Buying Foreclosure Homes

“Foreclosure” happens to a homeowner when they have defaulted on the loan or loans on their real estate. The first phase of foreclosure happens after several payments are missed… after such time a “Notice of Default” is served to the Owner from the Lender. Once the Notice of Default is delivered to the Owner, it becomes public record, and there is a defined period of time that the Owner has to cure the loan including full payment of all past due payments, late charges, attorney’s fees, court filing, service, and trustee fees.

Very often, I receive inquiries for Buyers looking to take advantage of potential discounts that are perceived to be available on foreclosure properties. There are many websites that offer subscriptions fees for lists of foreclosure properties, with the lure that these properties can be purchased for pennies on the dollar. First of all, there is no need to pay money for these lists. They can be obtained for free from Title Companies, or at the County courthouse.

What you need to know is that statistically less than 2% of all properties that go into the foreclosure process with a Notice of Default actually get foreclosed on. Taking it a step further, nearly all of the 2% of properties that actually go to foreclosure sale are highly leveraged (the loan amount is close to, or even above the actual market value of the home). The bottom line is that it is very, VERY rare to see a property go to foreclosure sale where there is much, if any equity in the home. Combine that reality with the fact that most foreclosure homes are in very poor condition by the time that the occupant vacates the property. Even if you found that rare deal, you need to be prepared for the vast competition at the foreclosure sale (also known as the Sheriff’s Sale). To purchase a foreclosure property certified funds are required. Therefore, conventional financing is not an option.

Most of the time the Lender winds up with the foreclosure property at the Sheriff’s Sale for the amount of their loan on the property, plus costs. The Lender then processes the home, and will often complete necessary repairs on the home to make the property marketable. This can often take several months. As you might imagine, all improvement costs are typically added to the Lender’s bottom line. In the end, foreclosure properties may be priced higher than market value when they finally hit the market. The result is that foreclosure properties are sometimes not the great deal that the perception leads you to believe they are.

I know a couple of foreclosure hunters in the Portland area who spend a great deal of time and money soliciting those Notice of Default lists to try and secure the property before it gets foreclosed on. By a lot of time, I’m talking FULL time. When I say a lot of money, we are talking thousands of dollars a month in mailings alone. That being said, I find that they will secure 2 or 3 properties a year, after all of their work hunting and soliciting hundreds of Owners in default. I know this because they have come to me to resell the properties. And guess what… by the time these investors are ready to flip the property… their asking price is right back at market value.

My advice is that there are better deals, that are easier to be had, on the market RIGHT NOW, that are likely to be in better condition, and that can be purchased with far less hassle than foreclosure properties. I am happy to forward you the Notice of Defajult lists for free if you desire. However, we should meet first to talk more about what is required to compete in the foreclosure market.

Best regards,

Mark Vandervest, Broker
RE/MAX Equity Group, Inc.
www.TheOregonBroker.com

Now… more than ever…
~ There is simply no substitute for experience. ~
“People Before Profit… Reputation Before Revenue!”
Mark Vandervest

Copyright© 2009, Mark Vandervest, P.C. – All rights reserved.
No portion may be reproduced without express written permission of Mark Vandervest, P.C.

The Scoop on Short Sales

“Short Sales” are real estate listings that are trying to be sold for less money than what is owed on the property. The current owner has a loan (or loans) on the property that exceeds the listing or sale price. On the surface, the property seems like a really good value… almost too good to be true. The enticement of the possibility of purchasing a property for less than market value certainly seems very appealing. It is natural to get excited and hopeful about getting a great deal when purchasing real estate.

So what’s the downside? Unfortunately the odds that Short Sales will mature to an actual sale are against you. Recent statistics report that less than 30% of all Short Sale offers are accepted by Short Sale Lenders. Therefore more than 7 out of 10 are a complete waste of time. Statistics go even further by reporting that of the 30% of Short Sales that are accepted by Short Sale Lenders, 60% fail to close! It's not hard to do the math. The question becomes where to you, as a Buyer, want to focus your energy?

When you understand the dynamics of what has to happen, it becomes easier to understand why Short Sales hardly ever work out. Essentially, when an offer is submitted to a lender for Short Sale approval, the lender is put in the position of determining if they are willing to take less than what they are owed (a LOSS) to release the mortgage lien from the Short Sale property. Because the lenders often have an appraisal in the file that is higher than the offer price (because an appraisal was needed in order to fund the loan(s) to begin with), they are typically very reluctant to take less than what they are owed. The decision is further complicated when there is more than one loan on the property (i.e. a first mortgage plus a second mortgage, or home equity line of credit). Negotiating Short Sale acceptance on two loans is extremely difficult, and a complicated process to say the least.

Another dynamic that plays into the Short Sale dilemma is an interesting bit of information that an attorney provided at a conference I attended. Amidst all of the lending turmoil going on in the market over the last couple of years, Lenders have to be very careful to keep their assets in line with their debts. It is important to know that when a Lender transfers interest or releases their loan, they are accountable immediately for the gain or LOSS. This means that if they agree to accept a Short Sale, they have to account for the LOSS on their books at the time of closing. Losses are not a good thing for Lenders in this market… in fact, losses are precisely the reason why so many Lenders are closing their doors and going out of business. According to the attorney presenting at the conference, it often benefits the Lenders to let the property go to foreclosure, and take the property back as an ASSETT, vs. having to report a short sale as a loss on their books. In theory, it is better for the Lender to sit on the property, hoping that the market will get a little better so they can recover their loss, or at least break even on their loan, thereby not resulting in accountability for a loss. The most frustrating component of a Short Sale, is that the majority of the time, the Lender will not even respond to Short Sale offers! Instead, many offers continue to accumulate on the Short Sale property, of which each Buyer hopes to result in a great deal for the Buyer, and which the Lender hopes will be close to, or above the amount they are owed.

There was new legislation that was passed in January 2008, and further revised in April 2008, that provides that Agents must disclose Short Sale “language” in such listings. Unfortunately there are many agents that don’t follow the rules too closely. If you would like to read more about the summaries, you can see more at www.TheOregonBroker.com/shortsalesummaries.pdf.

I am happy to schedule a meeting to discuss how Short Sale transaction may or may not work for you. It is a complex phenomenon new to the industry, and never before seen by most homeowners or Realtors®, and is changing on a daily basis.

Now… more than ever…
~ There is simply no substitute for experience. ~
“People Before Profit… Reputation Before Revenue!”
Mark Vandervest

Copyright© 2009, Mark Vandervest, P.C. – All rights reserved.
No portion may be reproduced without express written permission of Mark Vandervest, P.C.

The Portland Oregon Metro Real Estate Blog

This blog is designed for real estate related information. Most will be specific to the Portland Oregon Metro real estate market, but some information may be extracted from the National Real Estate Market, and the National Association of Realtors®. In the event you would ever like more information specific to a topic, I can be reached through my website www.TheOregonBroker.com.

Best regards,

Mark Vandervest, Broker
RE/MAX Equity Group, Inc.
www.TheOregonBroker.com

Now… more than ever…
~ There is simply no substitute for experience. ~
“People Before Profit… Reputation Before Revenue!”
Mark Vandervest

Copyright© 2009, Mark Vandervest, P.C. – All rights reserved.
No portion may be reproduced without express written permission of Mark Vandervest, P.C.