Foreclosures & Short Sales - a buyer opportunity

Due to the mortgage crisis spurred by no money down purchases, initial low interest adjustable rate mortgage (ARM) loans and easy access to credit, many people bought properties in the last five years that now can not afford them. These ARM loans are more sensitive to short term interest rate increases, and the short term interest rates have gone up quickly in the past few years. This has caused some homeowner mortgage payments to almost double, making the properties unaffordable to them.

The need for rapid sell off and higher supply than demand have caused prices to readjust. In some areas prices have come down as much as 50% and reaching the year 2002 prices. Most of these properties are under $500,000, but there are also some over $1 million. In McLean there is a foreclosed property asking $4.5 million that sold for $6.5 million in 2005. So there are opportunities in almost every price point.

However, this situation affects less than 1% of area homes, but the numbers are high enough to have an impact on the real estate market. For the investor this means that there are some good properties to be cash flow positive and with higher than most likelihood for appreciation. But…. some properties can be a money pit! One must find the right resources to find the better properties.

What is a Short Sale?

Per the National Association of Realtors®, "A short sale is a sales transaction in which the seller's mortgage lender agrees to accept a payoff of less than the balance due on the loan." This occurs since the homeowner is in a financial situation that will not allow them to continue making payments on the debt, has little to no assets, and needs to sell. In a Short Sale, the lender can: (1) forgive that shortfall (most often); or, (2) ask for future payment via a deficiency judgment. The benefit on the forgiveness to the homeowner is that they get to walk away from the home with no further financial commitment to the lender.

Short Sales can be a good way to buy a property at a discounted price, but, there are potential pitfalls. If you are interested in Short Sales, contact me (see below) and I will meet with you and provide you with key information.

Foreclosures

When a homeowner stops paying their mortgage, a lien holder will begin a legal foreclosure procedure to protect their interests in the property. The legal jurisdiction will auction the home to the highest bidder, which will generally be the lien holder, so as to minimize their loss. Once the lender takes title to the home, they then sell it as a REO (“Real Estate Owned”) or "Bank Owned" property. Property owners who let their homes foreclose, have little incentive to leave it in good condition. There are many stories where home owners have caused much destruction to their homes before finalizing the foreclosure process.

REO/Bank Owned Properties

Once the bank or lender re-possesses a home, they usually bring it back to an "acceptable" sales condition with paint or carpet, and at times minor repairs, and then list it for sale with a Realtor. Since banks do not want to own properties, these are some of the best buys in real estate, providing the buyer is prepared to accept them in the condition they see the property. Banks rarely make further repairs once they are for sale, hence any updating or improving is for the buyer to do. I have access to all REO/Bank Owned properties in Northern Virginia, DC & suburban Maryland. If you are serious about buying this type of a property, I can help you find one.

Given the current lending situation, unless you use your VA qualification to obtain a 100% loan, be prepared to provide a substantial down payment, at least 10% of Contract price. You will also need to be approved for financing. I can provide you to a lender who can help you get financially approved to strengthen your negotiating position.

There is much more to learn about taking advantage of these opportunities than detailed here. I have the answers you need and can represent you in the purchase of property. Please complete the form below, or call me on my mobile at 517-233-0581, and we can arrange a meeting to discuss the way for you to move forward.

Complete the following form only if you have a serious interest in buying REO/Bank-Owned or Short-Sale Homes.