Tag Archives: HUD properties

Buying Foreclosure Homes Reality vs Myth

You know the old saying, if it seems to good to be true – it probably is. This is very appropriate in buying foreclosure homes. I get calls all the time from people who are searching on the internet who are looking to buy foreclosure homes for very low cost $1, $10k, $20k. Too good to be true right? Usually RIGHT. I don’t blame people, if you look online sometimes it looks that way and if you watch tv either with the news or advertisements, there are all kinds of myths about buying foreclosure homes with no money or at far below market cost, to make lots of money with no money down, no experience, etc. These are merely myths or half truths and rarely if ever are correct. Here are some realities of buying foreclosure homes or buying distressed properties.

Classified online sites: Unfortunately, there are a lot of classified online sites which advertising buying foreclosure homes have become a hot bed of misinformation, scams, etc. Because there are very few requirements or filters, the scam artists have played on the misinformation about buying foreclosure homes to prey on people. Scammers repeatedly try to sell properties they don’t own by pricing them for far below market in online ads and try to get people to give them earnest money. Particularly buying foreclosure homes are often targeted because they are vacant and they can get pictures and information from legitimate online sources. If people do a little homework, they can figure out the scam or misinformation. Look on other internet sites to see if the home is listed and call the information number to double check the price you have. Look on mls feeds, which many realtors have free use of on their websites. And if all else fails, go by the house and see if there is a sign in the yard or window and call. Also, check out the recorder of deeds, public record or ask the person who you talk to for proof of ownership. If they balk, it is probably a scam.

This company tracks statistics and public records of foreclosure homes put into foreclosure by bank court filings. It lists homes that are in foreclosure or preforeclosure on consumer real estate sites. They also allow subscription on their website to lists of foreclosure homes. These foreclosure homes are usually not on the for sale market at the time listed. Sometimes they will not show the address, just street and city/state and a google earth or similar aerial or other street picture. The price they show is not the market value or list price. It is the price owed on the home from the public record or taxes due. Can you buy these foreclosure homes? Many times no. But most of the time, banks must wait at least 9 months to legally get deed to these homes and then it may be longer for them to put them up for sale. Banks often hold foreclosed properties so the market is not flooded, which reduces prices. But make no mistake, when these homes are put on the market, they will reflect market value or slightly less. They are NOT given away for cents on the dollar.

There are some foreclosure or short sale homes that can be offered for sale on auction sites that are legitimate. BUT you need to know what you are getting. First, on the listing, auction properties have a very low opening bid price, somettimes 0 or $1. Will they sell for this even if you are the high bidder – NO. This is an opening bid price, which is usually 15-20% lower than the bank reserve on the property. These are auctioned by reserve only. Banks are not going to take any risk. If the high bid does not meet their reserve, they can reject it or negotiate with you. One clue what they want is to find out the former mls list price of the home or the market value. That will give you a good idea.

Also, auction properties are not traditional sales and are not often for traditional buyers. They usually do not allow any contingencies. So no inspections. No utilities on – so you do not know what is exactly wrong with the home. Many things you can see on a visit to the home, but busted pipes, non functioning heat or ac, electric? Unknown. And with no utilities – it will eliminate most if not all of the possible loans. FHA and VA are out – they require working heat and hot and cold running water. Some conventional loans with 20% or more down allow no utilities, but most conventional loans under 20% require at least running water. And there is no mortgage contingency, which means if you don’t get the loan, you lose your earnest money, which is usually $2500 (more than most traditional sale properties). Finally, the times to close are typically hard and fast 30 day close, which is possible but not typical for most lenders.

Finally, some auctioned properties are NOT vacant. It does indicate but you need to be careful. Some properties will have the former owners or tenants still living there. If you buy it, it would be up to you to legally remove them. Which means you won’t even be able to get into the home to see it. And it also means that loan possibilities will not likely be available unless you are doing 20-25% down.

Not all auction properties require a total gut though and can be a good deal. However, many auction properties have been on the mls and did not sell. That should be a question – why didn’t it sell?

The biggest benefit of auction properties are transparency of the deal. You know the other bids, there are less manipulation and “monkey business” as there can be with buying foreclosure homes during the offer and negotiation stage. Many foreclosure homes go into blind multiple offers or are awarded to people who were not the highest bidder or even have false multiple offers to try to get you to pay more money without negotiation.

Auctions on foreclosure homes can be online or in person. Online is very easy. If you win the bid, they ask you to put down $2,500 or sometimes 3% of the bid as non refundaable earnest money. You will sign an online contract. You can use an attorney and a Realtor, but their is no attorney review contingency and they will not change their contract or make any modifications. You also will pay a buyer’s premium or fees which can be as much as 5% of the high bid. So, you should consider those when you bid.

You can do a buy it now sometimes for the requested amount to purchase the property prebid. The closing is very similar to a traditonal sale. They will usually give a title (not always so check the fine print), they will transfer deed, etc.

Sheriff’s sales on foreclosure homes are where you can buy foreclosure homes for the taxes do on the property or for the lien owed to the bank. This will be far below market. First, buying these foreclosure homes are cash only. You have to be present at the sale to bid and sometimes there are many properties in the same session, so it can take several auctions. Sheriff’s sales are cut and dry. No title, usually no prior visit of the property. There is a transfer of deed (after redemption periods), but no closing. You pay right there and sign the papers plus any transfer fees. You can get your own title and title insurance from a title company. But if you do not, you will not get a clear title and could adopt any open liens on the property. You would need to resolve those (usually pay them off) before you can sell or loan on the property. If they are sold for taxes due, you do not usually take possession or ownership of the property until after the 2 year right of redemption. Or in the case of a loan, for the statutory redemption period. But you need to pay upfront. And again, you may need to eventually legally evict the occupants.

foreclosure homes
What can you expect from buying a foreclosure home?
First, these are AS IS. You can still do an inspection, AND YOU SHOULD, but the only option you will have is either buy it lumps and all or walk away. Banks and government entities USUALLY will not make repairs to foreclosure homes. SOMETIMES they will, so it is worth an ask, but usually it is rare and only done when it is a matter of loanability. So, you can’t get a loan if this is not done.

Some foreclosure homes will not be loanable by FHA due to condition, some can do conventional and some will not be loanable period. You need to know that before you put an offer it. Consult your loan office and Realtor to see what are the pitfalls.

people with cash – what can you do?
You can buy cash and fix up and do whatever you want with the home, within village code. But be advised that the mass foreclosure and short sale barrage of the last few years has prompted some villages to require point of sale and point of occupancy inspections that require the homes be brought up to code. BUT HERE IS THE KICKER…in these towns you will NOT be able to move into the homes until they are complete, up to code, safe and livable. So you may not be able to live in it and fix up until it is at least in move in ready condition per the village.

resale sites
There are also resale sites that offer foreclosure or other properties. These can be good deals but are never prime properties. Prime properties are always sold traditionally on the open market. First, this scenario is ripe with scams. You need to check out the companies to ensure they are legitimate. You need to wire them money so you need to know it is legitimate by the better business bureau or calling the attorney general. You also can look out on the internet to see if there is anything posted good or bad about the company. There are a couple of legitimate companies. And you need to ensure they have some authority to sell. Again, they should be able to produce Sometimes you can tour them, sometimes you can’t. Sometimes they will have occupants that need to be legally removed by you – the new buyer. Again, everything is done online. Some deals can be financed through them. Sometimes this can be an option for people who do not have the best credit or who want to fix up a home while they live there. Interest rates are usually high. Again, no clear title, so unless you pay for a title, you do not know about liens. AND sometimes, even the legitimate companies do not have clear deed. They will give you back your earnest if they can not get, but that can take several months.

Rehab 203k loans – do they really exist?

Rehab loans exist mostly via the FHA 203k route which allow buyers to loan beyond the amount of the purchase price to either cosmetically rehab homes or do repairs that allow the home to pass FHA guidelines.

Yes, they do exist and recently more lenders are starting to carry streamline FHA 203k Rehabilitation loans to allow borrowers to loan up to $35k beyond the sales price of the home to pay for rehab work.

So, the pink or 70’s shag carpeting can be replaced, the wallpaper or white or bright walls can be repainted, cabinets updated, new tile or hardwood, granite counters installed, stainless appliances purchased, etc. And all can be done at a fraction of the immediate cost through FHA 203k Rehabilitation loans, basically $50 extra per month for every $10k. Yes, it will cost more over 30 years, but less than credit card interest rates and it will happen a lot faster and easier than if you were to save for it and wait and then live in a construction zone. And you will get a deal on a gem of an outdated house.

FHA 203k Rehabilitation loans are a great way to get immediate gratification on that home that ticks all boxes except is not updated and offers buyers a great way to get a good deal on a diamond in the rough.

These FHA 203k Rehabilitation loans; however, are considered high risk by the lenders, and if you think you have to jump through hoops with lenders on a regular deal – double the amount of time, hassle and hoops and that is what to expect.

You have to get a general contractor with experience and who is willing to do a FHA 203k Rehabilitation loans. Although you can get some things done yourself that require no skill and is allowed by the lender and their inspection liasion. Permits need to be filled out and all village codes obeyed and inspected.

You will need to get a contractor right away and they need to be willing to complete forms and comply with all the lender wishes on forms. Usually only 2 draws are allowed – 50% at closing and 50% after completion. Some contractors will not like that. Everyone needs to be licensed for work and everything has to be accounted. You can hire any contractor you want, but they need insurance and licensing, so Uncle George is not likely going to be able to do the job. They can have subcontractors who are licensed.

You usually have 30-60 days to complete the work after closing and then you can move in. You will not be able to live there during the work, that is important to note. Then the lender liaison will approve the work and you move in…. happily ever after.

However, FHA 203k Rehabilitation loans can be tricky for major repairs. Again, high risk becomes higher risk and lenders usually make it very difficult to get this done. Mold or standing water, structural repairs, electrical and sometimes plumbing repairs, or moving or tearing down walls, etc. are very difficult to get approved under this type of loan. Again, lenders try to reduce or eliminate high risks when making loans with the buyer and/or the property. For these kinds of repairs, lenders may require testing or additional inspections and definitely longer review times. This may make foreclosure sellers difficult to get additional time, etc.

FHA 203k Rehabilitation loans ARE possible, but here are a few things you need to know…

Expect at least 60-90 days to close – again, could cause problems with seller, so be prepared and don’t forget the time to close.
You can’t move walls or include pools, furniture, etc. in the streamline loan. There is another type but major reconstruction is really not advisable with a loan.
There are extra fees for the liaison/inspectors the bank will require.
You will start paying the mortgage the month after the closing, so you may start paying even more you move in.
Contractors will delay you. Some contractors don’t like this type of work because of the rules, paperwork and the strict payment and deadline terms. You need to get your contractor bid in before anything can happen, so get everything as fast as possible.
Make sure you get a lender who processed their own loans and can control the process. Lenders who farm this out lose control of the situation and add extra time.
BE patient. The process is very difficult and can be done, but it will be tedious and sometimes not make sense. Remember whoever has the purse pulls the strings and lenders need to ensure the home is worth the extra work.

Millennial Buyers – How to Live for Free

I blog a lot about Millennials because they are very important to every aspect of our economy and housing recovery. One of the millennial trademarks that is unique to this generation is the “boomerang” or “failure to launch” effect of millennial graduates moving back in with mom and dad.

Let’s face it, after the taste of freedom in college, living with your parents as an adult is a little awkward and can be difficult to conduct your life on your terms and spread your wings.

It can have the same difficulties to your parents who don’t keep the same nocturnal calendar as their adult children and are tired of having to tell an adult to pick up their things.

To solve all of those problems and plan for the future, several of my millennial buyers have come up with a new idea that I am calling the Millennial Boarding House.

Instead of living with mom and dad, this formula can be used by smart millennials who don’t want to waste money on rent and want independence. You can be a first-time buyer and create an investment nest egg to move up in the housing market, get government grants and most importantly LIVE FOR FREE. Here is how it works….

1. Use your good credit rating and income to qualify for a nice starter home that has a good price, good area, good schools and is in an accelerating and not a declining area and has potential for future resale. You can do some work updating it if you like or not. The idea is good for now and easy to sell in the future. There are still deals out there and we are in an accelerating marketplace. Interest rates are good. Waiting will cost more.
2. Use government grants through the @Home Illinois program to get $5k in free down payment and/or closing costs.
3. Find a few friends to be roommates and charge them a few hundred dollars each month. Cheap for them and they get independence from their parent’s house or basement.
4. You can live for Free. If you have two or three extra bedrooms, you can charge friends enough to cover your monthly payment and you pay nothing or next to nothing each month to live.
5. You save money by not having to pay anything each month to live, building your nest egg for the future.
6. In a few years when you are ready to get married or start a family, you sell the house for a profit and a nice down payment on your first family house. Or, you keep the house as an investment and rent it out for future income.

There it is, an easy formula for success to start saving money, not waste money on rent and plan for the future. Do yourself a favor and call a Realtor – call me – and get on the path to future equity and success.

Buying a HUD Home – a Deal or No Deal?

Rarely does dealing with the government make you money.  But in the case of HUD-owned properties, you can get a deal on a home now, get a low downpayment and make money. 

HUD properties convey all kinds of negative images – this is NOT today’s HUD home.  HUD properties today can be found in any area, any price, new houses, old houses, some need work and some practically move-in ready.  With the amount of foreclosures out there, HUD has reluctantly been forced into the real estate business, just like banks and others.  But unlike banks, they are not for profit, which positions them well to have some of the best deals out there.  Here is what you need to know about buying a HUD foreclosure home.

1.  You can get a real deal.  You do need to bid on the property, but most times, HUD foreclosure homes are priced below appraisal and market value.  Again, HUD is not for profit.  They can do deep discounts.  Plus, they will come down off list price and list the homes very agressively.

2.  You have to follow HUD procedures and contracts.  It is their way, but it is clearly provided and understood. Once you understand their ways, it is pretty smooth.

3.  You will find out if you get the property right away – within a day or two.  That beats all the banks who take sometimes weeks to get an answer.  You can wait 2-3 weeks to get a contract signed by HUD and another few weeks to close.  But typically from bid to close is less than 60 days.  And you can close even earlier.   

4.  IT IS EASIER to get a loan on HUD properties, because most are already FHA insured.  And if they need some work and you need money above the sale price to fix it up, if the property is designated, you can get a 203k FHA loan for above the sale price to fix up the home on most HUD homes.  Also, some HUD homes can be purchased for $100 down or 3-3.5% down.

5.  You can buy the home as a investment or as an owner-occupant.  There are certain times when you can bid on the property.  HUD gives owner-occupants the first 30 days before they let investors in the game.

6.  You can inspect the home – if you are an owner occupant – after the contract and still get your money back.  Plus, HUD gives you all kinds of reports, appraisals, property conditions to review.  These are not a substitute for your own personal inspection and viewing of the home, but it gives a little more information.  If you are an investor, you can inspect the property, but you can not get your earnest back if you back out of the deal.

7.  HUD is an “as is” purchase.  No matter what you find at an inspection or viewing, they will not fix anything, negotiate or reduce the price.  You can merely cancel the contract if you are an owner occupant if you do so within the timeframe the contract indicates. 

8.  There are extra charges that you will normally not incur in another sale transaction.   You will have to absorb all the title fees (but HUD gets huge discounts on this.  And as with many foreclosures, you need to pay for village inspections.  If you want to get an inspection, you will need to pay HUD’s field manager to dewinterize and rewinterize the property.

9.  HUD properties are always title clear.  HUD and their agents are very good about paying all the past bills, assessments, etc.  You never get stuck with anything you don’t know about. 

10.  You must use a HUD certified buying agent.  There is no cost to you for that as HUD pays commissions.  I would recommend that you use one that has some experience buying HUD properties.  HUD contracts and rules are a little tricky, but once you have mastered them, it is no problem . 

There are goods and bads in buying a HUD foreclosure home, but buying a HUD home can be a very lucrative investment and/or get you a great home in record time with the lowest down payment available.  I have had a few customers successfully buy HUD homes for personal or investment and of the homes we saw, they were by far the best deal.

If you are interested in investing in or buying a HUD home, call 888-788-9544 for more information.

Foreclosures 411 – What you NEED to Know

Foreclosures, also called distressed properties, encompass anywhere from 20-50% of the homes currently on the market, depending on the area.  And they are everywhere – practically on every block and offered at every price range.  Many buyers know they want the deal of a foreclosure, but really don’t know enough about them.  Here are the goods and bads and all in between on foreclosures.

1.  Most foreclosures are bank, corporate or government-owned properties.  Neither the banks nor the government want to be in the real estate business.  So, they discount the properties from the start for quick sales, which usually makes them a good deal and you have the best chance to earn equity.

2.  Foreclosures are a mixed bag.  They range from new or older homes that are in perfect condition, homes which need a little bit or a lot of work, to homes that are basically a disaster.  

3.  Buyer Beware.  Foreclosure properties come with no disclosures, no warranties and no information.  What you see and you can’t see is what you get.  Banks, government and corporations sell “as is” which means they will not do anything to the property, before, during and after the sale.  When you look at a foreclosure home, you need to look for mold, broken or missing mechanical services in the homes like electrical, plumbing and heating. 

4.  Get a professinal inspection.  Even though it is a foreclosure, you still can have an inspection contingency.  This way you can find out exactly what is wrong and what it will cost you to fix.  You need to figure out if it is worth it.  You will have to jump through some hoops as most of the time the services – like water, gas and sometimes electricity are off.  And the homes are winterized.  You may be required to pay any fees to dewinterize or rewinterize during the colder months or pay refundable or non-refundable fees and complete forms to have the utilities turned on and off.

5.  Negotiations on foreclosure properties are not as deep as on other properties.  Typically banks sell these properties, depending on the property and the condition, for between 90-98% of the asking price.  Remember, they are already discounted.  You can offer what you want, but be prepared, these properties are usually in demand and the banks will not always counteroffer.  And very desirable properties may go for more than list price or can cause bidding wars. Gauge your interest in the property and how much you want to pay against your desire to get a deal.  In other words, low-ball offers don’t work well with banks.   They know their bottom line and will not usually budge.  Know the value of the home, what it is worth and what you can get it for.  That is what a professional Realtor is for – they can help.

6.  Foreclosure properties are done on their terms, no highway option.  As said before, you may need to pay for things a buyer usually doesn’t pay for, like village inspections and village escrow (if required).  You will not get any concessions and you will only get 100% tax or assessment proration.  You may not be able to change the sales contract and you (or your Realtor) may need to complete a lot more paperwork and get more approvals, if you are getting a loan.

7.  Speaking of loans… depending on the condition of the property, FHA loans will not always be available.  If it is a Fannie Freddie or HUD property, they are usually FHA approved.  Most banks will give conventional loans on foreclosures.  And they usually appraise out, so you can get loans. 

8.  Banks and the government do things on their own time table.  Banks may take up to 1 to 2 weeks to get you an answer because they may require several tiers or board approval.  Fannie Freddie properties usually get quicker answers.  HUD properties are on a bidding process and you are potentially bidding against others without knowing it.  Sometimes it will take longer to get the contracts and responses back.  Usually 1-3 weeks, but not months, as with short sales. 

9.  Finally, beware of scams promising cheap foreclosure properties.  Anything listed on the MLS is going to have clear title with no liens.  Plus taxes will be paid and prorated, past utility bills will be paid, etc.  There are a lot of companies that offer foreclosure and preforeclosure properties where you are buying homes sight-unseen without a clear title and with whatever problems it has.  Sometimes you will get stuck with all kinds of bills and problems that you don’t know about.  You may even get stuck with city violations, fines, or even trying to evict tenants or other occupants. 

10.  As a final note, just because a property is not a foreclosure, doesn’t mean it isn’t a good deal.  There are individual sellers that are very willing and able to realistically negotiate on their homes.    You can get a good deal from a seller who has a lot of equity and wants or needs to sell and you will often get faster action from them.   

Foreclosures present an opportunity to get a great home and a good deal.  But you have to have your eyes wide open and consider everything.   The best advice is to make sure you have a licensed and experienced Realtor who has expertise in foreclosure properties.  Having a Realtor help you doesn’t cost you anything, as the seller pays any commissions.  Why not use the help – it protects your interests. 

If you have questions on foreclosure properties, call us at 888-788-9544 or email us at info@remarketingconsultants.com.