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Buying Distressed Properties

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  • 1. Buying Distressed Properties
    Monica Florio
    Long & Foster, Realtors
    May 21, 2011
  • 2. What is a distressed property?
    A property in any stage of the foreclosure process
    Foreclosure is a legal process by which a defaulted borrower is deprived of his interest in a mortgaged property
  • 3. Stages of foreclosure
    Pre-foreclosure: begins at property default and ends when the property is sold
    Foreclosure sale: property sold to the highest bidder at auction
    Real Estate Owned (REO): the bank sets a reserve price at auction; if that price is not met, then the ownership reverts to the bank
  • 4. What options does a distressed homeowner have?
  • 5. What options does a distressed homeowner have?
    Refinance or modify existing loan
    Offer deed in lieu of foreclosure
    Sell and bring cash to closing
    Request a short sale
    Let the property go into foreclosure
  • 6. What is a short sale?
    A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan
  • 7. Why a short sale?
    For buyers: may not damage distressed owner’s credit or ability to obtain financing in the future as much as a foreclosure
    Can obtain a conventional mortgage after two years
    For lenders: it costs less than a foreclosure
    For community: lessen impact that foreclosure can have on surrounding community
  • 8. How are short sales priced?
    Listed at the low end of fair market value
    After buyer and seller agree on sales price, the bank (the seller’s lender) must approve the sales price
    Banks determine what they’ll accept for the property based on a broker’s price opinion (BPO): an opinion of fair market value from an independent analyst
  • 9. Buying opportunity: Low interest rates
    18%
    5%
  • 10. Buyer and seller negotiation
    Seller concerns
    Price is too low – lender might not approve
    Possible deficiency that the seller will have to pay
    Buyer concerns
    Price is too low – lender might not approve
    Wasted time and possibly money
    Both agents have a duty to negotiate the best price and terms for their clients before the contract goes to the lender for approval
  • 11. Questions to ask before you write a contract
    How many liens are on the property?
    If more than one lien, what are they?
    Is the seller delinquent on condo dues? (Many lenders will not pay these)
    What is the status of the short sale package?
    What is the plan to satisfy all the lien holders?
  • 12. Timing
    How much time a seller has to accomplish a short sale is impacted by:
    The seller’s lender’s process
    How many liens are on the property
    State foreclosure laws
    Whether foreclosure date has been set
  • 13. Short sale addendum
    As-is
    Expiration date: allowing the buyer the option to walk away after a certain date
    Lender approves SHORT SALE, not contract
  • 14. What does it mean to buy a property “Asis”?
    What are the risks?
    Property disclosures still in effect
    Home inspection is VERY IMPORTANT
    Is the cost to make the changes worth it?
  • 15. Negotiation with seller
    Price
    Timing of home inspection
    Time for lender approval
    Timing of mortgage application
    Earnest money deposit amount
  • 16. Your lender must understand the needs of a short sale buyer
    Because of the long time frame involved, consider locking in your interest rate.
    Costs money up front to lock in a rate.
    Ask what your lender’s experience is with rate locks and short sale properties.
  • 17. Broker’s Price Opinion
    The mortgage lender will order what's called a "broker's price opinion," which gives the mortgage lender some idea of what the property is actually worth in the current market. A broker's price opinion will be based on:
    * the value of comparable properties in the same neighborhood
    * the general condition of the neighborhood
    * the condition of the specific property in relation to neighboring houses
  • 18. Average approval time
    Wachovia 2-4 weeks
    GMAC 4-8 weeks
    Bank of America 8 weeks
    Wells Fargo 8-12 weeks
    E*Trade 8-12 weeks
    CitiMortgage 8-12 weeks
    SunTrust 8-16 weeks
  • 19. Buying a bank-owned property
    Sold as is (an excellent home inspector is a MUST)
    Bank must approve sale – faster than short sale but more time than a normal resale property
    Property may be in poor condition
  • 20. Stay ahead with local housing market updates from Long & Foster
  • 21. The Smarter Homeowner Seminar Series
    Register at:
    www.urbanlivingintheburbs.com
    Location:
    Long & Foster Fair Oaks
    13135 Lee Jackson Highway
    Fairfax, VA 22033
    703-651-2502
  • 22. Monica Florio
    Long & Foster, Realtors
    703-651-2502
    monica@LNF.com
    www.urbanlivingintheburbs.com