Not all foreclosures and short sales are profitable. To pull a home out of foreclosure, buyers need to make up back payments to the lender, pay all imposed fees and either pay off the loan or make arrangements to sell the property. Few lenders will let a buyer assume an existing obligation. There are three ways to purchase: from the seller in foreclosure, negotiating a short sale or buying from the lender after a public auction (REO).
Buying a Home at the Trustee's Sale can be done by checking your local papers or auction house websites. Check with your local county office to find out how sales in your area are handled, but common threads among most of them are:
● No loan contingency
● Sealed bids or Auction
● Proof of financial qualifications
● Sizeable earnest money deposits
● Purchase property "as is"
● Paying all taxes, transfers, and title work
Sometimes buyers are not allowed to inspect the house before making an offer. The problem with buying a house sight unseen is you can't calculate how much it will cost to improve the structure or bring it up to habitable standards. Nor do you know if the occupant will retaliate and destroy the interior . On top of that, you may need to evict the tenant or owner from the premises after you receive title, and eviction processes can be costly. Check the Public Records
Do your research before making an offer to purchase. Your agent can find out who is in title, whether a foreclosure notice has been filed and how much is owed to the lender(s). This is important because it will help you to determine how much to offer.
When lenders agree to do a short sale in real estate , it means the lender is accepting less than the total amount due. Not all lenders will accept short sales or discounted payoffs, especially if it would make more financial sense to foreclose. If you are considering buying a short sale , there could be drawbacks. For your protection obtain legal advice from a competent real estate lawyer or call an accountant to discuss tax ramifications.
TIPS ON SHORT SALES
A short sale in real estate is when the outstanding obligations (loans) against the property are greater than what the property can be sold for. The borrower (seller) proposes that the lender accept a compromised (reduced) payoff amount upon the sale of the property.
The seller must be in arrears with their loan. However, it is possible the lender may consider a short sale based on hardship without the loan being in arrears. Confirm with lender.
Contact the lenders loss mitigation department, your contact needs to be a decision maker or a supervisor. Make sure they will consider a short sale and confirm the requirements.
Request a short sale packet from the lender.
Provide the lender with a release authorization letter signed by the sellers authorizing third parties; i.e., the listing agent, the seller’s attorney to negotiate with the lender directly.
Determine the value of the property. Prepare Comparative Market Analysis.
Estimate the closing costs.
Determine the amount owed against the property.
Do the calculations.
Compose a hardship letter explaining why the seller cannot pay the loan and needs to sell by short sale
Obtain a ratified contract contingent upon the seller’s lender approving the short sale.
Provide the lender with a copy of the ratified sales contract, listing agreement, and a preliminary HUD-1 with all the costs associated with the closing noted.
If repairs are required provide the lender with photos and estimates.
The lender may order a “broker’s price opinion” or an appraisal giving the lender an idea of market value of property.
Wait for lender approval in order to close on the property. It can take up to or more than 45-90 days.
Lender may require a reduction in real estate commissions to complete a short sale.
The lenders loss may be reported to the IRS as income to the borrower. Talk to an accountant/attorney.
Lender may require the sellers to make up the difference, by personal obligation, unsecured note, or a
collection. Lender may report adverse credit to credit bureaus.
THE LENDER’S SIDE:
Is the seller deserving of a break?
Is it cheaper for the lender to foreclose?
How many other properties does the lender currently have in default?
How many other properties does the lender have as Real Estate Owned (REO) inventory?
Are there co-signors that can be held accountable for the balance of the loan?
What are REOs - Real Estate Owned?
● Buying an REO is similar to buying a short sale except the property is already owned by the lender.
● The property was acquired by the lender through a foreclosure action.
● Often lenders will sell repossessed homes for less than the past loan balance.
● Bank-owned properties are called REOs, meaning real estate owned by the lender.
Banks end up owning the property when nobody at the public auction bid enough to cover the amount owed against the property. REO homes are often considered the best way to buy a distressed property because the seller is already out of the picture. It's just the investor, the investor's agent, the bank and the bank's agent who are negotiating the transaction. Most REOs can be purchased through real estate companies.