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If you're looking for a big bargain this information will help...
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Bargains are available in short sales, foreclosures, REOs and just finding motivated sellers. Let me cover foreclosures first. I will be focused on El Paso County.
Every Wednesday at 10 AM the Public Trustee on Vermijo Street across from the courthouse, sells homes that are in foreclosure. There is a seven day period after the sale when it is possible for junior lien holders to pay the winning bidder what was paid plus interest and end up with the property. But since everything is all cash, these are rare events. In fact unless you are an all cash buyer, don't bother showing up unless you have cashier's checks already made payable to the Public Trustee that add up to at least the amount of your bids.
Before you bid the Public Trustee will require proof that you do. Finding and being sure that you are getting a bargain is pretty dicey because you probably won't get to look inside the property being foreclosed unless it is occupied by an unusually nice inhabitant. You won't have the luxury of being able to bring a professional inspector and you certainly can't demand that the seller do anything to improve the condition of the property. You bid blindly, have no direct real estate financing (although people with strong finances in the past used to be able to get bank lines of credit to buy at foreclosures, I don't know if the current financial climate allows that possibility). It used to be that the lender on the note would bid the amount of the note balance and if anyone bid more, they were happy because they got their note paid off. In the current climate they may bid substantially below the amount of their note trying to get what they think they could get if they take the property in inventory of their Real Estate Owned ( REO). So it is possible to bid a few dollars more, and buy the property for less than is owed. If you want to occupy the property and want to draw out your money and even borrow money to fix it up you can apply for a 203(k) FHA loan which is set up to finance homes needing repairs. The result is you will have a very nice home to live in and paid very little for it, with great financing, and your money will be back in the bank.
You can go to the Public Trustee's website http://elpasopublictrustee.com/ and see which properties are going to be sold, drive by, do your own valuation, and show up to bid. If you bid on enough of them you will undoubtedly pick up a bargain. Then you need to evict all but the nicest occupants, fix the place up and rent or "flip" it. There are rules FNMA and other secondary market players have about flipping. Generally 90 days minimum from the time you buy until the time you put under contract on a resale. You need to get a buyer who finances or pays cash if you want to get your money out and start all over. Many people don't care about recycling their cash to repeat the process and either rent the property or sell it providing private financing, in effect being the bank.
If you want any more information on this contact me..
Buying REOs is next. These are properties that the lenders have bid on at the foreclosure sale and have not been outbid. Thus they end up with the property. Also considered REOs are properties that were insured by FHA or guaranteed by VA. When those properties go into foreclosure, the lender can expect by the terms of the insurance or guarantee that HUD or VA will buy the nonperforming note at face value of the balance due less a certain prescribed amount pursuant to agreement. The result is HUD or VA owns the property.
Typically any of the above bid what they believe from the BPOs they have collected is accurately the price the property should obtain at the auction. If they have given separate instructions to some brokers for a BPO that consists of only MLS sales, they have an eye on whether it would be prudent to spend the money and administrative overhead on putting improvements in the home so it will sell for more. This is typical of HUD and VA and a successful approach and atypical of for profit lenders, but occasional. Typically the for profit lenders sell properties as-is. And HUD and VA occasionally sell properties as-is, particularly when the properties would not qualify for a FHA or VA loan. I cannot speak to what VA does internally about the following since I never worked internally at VA. However HUD prices the property based on the BPOs of combination of their Property Disposition Brokers and their respective Property Specialists. The PDBs are outside contractors on retainer and the PSs are staff members with real estate experience.
HUD's committee of Property Disposition Section supervisors typically sets the first asking price at the high end of the two BPOs, waits a week or two, depending on the Region, and lowers the asking price by $1,000 or 1%, which ever is more. During that interval it will not accept offers for less than the price it has set. It gives a three day head start to buyers who want to live in the premises and may apply for financing from FHA if it is being offered. Depending on the Region, the bids must be in by Monday at midnight, and will be opened in a public setting during business hours on Wednesday. If there are no satisfactory bids from potential occupants, it accepts bids from investors from Wednesday midnight until Thursday, midnight, and opens the bids on Friday during business hours in a public setting. Bidders are rarely present. Sometimes brokers show up, but it is never necessary.
The public must be represented by a licensed broker who has a HUD key to be able to show you the property and cannot enter a bid except through a licensed broker who has been prequalified by HUD. Whether the buyer gets a bargain or not, I can assure you the buyer gets a fair deal. HUD scrupulously makes sure of that. It is particularly true when there is FHA financing involved since the last thing HUD wants is another nonperforming loan. HUD scrupulously inspects the property and reports in writing anything it suspects could be wrong with it, even though it is not sure and doesn't investigate thoroughly. It puts that report at the property and the managing Property Disposition Broker is responsible for making sure the report is there and visible. Before bidding a potential buyer must sign a copy of the notice. HUD always subtracts a deemed value or cost for the potential repair even though it is possible that it is unnecessary. Often it is unnecessary. It is still possible to get FHA financing on the homes if you are moving in under the 203(k) program, which includes financing to remedy potential problems plus add improvements that the buyer would like except for what FHA rules say are "luxuries." An example of luxuries are a swimming pool, spa, or granite counter tops.
If you would like me to represent you in finding a HUD property contact me.
Buying REOs from for profit lenders are a completely different world. Generally all of the above kinds of REOs are listed on the MLS, so getting an agent is the way to go. However there are auction companies that do not list on the MLS such as Wiliams & Williams (http://www.williamsauction.com/Search/searchresults.aspx?status=active&state=CO&zip=80916&zipradius=30&locationtypeid=3&fromDate=2008-10-01+12%3a00+AM&toDate=2008-12-01+12%3a00+AM&statusid=1). They auction off REOs that lenders have fixed up as well as as-is properties. You generally cannot buy with financing and have to have cash just the way Williams & Williams auctions work since there is not enough time to secure financing before they want you to close, and they do not allow you access for purposes that a lender would need to approve a loan. However it is worth contacting them since their policy may change from time to time and property to property. The other factor is usually their sellers are not committed to accept the top bid. They must approve the deal after the top bid is in. So you don't know you have a deal until a few days later. And obviously the lender must be satisfied that it is getting some target price that it wants. Nevertheless it is source of frequent bargains. Williams & Williams recognizes and cooperates with brokers so it is to your advantage to have an agent represent you since you can get some good advice on values.
If you would like me to represent you at an auction contact me.
Then comes conventional REOs. You can offer just about anything, but since they are as-is it is more difficult to obtain financing, although it is possible if you plan to live in the property to qualify it for FHA 203(k) financing. The lender will ordinarily want to see with your offer that you have prequalified with a lender. It never hurts if the lender is the same lender as the one who is selling; however it really does not make any difference, since the property disposition people don't care about their company getting new performing loans unless a buyer goes up the chain of command. That makes deals possible for bulk sales and extreme bargains. I have participated in deals where the buyers have paid as little as 30% of the lender's BPOs to bulk (also called wholesale) buyers. The typical deal involves multimillion dollar purchases. Conventional lenders do not give an advantage of early bidding -- or any other kind of advantage for that matter-- so it is really good for investors with one warning --they are obedient to Freddie Mac and/or FNMA-- which means there will be special rules they may follow-- especially when it comes to financing what you sell. One such rule is a minimum time period you must hold the property before refinancing or selling. It can be sticky. If you want to go this way for more information contact me.
Unless you are accomplished in the trades, the best way to be sure you obtain bargains when buying as-is REOs, is to partner with a general contractor who does most of his own work and only farms out license-specific work such as electrical. Then you will be able to get a handle on prospective expenses just like HUD provides for everyone, and apply reasonable estimates to their cost should they eventuate. If you are accomplished in the trades and intend to move in, you can possibly qualify for the FHA 203(k) Streamline program, which allows you to do the work. But you have to prove that you really are proficient in the relevant trades.
Buying a short sale is the next way to get a bargain, and for the person who wants a bargain and not the risk, this is the best way to go. However it lacks the speed of the foreclosure auction which can be accomplished in less than 30 seconds. Under Colorado law however, you can think of it as a slow motion auction with the buyer, seller, and lender(s) able to get all the information needed to make an informed decision, which is a negotiated deal. First let's start with the seller. The seller is in trouble. For one reason or another, usually personal, the seller cannot keep up with his mortgage payments and he discovers he cannot sell his home for enough money to pay off the liens against it, so unless he can negotiate a deal with the lien holders (usually his lenders) the property will go into foreclosure.
So what does the owner do? He asks the lien holders to accept less than is owed, and in the current economic climate if he makes a good case that he does not have the resources to hang onto the property, the lien holders accept a "reasonable" short payoff deal. What is reasonable? Most lenders will consent to taking as much as they anticipate they would get if the property goes to forclosure. However, they have an official called the Negotiator who through bluster or any other legal means puts pressure on the other participants to come up with more money. Whether they do or don't depends on their relative negotiating strength and acumen.
The negotiations are conducted through the listing broker, who has direct contact with the Loan Mitigation Department of each lender who has a secured interest on the property. Most deals hinge on the success of the listing broker. Some do not have sufficient experience with short sales and are lost trying to navigate the bureaucracy of the lender's departments and personnel. I suggest that if the seller is represented by a SFR you have the best chance of success. SFR is a designation or certification awarded by the National Association of Realtors to underscore the fact that the Realtor has taken specialized education and passed a specialized exam to deal with short sale and foreclosure situations. I am a SFR. The way in which I work, as a transaction broker, I have no conflict representing both buyer and seller.
However if we are considering a property listed by someone who is not a SFR I stand ready to help that other broker to the extent that broker is willing to accept my input and to the extent that doing so would not present a problem of divulging a confidence of his client's. I can usually accomplish this in the contract to buy and sell real estate if you as my client agree to putting special terms in it that the seller then agrees to.
In addition there are special terms I recommend putting into every short sale contract to buy and sell real estate that, if accepted, should give you a distinct advantage over anyone else who bids on the property.
In Colorado the legislature and real estate commission did what they thought would be best for the entire system (i.e. the lenders and the borrowers) and set it up so that it would be impossible for the first contract to commit the seller to not accept subsequent contract offers for presentation to the lender. Language in the state mandated addendum which must be used in all short sales establishes that the contract cannot commit the seller not to supplant that contract with a better contract. However both sides can bow out for any reason or no reason until typically the lender accepts the contract.
It might seem that this is more reason to be discouraged from making an offer on a home. I say much to the contrary. Make offers on many homes! Make it a free for all! Since you can bow out of any deal if one comes through and you can’t afford to buy two, cancel all the other deals. Do this even if you are intending to buy only one home and move in, but want a bargain! Should you feel guilt about letting the seller down? No! The system the state adopted has made your strategy. Think of the system as a slow motion auction. The seller should –but is not required to—let the original buyer re-bid to match or beat the second offer.
Either way, the top bid can eventually win. In a way of thinking, functionally for the lenders, the foreclosure auction is being held early, without an actual foreclosure, and with buyers being able to get financing, lastly with the borrower cooperating to keep the home in whatever condition he can afford to accommodate the sale.
You can end up being the ultimate buyer even if you are a Johnnie-come-lately bidder. So another strategy could be like bidders do at eBay. They wait until the last hour and put in their bid, often the winning bid. All of this will require extremely good communication between the new buyer’s agent and the seller’s agent and there must be a willingness of the seller and seller’s agent to share the appropriate details of the progress with everyone or it won’t work to the way which I believe the legislature and real estate commission intended.
For example I believe there is still the possibility of the first contract writing in a confidentiality agreement thereby preventing the seller from sharing details of the contract itself –such as price-- and the progress of the transaction—such as the fact that or when a Negotiator was appointed, what the Negotiator demanded, etc. Future buyers would not have the information they need to make last minute bids nor to shave their bids a little higher than the existing contract. Nevertheless they can still bid, calculating their bid by their own wits and timing it by their own wits, which is possibly the outcome the legislature and real estate commission want. Again, it’s just a molasses auction! It’s my opinion that this will become the model for the rest of the country!
I provide a BPO for my buyer to use to gauge their bid price. I do BPOs for lenders. I arrive at a value if the property is foreclosed that will predict its sale price at the foreclosure sale. I do not recommend an offer price but I happily show my appreciation and approval if the investor offers that amount. I cannot participate in representing a buyer or seller or otherwise assisting either party including revealing the BPO I have done for a lender associated with a property I have done for a lender. Lenders strictly prohibit the broker who supplies the BPO from doing that. So what you get from me is MY opinion, not THE opinion the bank is relying on to price what is its bottom line.
If you would like me to represent you as a buyer or seller contact me.