of the foreclosure process (Trustees
Sale). The lender offers the property for sale on the County Courthouse steps. You can find
information about upcoming trustee’s sales in the classified section of your local paper or, from
the County Courts. The information is free and there is no reason to pay for this public
information as many would lead you to believe.
Buying on the Courthouse steps can be the riskiest way to purchase property, and should never
be attempted by a first-time buyer. Inspections of the property are usually not an option; payment
for the property will usually have to be made in cash or, with a large deposit in cash up front and
the balance due within hours. Even after the sale, you may end up owing any unpaid property
taxes and liens against the property. The foreclosure auction also comes with the possibility that
the homeowner might redeem the home by coming up with the cash to buy the house back within
a specified period of time. The Internal Revenue Service (IRS) also has the right to redeem the
property within 120 days if back taxes are owed. A local real estate lawyer can fill you in on the
redemption laws in your state and advise you of further legal issues if you are still interested in a
true foreclosure auction.
Often, the price offered at the foreclosure auction will be higher than the price it will be ultimately
offered at on the open market (REO (Real Estate Owned)). When buying as an REO through a
real estate agent, you will typically be provided free and clear title, title insurance and also have
the ability to have the property inspected and appraised. You will also have the ability to finance
the property and take advantage of other incentives that may be offered by the lender-owner.
You have undoubtedly seen advertisements in the paper, the mail or online that advertise
properties being sold to the public at “auction”. These are not true foreclosure auctions at all.
They are nothing more than advertising schemes designed to entice buyers into participating in
the “auction experience”. The more that attend these “auctions”, the more excitement, the more
excitement, the higher the bidding. Auctions are great for the seller or to create huge profits for
the auction company yet, rarely prove advantageous for the average buyer. They often entice
buyers to attend by advertising unrealistically low prices and then, only when you have
registered, disclose that the price advertised is simply a suggested starting bid. What they don’t
reveal is that the seller’s reserve price is substantially higher (The lowest price they will sell for).
Are these “auctions” complete scam? Some claim them to be but, you would have to make that
determination for yourself. Other considerations would be that you may also be required to make
a non-refundable deposit immediately after bidding and pay an additional “buyers premium” that
could add 3-6% or more to your purchase price. The fact is that you could buy a similar, and
sometimes the exact same property, without the hype, circus atmosphere, and additional cost,
directly from a real estate agent. No buyers premiums, no additional fees to pay for the
advertising and circus tents and, you may get the bank to pay for your closing costs, pay for
repairs or other credits and provide for inspection periods during which time, your initial deposit
is fully refundable.
Writing your offer for a bank owned (REO) property:
Patience is the name of the game when entering the bank owned property market. If you lack
patience, REO homes are not for you. Long wait times, little communication and competition for
the best homes is routine. Choosing the right agent to represent you will alleviate some of the
problems associated with the process. Even the best, and most experienced, reo agents can not
speed the process.
It is important to understand that, when offering on bank owned homes, you are dealing not only
with a listing and or selling agent, you are dealing indirectly with an “asset manager” who may, or
may not be, affiliated with the financial institution, lender or investor who has completed the
foreclosure process.
When an offer is submitted, your information and offer terms - conditions will be submitted to the
“asset manager” via the listing agent.
You can search for homes right here and then submit an initial intent to purchase a bank owned
home right here. Simply click here to get started.
What does this mean to your offer(s)?
If making offers on multiple homes (With the intention of maybe buying only 1):
If you are making multiple offers, even through different agents, the asset manager may likely be
the same. Although you may think that this is a great way to pick and choose after an
acceptance, you may be actually undermining your own efforts. Once agents and asset
managers see this happening, you will probably find it difficult, if not impossible for any offer you
make to be taken seriously. If you offer is considered at all. Lenders have no interest in playing
games. Their job is to complete the sale, not process make believe offers from “gamers”.
Making offers at far less than listed price:
Lenders and their asset managers price their homes according to their market indicators. By the
time the property is listed for sale, most will have obtained 3 BPOs (Broker Price Opinions) and 1
appraisal for a licensed real estate appraiser. 2 BPO orders and 1 appraisal will be completed in
advance of the listing being placed with an agent and 1 by the listing agent before a price is
ultimately determined. What does this mean to you? When making an offer, the owner-lender has
already done their homework (Right or wrong). The price listed will typically be less than the
value determined by 4 separate individuals. Could their price still be wrong? Certainly but,
lenders seldom accept or counter offers that are far less than the price they have already
determined to be less than fair market value especially in the first 30 days of listing. If you are
making many offers and have yet to receive a response from a lender or, one that you deem to
be agreeable, you may have already been banned. Banned? Yes, some asset managers will
notify their agents to no longer submit offer from certain individuals unless they meet certain
criteria.Again, asset managers are overwhelmed with “investors” who have no real intention of
completing a sale.
Although lenders expect some negotiation, their pricing does not seem to have any relationship
with this expectation. Understand that the “bank” has no emotional attachment to the property
and are only interested in disposing of the asset at the highest and best price with the best
terms….for them. A “cry letter” included with your offer explaining why you are making a
“ridiculous” offer will not be seen by anyone other than your agent. Asset Management systems
are very basic and the “lender” will not see your
written offer during the initial process. Offers are transmitted through an online system that asks
for offer price, concession costs (Closing costs or other items requested by the buyer), the name
of the buyer and room for very brief comment, from the listing agent, about the offer.
How much should I offer?
This is a tough question to answer without knowledge of the property, the price it is offered for,
the bank involved and the region.
As a general rule of thumb, offers will be entertained somewhere between 5-10% of the currently
listed price. In the case of multiple offers, bank owned homes can sell for well over their listed
price.
Hiring an experienced, local REO agent will be able to guide you in the right direction. Offering
far less than the asking price will not typically result in an acceptable counter or even a
response. There are situations that warrant a substantial difference between the listed price and
your offer. A good agent will guide you through the process and provide the information you
need before jeopardizing your future efforts.
Lenders and their asset managers price their homes according to their market indicators. By the
time the property is listed for sale, most will have obtained 3 BPOs (Broker Price Opinions) and 1
appraisal for a licensed real estate appraiser. 2 BPO orders and 1 appraisal will be completed in
advance of the listing being placed with an agent and 1 by the listing agent before a price is
ultimately determined. When listing a home for sale, the owner-lender has already done their
homework. You can agree with their homework and make an offer close to their asking price ( +-5
to 10% ) or, move on to the next property and save the frustration and potentially labeling
yourself as a “gamer”. Offering at far less than the current asking price, unless the home has
been on the market for many months and no activity, is typically fruitless. Even then, 50% off list
offers may do you more harm than good.
It is not unusual to see price drops on homes that have been on the market for some times to
exceed $100,000.00. Good agents will watch potential listings and have clients ready for a
potential, and significant price drop. When this happens, being the first to offer is your best bet to
securing the property. Don’t go in with the idea that, sine the price has been reduced that they
will now take even less. If you, and you agent, see a good deal, it is time to act.
Only an experienced REO Realtor, familiar with the area and local real estate market will be able
to guide you in the right direction when making an offer.
Finding the Right REO agent. Inspect what you expect!
The very best deals are long gone before most even know they are available. The properties
that remain are left for everyone else to sift through. How do you get access to the best
properties? Finding an experienced REO agent is your first step to your success.
Finding the right agent to represent you may be the most difficult part of the process. Keeping a
good agent is even harder. Good agents, that ARE truly familiar with the REO market, will
typically have a long list of clients looking for a particular property types. y. The very best
homes, at the very best prices go to, wouldn’t you guess, their very best clients. It takes a huge
investment of their time to scour through all of the properties entering the market and these
agents, and their clients, will need to make immediate, educated decisions or…. you may end up
last in a long list of offers. The early bird gets the worm! If your agent has called you about
multiple properties and you have not responded immediately or are indecisive, you may just end
up on the bottom of their list of clients to call.
An experienced REO agent WILL ask you more questions than you ask them so, be prepared.
Having a pre-approval through a direct lender or, proof of available cash will be on the top of the
list. Other factors they will consider is whether the home will be your own residence, a rental or
even a “flip”.
If a potential buyer’s agent does not interview you before taking you on as a client, you may want
to stop and ask why. Even if you are their only client, they need to know what to be looking for.
The time to ask questions of your motivation and goals is not during the process. A well qualified
REO agent knows this.
Looking for rental property to add to your investment portfolio?
Sometimes, all it takes is some simple math to see if you have found a great deal on a lender
owned foreclosure. Your agent should have a good understanding of the current rental market
(Another reason that a local agent is necessary to your success) and will be able to provide
information about current and projections of future market rents. Knowing the direction future
rents may take is an aspect often overlooked by potential investors.
If you are able to acquire a property, after your initial investment (Typically 20% for non-owner
occupied investment property), and the market rents for the area are enough to cover debt
service ( Monthly mortgage payment for a conventional, fixed rate, fully amortized loan with
principle and interest payments each month), property taxes (Anywhere from 1.3% to over 2%)
and insurance and, you still retain monthly positive cash flow to cover a pre-determined vacancy
factor and deferred maintenance, you know that you are on the right track.
If you had a mortgage payment of $1300.00 including PITI and market rents were at $1500.00 it
would leave $2400.00 per year applied to vacancy and repairs. Hard to do? Not right now but,
competition for these properties is becoming greater every day.
The ideal situation for an investor is to have someone else make their monthly mortgage
payment and pay for all repairs over the life of the mortgage. The idea is that in 20-30 years, you
will have a substantial estate to draw upon for needed income or, live from the income realized
from the paid for property and leave the asset to your heirs.
If all you purchased were 10 properties and market rents did not increase over the next 20 years,
you would have over $13,000.00 per month in income. Of course, you would have to pay taxes
on this income and $13,000.00 will not mean as much 20 years from now as
it does today but, rents do increase over time. $13,000.00 per month is still quite a bit of income
coming in from something that someone else paid for!
You should consult with your Realtor and accountant or tax attorney to establish a plan that
meets with your investment goal.
Are you a Flipper?
This is one of the most volatile areas of the market and there are many different opinions on the
viability of flipping. Flipping is not for the faint of heart, financially unstable or uneducated
investor. You must have knowledge of the market, rehab costs and processes, a well developed
plan, budgeting skills and the financial ability to complete the process. Even the most
experienced “flippers” run into unforeseen obstacles that can add thousands to your bottom line.
Going over budget and estimated time frames is common and must be avoided through thorough
cost, budget and time estimating. If you are weak in any of these areas or lack general
knowledge of construction methods, you need to bring someone on board to assist you before
even considering flipping a home.
Casey Serin, one of this countries most notorious flipping flops, has become the poster child for
the wrong way to flip. A quick Google of his name will provide a wealth of information and a long
list of what to avoid. Why reinvent the wheel when you can learn from the king of the flip flop?
This market could still bring a good return on your investment (Think 10% as a potential profit
goal). Looking to the rental market, as a contingency plan in case you are unable to sell within 90
days or so, should be part of a well developed strategy. If, after all of your initial costs and re-hab
work, you are still able to rent and cover all of your expenses, you may be able to avoid a
potential disaster while still building future wealth. Barring a rental contingency plan, you will have
to have enough capital to cover holding costs for as long as it takes to sell (Think potential Loss).
If you do not have the ability to do either and must rely on selling within a short time frame to
avoid financial disaster, there are other, less risky, investment strategies to consider.
If you are still ready, able and willing to flip, a Realtor who is experienced in the REO market is an
absolute must and, will help establish a plan that meets your goals. They will also have the
experience necessary to advise you on the right direction to proceed. Keep in mind that no one
can predict the future. Your Realtor is only able to be your guide though the process yet,
ultimately all of the potential risks are yours, and yours alone. Fail to plan and….plan to fail.
The Offering Process:
Asset managers have their own process that must be followed in order to make a successful
offer. Listing agents are given instructions that are conveyed directly to brokers. These
instructions are displayed in the MLS system along with required addendums where required.
This information is only visible to participating Realtors or their brokers and not displayed on the
public MLS system.
Your offer will need to be submitted on the proper forms along with a copy of your deposit check
(Typically 1% of the purchase price), a pre approval letter from a direct lender (Not your
everyday loan broker) or proof of funds when paying cash. Your Realtor will also attach any
required addendums with your offer. All forms will usually be sent via e-mail and fax to speed the
process.
After your offer is transmitted and received by the listing broker, your offer will be entered into an
asset management system online or, in some rare instances where the asset manager (The
banks representative) does not utilize management systems; your offer is forwarded on directly
to the asset manager. In most cases, they will not see your actual offer. What is transmitted to
them is only your name, the purchase price offered and the general terms of your offer (Whether
there is financing involved, the amount of your deposit, the amount of your down payment and
any other contractual provisions ). There is no need to explain your offer or provide additional
details, they will not see it. The simpler your offer is, the better.
Once transmitted, received and entered or forwarded to the bank, all you can do is wait. It is
typical to hear nothing at all for a few days or, up to a week or more. Sometimes a response will
be received in a matter of hours. Patience is a virtue. Hounding your Realtor will not speed the
process. Nothing will speed the process at this point other than a clean and easy to accept offer.
Even then, there is no guarantee your offer will receive a quick response.
When responding to your offer, the banks asset manager will do so using a counter offer. Even if
they agree on all of the terms as submitted, they will provide a counter offer that must be retuned
to them within a specified period of time (Usually 1-3 days) after which their offer will be null and
void. Time is of the essence so, be prepared to respond. If they are not in agreement, the
counter offer will contain the terms that they are willing to accept unless another, more desirable
offer, is received before your acceptance. You can either accept their terms or, have your
Realtor complete a counter offer in return. Rarely will an asset manager complete more than 2-3
counter offers. If you can not reach an agreement after 2-3 counter offers, it is usually time to
move on.
After the offer is accepted:
Once the terms are agreed upon and the counter offers and addendums are returned, your
original offer and counter offer(s) will then be returned to the bank for signatures. It may take an
additional week or more for them to be returned and escrow opened. It is imperative that all the
terms and conditions contained within their final counter offer are followed regardless of being
returned and escrow being opened. Some counter offers will state that your contingency time
frames start from your signature and others will state that these periods start only after escrow
receives the signed documents from the owner-bank. Although rare, it is possible for the lender
to accept another, more desirable offer, before your contact is signed. If this does happen, there
is nothing you can do other than leave your offer as a back up or, move on. Contracts are not
fully ratified until signed by the banks representatives.
Once escrow is opened, the escrow officer will forward initial documents for your review and
completion. These documents need to be completed and returned as soon as possible and
within the time frames allowed by the bank. When obtaining a loan, you will also need to complete
all of the required paperwork that they require as soon as possible. The closing dates set by the
bank are firm and their contract will usually contain a per diem charge for each day beyond the
closing date specified ($100.00 per day or more). During this time you will also need to complete
your home inspection, termite inspection or other agreed upon inspections contained in the
contract. Failure to complete your inspections or other required conditions within the specified
time frames could put your deposit at risk. Time is of the essence. Your Realtor will help you
through the process but, ultimately, it is your responsibility to follow the contract.
When you have completed your inspections, your loan has been fully approved, an appraisal has
been completed and all other conditions have been complete and accepted, your lender will
order loan documents or, when paying cash, escrow will provide a closing estimate which will
include the total amount that will need to be deposited by wire or certified funds to escrow and will
then, after receipt of funds, record and close within 24-48 hours. Once loan documents are
received back to your lender or to escrow, you will need to sign the loan documents before a
Notary Public. This happens either at the escrow office chosen by the bank, at the lenders office
or, on occasion, at your home or office. When returned to escrow, your lender will review the
documents, complete final verifications and then prepare for funding of the loan.
Loans will typically fund, if no issues exist, within 24-48 hours after received and approved. Any
conditions of funding must be completed prior to actual funding. Once funded, escrow will record
and close within 24-48 hours.
Before close of escrow, no work should ever commence on the property. Attempting to start
repairs or, moving into the property prior to confirm closing could void the contract.
After you receive notification of closing, the property is yours. Congratulations!
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| REOTRANS, USRESNET or other reo - asset management systems are used when making offers, when listing reo properties or providing a service in conjunction with the offering of an reo property. Properties listed as bank owned may be owned by by: Wells Fargo Bank REO, Bank of America REO, Countrywide REO, Wachovia Bank REO, Chase Bank REO or through and asset management company. |