When one thinks of a deal on the real estate market, one thinks of purchasing a property in foreclosure. However, one must consider that a foreclosed home and an REO (Real Estate Owned)home are not the same terminology. When a owner of real estate can no longer afford the payments, then a series of events unfolds.
1) They try to work out payment options with the lender, refinance, or try some other way to keep going.
2) When they can't they put the house on the market themselves. If they have sufficient equity they can accept an offer at market value and pay off their debt. If they do not have sufficient equity, then they may have to bring money to the closing table to get out of their debts. If they don't have the money, they have to negotiate with the lender beforehand to obtain a short sale. A short sale is a process where the bank agrees to take a lesser amount than is owed on the house, but they then get the right to have an voice in approving/disapproving an offer to purchase.
3) If that fails then the bank begins the foreclosure process because of lack of payments. That process starts with notification to the owner and ends with the property being auctioned off at the courthouse steps in a sheriff's foreclosure sale. In many states the owner even has a period where they can redeem the house by paying all past debts. This can be from one month to 6 months.
4) If someone purchases the house at the courthouse steps for an amount acceptable to the lender, they have then purchased a foreclosed property. If the purchase price is insufficient, then the property becomes an REO.
This is now a property that the bank owns, or Real Estate Owned assets of the lender. The bank hires a realtor to handle the REO and goes through eviction, cash for keys, rekeying property, property inspection, trash-out, repairs, maintainance, winterizing, listing, marketing, and finally a sale. If someone purchases this property they have bought an REO from the lender.
Is one better than the other? To becontinued in part two....
REO and Foreclosures: Part II
We determined in part one that a foreclosure is prior and included the sheriffs sale and time of redemption. An REO is when the bank owns the property free and clear and markets it through a Realtor.
Which is better to purchase? A foreclosure or an REO?
First, when buying a foreclosure or an REO one need not assume that anything is necessarily wrong with the house save that the previous owner failed to pay their monthly payment. However, because of the hurt and pain of that process some people will strip a property of appliances and other valuable items.
Second, when buying a foreclosure at a sheriffs sale it is possible that the home may still be occupied and that the owners may still have right of redemption depending on which state you live in. When you by an REO Realtor marketed property, the bank will have handled the eviction process and own the property free and clear before they put it on the market.
Third, when you buy a foreclosure at a sheriffs sale you are expected to have a cashiers check on hand for the amount of your bid. You then receive title to the property including any liabilities still attached to the property such as liens or back taxes. When you buy a Realtor listed REO, the home buying process is much like a normal purchase in that you offer a minimal amount or earnest money on the property and bring the rest at closing (usually in 30 days). In addition, liens and back taxes are the problem of the bank since they became the new owner who had to settle those liabilities.
Both REOs and foreclosures are sold as is without contingencies, however the far more popular method (according to statistics) of buying properties are as an REO because the liabilities, condition of the home, and title to land is much more certain than with a foreclosure.
REO appears to be the best way to go.
Here are some additional reasons:
An REO can sometimes be bought up to 20% below market value.
The simplicity of the process handled entirely by skilled Realtors on your behalf.
The right to have a home inspection and seek recourse from lender.
Tax and Lien Free
Less Risk
Possibilities of negotiating financing or incentives with REO bank.
If you have been wondering if anyone is even buying in this market, no need to guess. This is an update to my last post. The following listing sold for full price in 5 days and had multiple backup offers:
SOLD - $350,000 CLOSING DATE 11/30/2007 - 5141 NE 19th Ave
I'm not bragging... I am pointing out that most of the Banks (at least those I represent) are now aggressively pricing all REO properties in order to liquidate portfolio's as soon as possible.
What does this mean to you as a buyer/investor - the opportunity you have been searching for.
To view my avialble Bank owned foreclosures visit:
www.bankersforeclosures.com
ReoMac_Miami_2007.pdf
Some of the 18 defendants allegedly created counterfeit documents, such as fake W-2s and pay stubs, to dupe lenders -- and, in some cases, innocent buyers. In several cases, fraudulent appraisals were used to jack up property values so the defendants could extract large sums from new mortgages in what are commonly called cash-back-at-closing schemes.
U.S. Attorney R. Alexander Acosta also on Thursday announced a new federal-state mortgage fraud initiative that will step up investigations and prosecutions in Florida.
The state leads the nation in suspected home loan fraud. Mortgage giant Fannie Mae reported in June that four of the five ZIP Codes containing the largest share of Florida's questionable loans were in Miami-Dade County, where last week Mayor Carlos Alvarez announced his own mortgage fraud task force to address the problem locally.
Timothy Delaney, assistant special agent in charge of the Miami office of the FBI, said his office had 50 open investigations into suspected mortgage fraud, with three new multimilliondollar cases opened justthis month.
WIDESPREAD ISSUE
''Over the next several months you should expect to see a number of similar mortgage fraud schemes indicted here in South Florida,'' Acosta said.
Acosta said mortgage fraud is widespread, affecting neighborhoods across all socioeconomic strata, and involving professional insiders at almost every stage of the loan process.
In a case made public Thursday, prosecutors charged mortgage broker Richard Crowder II, attorney Gary Mark Mills, and Wachovia loan officer Karen Lynn Sullivan with conspiring to obtain $42 million in bogus loans used to buy 17 condos on South Beach.
According to the indictment, the scheme worked like this: Crowder, who owned America's Best Mortgage Services in Coconut Creek, found properties for sale and lured prospective homeowners with the promise of buying condos with no money down.
`FAKE PAPERS'
Behind the scenes, though, he worked with Mills, owner of Deerfield Beach-based Four Star Title, to draw up fake closing documents showing the would-be buyers already owned the condos. Then Sullivan would push through applications for home equity lines of credit.
Then, those funds were used as down payments for fraudulent first mortgages on the same properties.
In each case, the loans were significantly higher than the asking price. From the difference, the trio allegedly paid themselves fees and bonuses plus the seller's proceeds and the mortgages and maintenance fees on the properties.
Unwitting buyers thought they were simply getting 100 percent financing.
In a similar but unrelated ring, 15 people were indicted on a variety of charges for their involvement in an $8.3 million scheme in Southwest Ranches.
Prosecutors say that between 2003 and April 2007, Henry Quintero-Lopez and Lazaro Villalba paid ''straw borrowers'' for use of their identities to buy homes. They approached sellers with an offer to pay the full asking price as long as they agreed to an inflated contract price, which allowed the team to pocket the difference at closing in cash.
To pull off the scheme, Quintero-Lopez and Villalba allegedly sought the help of Joaquin M. Perea, owner of J.P. Accounting Services in Miami, who drew up false pay stubs and other documents for the straw borrowers, and appraisers Eric Garcia and Martine Yanisse Castrillon, to prepare inflated valuations, according to the indictment.
They then approached mortgage brokers Antonio Ramos, formerly of Home Mortgage Finance Group in Miami, and Ruben Jimenez at Lenders Choice Mortgage Services in Miami to compete the mortgage applications.
The indictment alleges the team paid at least seven straw borrowers thousands of dollars for the use of their identities. The straw borrowers also were charged in the scheme.
The incidents, Acosta said, represent only a few in an array of mortgage crimes law enforcement officials regularly see, including illegal property flipping, foreclosure rescue fraud and identity theft, in which the victim's homes are stripped of equity.
LONG PROCESS
Acosta vowed greater resources to fight the problem.
''These are very difficult cases to make. They're document-intensive. They require agents and prosecutors to go through boxes and boxes of materials . . . to reconstruct financial records over a number of years,'' Acosta said. ``This is not like street crime.''
WLRN Miami Herald News reporter Joshua Johnson contributed to this article
The bad news has been spreading and something has gone wrong for the mortgage industry and quick. Most of what you have been reading and hearing is very true, no exaggerations. In fact I'm not really sure the worse is behind us. One of my favorite articles is James Cramer's in New York Magazine, if you haven't read it heres the link:
Bloody and Bloodier by James Cramer
NEW YORK (Reuters) - The rate of U.S. home loans entering the foreclosure process rose to a record level in the first quarter of 2007, while late payments fell from the previous quarter, an industry trade group said on Thursday.
The Mortgage Bankers Association said the rate of loans entering the foreclosure process was 0.58 percent on a seasonally adjusted basis, or more than one out of 200 loans and 4 basis points higher than the previous quarter. The rate rose 17 basis points from a year ago.
The delinquency rate for mortgage loans on one- to four-unit residential properties stood at 4.84 percent of all loans outstanding in the first quarter on a seasonally adjusted basis, down 11 basis points from the fourth quarter and up 43 basis points from a year ago, according to the MBA's National Delinquency Survey.
"The rate of delinquencies is being driven by what is taking place in seven states," Douglas Duncan, the MBA's chief economist, said in a statement. "The percentage of loans in foreclosure would be well below the average of the last 10 years were it not for Ohio, Michigan and Indiana, and the rate of foreclosures started nationwide would have fallen were it not for the big jumps in California, Florida, Nevada and Arizona.
"Those states have special circumstances that do not reflect what is happening in the rest of the country," he said.
In fact, foreclosure starts declined in 24 states, while the rest of the country experienced negligible increases, he said.
The delinquency rate does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process was 1.28 percent of all loans outstanding at the end of the first quarter, an increase of 9 basis points from the fourth quarter of 2006 and 30 basis points from one year ago.
During the housing market's record five-year run, California, Florida, Nevada, and Arizona were some of the hottest real estate markets and favorites among investors.
But, these speculative buyers are now leaving those once popular markets in droves. Many of them were subprime borrowers with adjustable-rate mortgages, which are now resetting at higher interest rates. The subprime mortgage market caters to borrowers with poor credit histories.
Having seen his house in an upscale part of suburban Henderson, Nev. jump $200,000 in value in 18 months, Sam Schwartz felt he couldn't miss any part of the boom.
He spent the night in the parking lot with TV, snacks and drinks, along with about a hundred other people.
Schwartz intended to buy a new home and then quickly sell it within the year -- for a huge profit. Most people waiting were flippers just like him, he said.
"We had seen real evidence of what was possible in this crazy, inflated market, and we just wanted to get a piece of that investment equity," Schwartz said.
But when home prices unexpectedly took a backward step, many investors seeking to cash in quickly were left "upside-down," or owing more on their mortgages than what their homes were worth.
The result was a glut of homes in the marketplace, communities spotted with empty houses and for sale signs -- and a foreclosure rate in Nevada that leads the nation as owners unable to sell became saddled with unbearable debt payments.
Foreclosure filings across the United States rose 47 percent last month from a year ago to 149,150 -- one for every 775 households, according to statistics from Realty Trac Inc., a foreclosure listing service. And for the third straight month, Nevada's foreclosure rate led the nation when it rose 220 percent from a year earlier to 4,738 filings, or one in every 183 households.
In Clark County, which encompasses Las Vegas, one of every 30 homes began the process toward foreclosure last year.
The day Schwartz reserved his home, the sales staff was raising prices $20,000 after every fifth buyer came inside. The $500,000 house he and his wife were eyeing had shot up to $540,000 by the time they sat down. Somehow, it still seemed like a good deal.
"Everybody was thinking, 'Hey it's not the end of the world, because the homes across town are selling for $720,000. We have almost $200,000 in equity in the house and it isn't even built yet,'" Schwartz said.
He and his wife put down $5,000 on a home that would end up costing $560,000 with upgrades.
While the Schwartzes were able to cancel before closing on a property that suddenly was worth only $490,000 -- and recoup their deposit on a legal technicality -- others were less fortunate.
Schwartz, a 44-year-old life coach, said he "narrowly escaped financial disaster." But the effects of the housing crunch would reverberate for years, he said, something he expects to see among the clients he coaches to succeed in their lives and careers.
"There's going to be a lot of depression, a lot of anger. A lot drinking, gambling, and desperate stuff going on."
More than other states hit by the mortgage lending crunch, the high foreclosure rate in Nevada, California and Florida was driven by speculation, said Rick Sharga, vice president of marketing for Realty Trac.
"It was a combustible mix of risky loans and risky real estate deals," he said.
Russ Valone, the chief executive of research firm MarketPointe Realty Advisors, said speculators in San Diego were putting deposits on downtown condo units under construction, assuming they could sell them at a profit when they were finished.
"There were guys out there that were rolling the dice just as if they were going to Las Vegas," Valone said.
When the market slowed, many buyers forfeited their deposits, or let their properties get repossessed by the banks. As a result, the inventory of unoccupied condo units downtown since early 2005 has soared fivefold, he said.
New home builders are slowing down the pace of new projects in Las Vegas and are giving agents commissions of up to 12 percent and up to $100,000 in upgrades such as pools, granite countertops and appliances.
"The speculators completely dried up," said Paul Murad, a real estate observer and author of "Manhattanizing Las Vegas."
In Miami, the rush of condo building and speculative buying has slowed to a crawl, said real estate agent Penni Hurley. Florida's foreclosure filings rose 54 percent from a year ago to 14,303 in March, or one filing for every 511 households.
"The market was on steroids and now it's going through a much-needed correction," Hurley said.
With forecasts of a nationwide 1 percent home price decline this year, there's no way to flip for a profit now, said Jay Brinkmann, vice president of research and economics with the Mortgage Bankers Association.
"One would have to logically assume that (flippers) are no longer in the market," he said.
But some are still feeling the pain.
Jason Beaver, a Sunnyvale, Calif.-based Apple Inc. programmer, got caught up in the talk of the hot housing market from friends who bought multiple homes in Las Vegas and made a killing.
His name was drawn in a buyers' lottery in the Solera subdivision and he put $35,300 down on a $353,000 home in February 2004. The community is restricted to people age 55 or older; the 37-year-old Beaver had no intention of moving in.
That summer, the housing market began to soften. He nervously put the house on the market for a break-even price the same day escrow closed. He got no offers.
A tight market had suddenly become flush with resale homes as investors sought to cash out. Pulte was one of several builders to slash new home prices, in some cases by as much as $80,000 in a single day. Beaver and others are suing, but the company has said it was simply reacting to new conditions in an overheated market.
Beaver has been renting the home out for about a $1,000 a month, despite monthly expenses around $2,000.
And the supply of available homes is growing.
In March, the number of resale listings for single family homes, condos and townhouses in the Las Vegas valley grew 30 percent from a year ago to 27,282, according to the Greater Las Vegas Association of Realtors. Sales and the value of homes sold were both down 38 percent from a year ago. About half the homes available have been on the market for more than two months.
"Two years ago, you'd set a price that looked right and you'd get offers that were $20,000, $30,000, $40,000 over your list price. You have to be more realistic today," said Devin Reiss, president of the Realtors association.
With Nevada's fast-growing population and an estimated 8,000 net new residents coming to Las Vegas every month, experts predict the glut of housing will be cleared in six months to more than a year.
State lawmakers are considering a range of bills that clamp down on the easy mortgage lending that helped heat up the market, including making it a crime for lenders to issue mortgages with little or no verification of a borrower's ability to pay.
"The biggest loan I ever saw, a person bought a $1 million property and only had to come up with $1,000 in cash," said Scott Bice, the state's commissioner of mortgage lending.
"I don't think anything will ever prevent speculation," he said, but added that new regulations and tighter credit requirements by lenders will eventually return the market to the good old days: "When it takes good credit and money in a transaction to close it."
For those caught up in the frenzy of a few years ago, the changes come too little, too late.
Beaver figures he has spent $50,000 on his investment home, and will have to come up with $30,000 more to pay off the mortgage after he sells it at a loss.
While he's not completely sworn off real estate investing, Beaver said next time he'll try a more traditional approach -- to buy and hold for the long term.
"The fast-growth, make-a-quick-buck real estate investment, I don't think I'll try again," he said.
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