Buying Distressed Properties


Published on

  • Be the first to comment

Buying Distressed Properties

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