Buying Distressed Properties Monica Florio Long & Foster, Realtors May 21, 2011
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
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
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
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
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
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
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
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?
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
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
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?
Negotiation with seller Price Timing of home inspection Time for lender approval Timing of mortgage application Earnest money deposit amount
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.
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
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
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
Stay ahead with local housing market updates from Long & Foster
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
Monica Florio Long & Foster, Realtors 703-651-2502 monica@LNF.com www.urbanlivingintheburbs.com