What to Know Before Buying Foreclosures in San Mateo County

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In The RayChel Realty Group's recent class, What to Know Before Buying Foreclosures in San Mateo County we discussed what to watch out for when buying foreclosures, dispelled some common myths about buying foreclosures and presented a few foreclosure financing programs San Mateo County home buyers can use to buy San Mateo County real estate.

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What to Know Before Buying Foreclosures in San Mateo County

  1. 1. What to Know Before Buying Bank- y g Owned Homes, Short Sales and Foreclosures Presented by… Chris Williamson Raymond Stoklosa Mortgage Advisor Managing Broker and Co-Owner Mortgage California The RayChel Realty Group The RayChel Realty Group www.RayChelRealtyGroup.com
  2. 2. Introduction • Public Infatuated with Real Estate • Almost Everyone Loves a Bargain • Foreclosure Suggests the Lure of a Deal • Foreclosures are S ll S b t of O F l Small Subset f Overall ll Market • Most are Low End Homes in Need of Rehabilitation The RayChel Realty Group
  3. 3. Peninsula Real Estate Unique Competitive Expensive Scarce The RayChel Realty Group
  4. 4. Why is Peninsula Housing So Scarce? • Mandated Open Space • Growth-Management Laws • Community Land Use Restrictions • Environmental Laws • Dedicated Farmland • Historical Preservation • 60% plus of San Mateo 60%-plus County Land is Protected The RayChel Realty Group
  5. 5. Why is Peninsula Real Estate So Expensive? • Acute Shortage of Buildable Land • High Cost of Land • Confined Geographic Boundaries • Finite Supply of Houses • Economically Vibrant • Desirable Amenities • Supply and Demand Imbalance The RayChel Realty Group
  6. 6. It’s Not About the Market, It’s About You • The best time to get a good deal in real estate is any time you can can. • Th right time t b a h The i ht ti to buy home i whenever is h you find the right home for you at this point in your life life. The RayChel Realty Group
  7. 7. Buy Value Historically Distress Real Estate Offers Potentially Great Value The RayChel Realty Group
  8. 8. Buying Foreclosures • Media Reports… Glut f Gl of Foreclosed Homes l d Not Enough Buyers The RayChel Realty Group
  9. 9. Insights • Bargain Hunters Beware: Perfect Homes Seldom Exist • Extremely Desirable Homes Will Probably Not Suffer Foreclosure • M Most Desirable Homes Will Sell in Any Type of D i bl H S ll i A T f Market • H Homes i a Great Location with G in G tL ti ith Great t Features Will Sell in the Conventional Market The RayChel Realty Group
  10. 10. Stages of Foreclosure Process Pre-Foreclosure Short Sales Sh t S l Foreclosure F l Trustee Sale Post-Foreclosure REO’s REO’ The RayChel Realty Group
  11. 11. Short Sales Bargains or Bl k H l ? B i Black Holes? The RayChel Realty Group
  12. 12. What is a Short Sale? Sale • Between Owner and Buyer y • Lender Approval Required • Lender Must Agree to Accept g p Less than Amount Owed • Seller Receives or Pays No Money y y • Seller Does Not Sign Promissory Note The RayChel Realty Group
  13. 13. Who is Eligible? Eligibility of Seller is… • Completely Up To Lender • Each Lender Sets Own Rules • Rules Vary Lender/Loss Mitigators The RayChel Realty Group
  14. 14. Who Usually Qualifies? Homeowners with Genuine Hardship • Job Loss • Medical Reasons • Divorce • Involuntary Relocation that Depletes Homeowner’s Assets • Cannot Pay New Loan Payment – ARM Adjustment The RayChel Realty Group
  15. 15. What is NOT a Hardship? • Home Worth Less than Borrower P id B Paid • Borrower Does Not Want Home • Borrower Does Not Want to Make Payments • Borrower Wants to Buy Another Home The RayChel Realty Group
  16. 16. Ineligible • Homeowners with Significant Assets or Income • Homeowners Who Have Bought 2nd Homes g • Investors The RayChel Realty Group
  17. 17. Benefits of a Short Sale Seller/Borrower • Less Negative Impact on Credit – 2/5/7 • Move on with Life Lender • Cut Losses • Eliminates Non-Performing Asset Non Performing • REO Inventory Unaffected The RayChel Realty Group
  18. 18. Potential Benefits for Buyer • Prices Lower than General Market Buy Less Than Outstanding Loan Balances The RayChel Realty Group
  19. 19. Buyer Beware • Many Alleged Short Sales are Not Attainable Seller Cannot D S ll C t Demonstrate H d hi t t Hardship Price NOT Acceptable to Lender • Code Violations Habitability & Corrective Issues • May Not Open Short Sale File Until NOD • Lender’s Right to VOID Sale after Sale The RayChel Realty Group
  20. 20. Challenges of Short Sales • Outcome is Uncertain • High Failure Rate • Lengthy Processing Time • Technically Complex y p • Unfamiliar with Local Market • Unresponsive • Seller’s Not Proactive • Recovery Demand Unacceptable • Foreclosure Date Too Near • Potential Opportunity Loss The RayChel Realty Group
  21. 21. Investors – Proceed with Caution Home Equity Sales Contract Law Special Contract required when… • Buyer is an Investor • Property Being Sold is Residential 1 - 4 Units • Owner Currently Occupies the Property • Notice of Default (NOD) has Been Recorded The RayChel Realty Group
  22. 22. Seller Has Legal Rights Upon Recording Notice of Default • 5 Day Cancellation Period ll d Seller may cancel • 2 Year Contract Rescission P i d Y C t tR i i Period Rescission for any unconscionable acts • N W i No Waiver b S ll by Seller Any waiver is void • No Limitation on Damages Limiting investors liability is void The RayChel Realty Group
  23. 23. Finding Short Sales Where to Look… • M l i l Listing S Multiple Li i Service (MLS) i www.MLSHomeInformation.com • REALTOR REALTOR.com www.realtor.com • Yahoo Real Estate www.realestate.yahoo.com • Public Records Legal Publications The RayChel Realty Group
  24. 24. What’s Going on Now? Single Family Homes & Condos in San Mateo County Oct 2009 1519 Current Total # of ACTIVE Listings 187 ACTIVE Short Sale Listings 597 SOLD Short Sales Last 12 months 1351 NEW Short Sale Listings Within Last 12 months 910 EXPIRED/CANCELLED Short Sale Listings Within Last 12 months 89.53% Sales Price vs. Original List Price of Short Sales that Actually Sold in the Last 6 Months 141 Avg Days on Market for Short Sales that Actually Sold in the Last 6 Months Source: MLSLISTINGS, INC. The RayChel Realty Group
  25. 25. Active Short Sales The RayChel Realty Group
  26. 26. Reality of Short Sales • Locally 70% + - “Alleged” Short Sales Fail • Nationally Only 10% - 20% Succeed Short Sales are REO Preview The RayChel Realty Group
  27. 27. Keys to Buying Successfully • Be Patient • Follow the Process • Set Realistic Expectations • Understand the Property • Professional Representation The RayChel Realty Group
  28. 28. Foreclosure Sale The Most Dangerous Way To Buy Real Estate May Be Potentially the Most Profitable! Seriously High Risk, Potentially High Reward The RayChel Realty Group
  29. 29. The Trustee’s Sale What is a Trustee’s Sale? • Non-Judicial • Forced Sale • Highest Oral Bidder • Public Auction • Conducted by Trustee • Power of Sale The RayChel Realty Group
  30. 30. What Are You Bidding On? • Lien Owned By The Beneficiary • Winning Bidder Responsible for All Liens Senior • All Junior Liens Wiped Out • Trustee’s Deed Upon Foreclosure Trustee s No Warranties as to Title, Encumbrances, Possession or Condition of Property p y The RayChel Realty Group
  31. 31. Trustee’s Sales are Risky • All Cash • As-Is, Where Is • No Disclosures • No Inspections • No Contingencies • No Deficiency Judgments • Senior Liens Remain in Force The RayChel Realty Group
  32. 32. Finding Trustee’s Sales Look for Notice of Sale (NOD) • Legal Publications • Public Records • Subscription Services The RayChel Realty Group
  33. 33. Keys to Success • Money • Knowledge • Time • Support Team Attorney Real Estate Broker Insurance Broker The RayChel Realty Group
  34. 34. REO The Mother Lode or Just the Shaft? The RayChel Realty Group
  35. 35. What is an REO? • “REO” is an acronym Real Estate Owned • Property Repossessed via Foreclosure • No One Would Pay What Bank Was Owed The RayChel Realty Group
  36. 36. Overview of Foreclosure Market Fannie Mae and Freddie Mac own $6.9 Billion • Si l Family Homes and C d i i Single F il H d Condominiums 8,500+ 8 500+ other Banks own $8.5 Billion $8 5 • In Single Family Homes and Condominiums Fannie and Freddie are America’s Largest Landlord a dlo d The RayChel Realty Group
  37. 37. Banks Have Problems Internal Staffing Problems Overwhelmed, Understaffed & Poorly T i d O h l d U d t ff d P l Trained Utilize 3rd Party Vendors for Assistance Independent Asset Managers for Processing REALTORS® for BPO’s and Marketing BPO s The RayChel Realty Group
  38. 38. What’s Going on Now? San Mateo County – MLS S M t C t Single Family Homes & Condominiums Oct 2009 57 REO’s Currently Listed For Sale 1519 Non-REO’s Currently For Sale 536 REO’s SOLD within last 6 months 2968 Non-REO’s SOLD within last 6 months 100.98% List Price vs. Sale Price REO in Sept ‘09 97.50% List Price vs. Sale Price Non-REO in Sept ‘09 64 Average Days-on-the-Market REO in Sept ‘09 68 Average Days-on-the-Market Non-REO in Sept ‘09 The RayChel Realty Group
  39. 39. Active REOs The RayChel Realty Group
  40. 40. San Mateo REO Market • Inventory Shortage • High Demand • Multiple Offers Common • Over Bidding Anticipated The RayChel Realty Group
  41. 41. What’s Coming? More Foreclosures ½ of Newly Modified Loans are Already 30 Days Past Due Government Agencies Lift M t i G tA i Moratoriums Avalanche of Subprime, Alt-A, & Stated Income ARM Loans About to Recast The RayChel Realty Group
  42. 42. Keys to Buying a Bank-Owned (REO) • Know Why You Are Buying • Know What Y A B i K Wh You Are Buying • Be Financially Prepared • Respect the Process • Have Realistic Expectations • Give the Bank a Reason to Accept your Offer The RayChel Realty Group
  43. 43. Finding Ban OwnedH m es k o Where to L k Wh Look… • Multiple Listing Service (MLS) www.MLSHomeInformation.com • REALTOR.com www.realtor.com l • Yahoo Real Estate www.realestate.yahoo.com l t t h • AOL Real Estate www.realestate.aol.com www realestate aol com • Public Records Legal Publications The RayChel Realty Group
  44. 44. REO’s Are Not Right For Everyone If You Are… Not Sure You Want Not Sure Where You Want to Live Not Emotionally Ready to Buy Now Not Financially Capable of Buying Now Not Prepared to do Repair Work Need Time to Make a Leisurely Buying Decision Afraid you’ll get stuck with a “LEMON” because the Bank didn’t disclose something Don’t Buy An REO! The RayChel Realty Group
  45. 45. Challenges of Buying an REO • Over Priced vs. Well Priced • Banks Dictate the Process • Unconventional Transaction • All Sales are “AS-IS” • Must Use Bank’s Contract The RayChel Realty Group
  46. 46. REO Myths • Bargain Pricing • Deep Discounts • Banks are Desperate • New Financing Offered • Bank Pays Termite Repairs y p • All Cash Offers Get Better Deals • Banks Do Not Have to Provide Disclosures • Will Accept Home Sale Contingency Offers The RayChel Realty Group
  47. 47. Realities of REO’s • Buyer P A B Pre-Approved by Seller’s L d d b S ll ’ Lender • As Is – Where Is • Cannot Speak Directly to Bank/Asset Manager • All Communication through Listing Agent • Email Communication Only • Listing Agent NOT in Daily Contact with A/M • Don’t Call or Don’t Expect Updates • New Listings May Require Seasoning • Usually No FHA, VA or CalVet Loans The RayChel Realty Group
  48. 48. Realities of REO (continued) • Don’t Expect Rejection Notice • No Re-Negotiation • Proof of Funds • Expect Verbal Counter Offers • Highest and Best • Short Contingency Periods – 7/10/30 g y • Passive Contingency Removal • p y Bank Chooses Title and Escrow Company • Per Diem Penalties for Late COE The RayChel Realty Group
  49. 49. Realities of REO (continued) • Most REO Homes Are Far from Perfect • Quality of REO Inventory Inferior to General Re-sale Market • Best REO Homes Sell Significantly Higher Than Listed Price Li d P i • Demand for Quality REO Homes is High Owner Occupants Investors The RayChel Realty Group
  50. 50. Red Flags • Bank’s Addendum (aka Counter Offer) Heavily Favors Bank - Read y Carefully If Possible, Review Bank’s Possible Addendum Before Writing Offer Supersedes Provisions in Offer The RayChel Realty Group
  51. 51. How To Get Your Offer Accepted • Pre-Approved by Direct Lender • Earnest Money w/Offer: 1%-3% of price E M /Off 1% 3% f i • Document Proof of Funds • Short Contingency Periods • Submit Highest & Best Offer at Outset • Work w/Knowledgeable, Experienced REALTOR The RayChel Realty Group
  52. 52. Financing a Foreclosure Three Financial Keys for a Successful Closing • Get Your Mortgage Professional Involved Early • Direct Lender • Mortgage Banker • Mortgage Broker • Get Pre-Approved • Know Your Financing Options The RayChel Realty Group
  53. 53. Get Your Mortgage Advisor Involved Early Financing Solutions to Match your Buying Needs Determine What you Can Afford Down Payment and Closing Costs Programs that Meet your Short & Long Term Goals Work with Your Foreclosure Specialist to Structure Contract to Reflect Loan Program Use Contract Contingencies to Protect You The RayChel Realty Group
  54. 54. Pre-Approval vs. Pre-Qualification Get Pre-Approved, Not Pre-Qualified • Pre-Qualification An informal estimate of what you can afford • Pre-Approval Al loan commitment f it t from a reputable l d t bl lender The RayChel Realty Group
  55. 55. Mortgage Pre-Approval A Pre-Approval Requires Verification of… • Income • Asset • Credit Score • Continuing Liabilities A Pre-Approval Gives You... Pre Approval • Purchasing Power A Pre-Approved Buyer is a CASH Buyer • The Upper Limit of What You Can Afford The RayChel Realty Group
  56. 56. Property Condition Property Must Meet Certain Physical Conditions for Conventional Lender’s Approval Lender s All heath and safety items must be addressed Must have a stove, sink, toilets for FHA Properties that Don’t Meet Physical Requirements Special P S i l Programs f P for Properties th t D ’t M t ti that Don’t Meet Physical Standards for Conventional Financing Up to $35,000 to Put Towards Fixing Cosmetic Defects Loan Amount Up to $729,750 to Put Towards Major Repairs Including Structural The RayChel Realty Group
  57. 57. Fannie MaeH m e Path Confor ing Loan o m Fannie Mae’s Conventional Loan Program for Financing Fannie Mae Owned Homes • 30 Year and 15 Y Y d Year Fi d Fixed • Maximum Loan Amount $417,000 • 3% Down Payment for Single Unit D lli D P f Si l U i Dwellings The RayChel Realty Group
  58. 58. Fannie Mae Foreclosure Financing Program Highlights • N M No Mortgage I Insurance Lower Monthly Payment than FHA • N A No Appraisal R i l Required i d • Sellers Can Contribute Up to 6% Towards Closing Costs No Money Back to Buyer • Minimum Credit Score 580 The RayChel Realty Group
  59. 59. My Job As a Mortgage Advisor Financing Solutions to Match your Buying Needs Down Payment and Closing C t D P t d Cl i Costs Programs that Meet your Short & Long Term Goals • Structure an Affordable Monthly Payment • Find Competitive Interest Rates • Compare Programs and Lenders • Minimize Out of Pocket Costs The RayChel Realty Group
  60. 60. Knowledge is the Key • Don’t Use the Media as Your Only Resource • Don t Don’t Fall into the Trap of Online Lenders • Know All Your Options • Choose a Mortgage Professional you Trust, Have Trust Confidence in, and Feel Comfortable With The opportunity is out there, you just have to ta e advantage of it! k The RayChel Realty Group
  61. 61. Steal of a Deal? Final Dose of Reality… • If the P h Property is S h a G d Deal, Wh Did ’ i Such Good D l Why Didn’t it Sell on the Open Market? • If Y P 50¢ on th D ll f th P You Pay the Dollar for the Property, t it’s Probably Worth 50¢ on the Dollar. Think About It! The RayChel Realty Group
  62. 62. Real Estate Technology Tools The RayChel Realty Group
  63. 63. LivingWellinSanMateo.co m The RayChel Realty Group
  64. 64. LivingWellinSanMateo.co m The RayChel Realty Group
  65. 65. http://budurl.co /SearchForeclosures m The RayChel Realty Group
  66. 66. http://budurl.co /SearchForeclosures m The RayChel Realty Group
  67. 67. http://budurl.co /SearchForeclosures m The RayChel Realty Group
  68. 68. SanMateoMortgageBlog.co m The RayChel Realty Group
  69. 69. REO Buying Guide http://REOBuyingGuide.com The RayChel Realty Group
  70. 70. Upcoming Class in San Mateo Guide To Buying Condos & Townhomes i i Tuesday - November 3rd 7pm – 9pm For Reservations Visit: http://budurl.com/CondoClass http://budurl com/CondoClass The RayChel Realty Group
  71. 71. Our Next Webinar 12 Costly Home Buying Mistakes Even Smart People Make Saturday, Nove ber 7th 10a m m To Register Visit: http://budurl.co / m eBuyingMista es m Ho k The RayChel Realty Group
  72. 72. Webinar: Trustee Sales Trustee Sales – The Most Dangerous & Most Profitable Way to Buy Real Estate Tuesday, Nove ber 14th 6p m m To Register Visit: http://budurl.co /TrusteeSale m The RayChel Realty Group
  73. 73. Questions Your Questions are Invited Q The RayChel Realty Group
  74. 74. Free Consultation Chris Williamson Raymond Stoklosa Mortgage Advisor Managing Broker and Co Owner Co-Owner Mortgage California The RayChel Realty Group Phone: (650) 520-0915 Phone: (650) 533-8531 Chris@ChrisEWilliamson.com RaymondS@RayChelRealtyGroup.com The RayChel Realty Group

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