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Is now a good time to buy a foreclosure?

This is a very common question from both real estate professionals and prospective buyers. Obviously, because local market conditions vary, the answer is different from market to market. But there are questions that buyers in any market should be asking before they make an offer on a property in foreclosure.

What’s the first step buyers need to take?

Require buyers you work with to be preapproved for a loan before you help them shop for a foreclosure. If they’re thinking of buying a foreclosure as an investment or second home, they need to understand that financing the home will be more difficult and more expensive than financing a primary residence. Lenders typically charge higher interest rates and require a larger down payment for investment or second homes.

How can you tell a bad foreclosure from a good one?

Certainly there are great deals in many markets for both investors and buyers looking for a primary residence. But making a sound deal can be tricky. Buyers need to be wary of unpaid liens, including mortgage debt, taxes, construction loans, home equity lines of credit, and possibly a second or third mortgage. Any or all of these financial obligations could become your clients’ responsibility when they purchase a property in foreclosure. Unless the property goes through a foreclosure auction and becomes a bank-owned REO, the outstanding foreclosure liens and fees could be simply transferred to the new owner—your clients. Don’t let them fall into the same financial trap as the previous owner.

If I’m a qualifying borrower, can I appeal to banks for better loan terms?

Lenders are drowning in defaults—particularly in hard-hit real estate markets such as Arizona, California, Florida, Michigan, Nevada, and Ohio—so they may be motivated to cut a deal. If your clients have a good credit score, many banks will offer them a below-market-rate loan on a bank-owned home. Unlike paying down with points, this doesn’t cost anything in fees, and it gives them the ability to spend more for the home.

What are the costs of buying a foreclosure?

It takes money to make money. The best opportunities are for buyers with cash. If your clients are planning to rent out the property or even resell it for a quick profit, make sure they consider the carrying costs, including sales commissions, marketing costs, vacancies, taxes, insurance, and maintenance costs. Once you’ve calculated all the expenses, add on another 10 percent to 15 percent. If they don’t build in a “surprise fund,” your clients might be the next foreclosure statistic.

How does choice of neighborhood affect foreclosure investments?

Clients looking for a good investment should generally avoid neighborhoods overrun with foreclosures, particularly newer subdivisions in overbuilt exurban areas. Investors will be tempted to buy foreclosures in these areas because they offer the steepest discounts—but they also carry the most risk of further depreciation. Look in well established neighborhoods with good schools and transportation. If you’re in a market where prices are still falling, encourage your clients to factor falling prices into any offer they submit on a foreclosed property.

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As a Reno/Sparks real estate professional, I encourage all questions and comments on the Reno/Sparks real estate market or any of the articles posted in this blog. Please feel free to use my back door to the MLS and search the houses available in the Reno/Sparks and most Northwest Nevada neighborhoods. I can be reached by email @ chance@ballard-company.comhttp://www.myspace.com/chancegates .  You can also follow me at http://www.twitter.com/chancegates .  If you are behind on your house payment and looking for a loan modification, go to making homes affordable For a free copy of my report   “5 Steps For Reno/Sparks Homeowners To Prevent Foreclosures” go to my about page http://chancegates.com/about and ask for more information on preventing foreclosures. or   to request a modification.  If the modification fails, contact your local real estate professional to help short sale your home.  To make sure there is no deficiency judgment a homeowner might find it necessary to hire an attorney.

RISMEDIA, March 27, 2010—(MCT)—It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris, Calif., home. Eleven months since the notice got slapped on their front door, warning that it would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.

“We’re kind of on pins and needles, but who’d want to leave when you put this kind of energy into a house?” said Eugene Harrison, gesturing toward a bucolic mural of mountains, stream and flowers the couple painted on the living room wall.

Throughout the country, people continue to default on their home loans—but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes. And with a glut of inventory in places like Southern California’s Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.

Finally, allowing borrowers to stay in their homes helps protect the bank’s investment as it negotiates with the homeowners, said Gary Kirshner, a spokesman for Chase bank, a major lender. “If the person’s in the property, there’s less chance for vandalism, and they’re probably maintaining the house,” he said.

Economists say the situation won’t last forever, but in the meantime the “amnesty” may allow at least some homeowners to regain their financial footing and avoid eviction.

In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it’s difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.

But Rick Sharga of Irvine, Calif., data tracker RealtyTrac notes that the number of loans in which the borrower hasn’t made a payment in 90 days or more but is not in foreclosure is at 5.1% nationally, a record high. And yet the number of foreclosures last year was 2.9 million, below the 3.2 million that RealtyTrac economists predicted.

More evidence is provided by another firm, ForeclosureRadar, which says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.

“For some reason, banks are being more lenient with homeowners who are behind on their loans,” Sharga said. “Whether it’s a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure.”

Lenders say the trend reflects their efforts to work with borrowers to modify loans to avoid foreclosure. Bank of America “continues to exhaust every possible option to qualify customers for modification or other solutions,” spokeswoman Jumana Bauwens said.

Some lenders are making it a policy to partner with delinquent borrowers. Citibank said this month that it would let borrowers on the brink of foreclosure stay at their homes for six months, whether or not they make payments, if they turn over their property deed. Such policies may partly reflect the fact that lenders can’t keep up with all the foreclosures, some say. “The mortgage lenders are so backlogged that some people are able to slip through the cracks,” said Kathryn Davis, a real estate agent at America’s Real Estate Advocates in Corona.

That was apparently the case for the Harrisons, who were told at various times that their house had been sold, that it belonged to someone else and that it was empty. “It’s been frustrating,” said Eugene Harrison.

The Harrisons missed their first payment in October 2008, shortly after Patricia Harrison lost her job as a healthcare aide and her husband’s part-time towing work dried up. They said they applied for a loan modification but were told that they couldn’t receive one until they were three months behind on their payments. So they stopped paying.

In April 2009, they received a notice warning them that their property “may be sold at a public sale,” and in July, they were told their house was a bank-owned property.

The bank sent a notice by FedEx in October demanding $3,000, and when the Harrisons called to discuss this notice, they were told they had four days to vacate the house.

Panicked, they arranged to stay with family in New Mexico and started packing their things, filling their garage with boxes of books, camping equipment and art. But no one came to kick them out. “We were afraid to leave the house, afraid the sheriff was going to come,” said Patricia.

After contacting consumer advocates about their situation, the Harrisons decided to stay put. Soon after, two men in a white pickup truck showed up at the house and peeped in the windows, telling the Harrisons that they thought the house was abandoned. The Harrisons suspected they were planning to move in themselves and chased them away.

As they wade through the red tape, the Harrisons can’t imagine abandoning a house where they’ve left their mark in the goldenrod and potpourri rose walls, the new fixtures and stenciling in the bathrooms, the fruit trees planted in the yard.

Although the Harrisons’ future is uncertain, industry observers agree that the rent-free life can’t last forever. As home values climb, banks will find it financially advantageous to foreclose on delinquent borrowers and sell their properties.

“In many cases, particularly in California, people owe a boatload of payments, and no bank is going to forgive that,” said Guy Cecala, editor of Inside Mortgage Finance, a trade publication.

In Diamond Bar, the Fraguere family is finally moving on after living rent-free for 18 months. Job loss and other setbacks prevented them from paying their mortgage, but they say they didn’t hear anything from the bank until a real estate agent showed up at their door last month saying she was going to sell their house.

Sandy Fraguere wasn’t surprised that it had taken the bank so long to ask them to move. “I don’t think they really knew what was going on or who was there,” she said.

Next stop for the Fragueres is a hotel, where they plan to stay for two weeks until their apartment in Chino Hills is ready for them to move in. Their dogs are being boarded and their belongings stored until they can retrieve them someday. The Fragueres have started saying goodbye to their neighbors, adding yet another empty house to a block that has already seen two other families forced to pack up and leave.

(c) 2010, Los Angeles Times.

Distributed by McClatchy-Tribune Information Services.

As a Reno/Sparks real estate professional, I encourage all questions and comments on the Reno/Sparks real estate market or any of the articles posted in this blog.  You can email me @  chance at ballard-company.com or http://www.myspace.com/chancegates

RISMEDIA, March 12, 2010—(MCT)—With the highly touted federal mortgage-modification program falling short of its target numbers, the government has looked into alternatives to foreclosure and come up with a possible, though not original, solution: the short sale, a transaction in which the lender accepts less than the balance owed on the mortgage.

Beginning April 5, 2010, under new Treasury Department rules, short sales will be presented as the potential next step for homeowners who are rejected by or fail to make the grade for the federal Home Affordable Modification Program (HAMP).

RealtyTrac chief economist Rick Sharga suggested that offering the short sale program is the administration’s acknowledgment that its current mortgage-modification effort “can’t solve the foreclosure problem by itself.”

Kevin Gillen, vice president of Econsult of Philadelphia, said there was both statistical and anecdotal evidence that lenders have been holding off on foreclosure proceedings. “No doubt that part of this is due to staff shortages relative to the volume of delinquencies, but it’s also due to uncertainty over near-term government policy,” he said.

Sharga sees positive elements in the new guidelines: Both homeowners and mortgage servicers will have financial incentive to participate in short sales; there are limited payouts for second lienholders and paperwork is standardized, which makes it easier for everyone to comply.

The new Home Affordable Foreclosure Alternative program will run until Dec. 31, 2012. Among its provisions:

-The lender must offer a short sale in writing to the borrower within 30 days after the borrower either is ruled ineligible for mortgage modification under the HAMP program or has been ruled unable to sustain payments under a trial plan.

-A borrower may receive up to $1,500 to assist with relocation expenses.

-Incentives of $1,000 will be offered to lenders for each completed short sale. For each deed in lieu of foreclosure, in which the borrower voluntarily transfers the property to the lender, $1,000 will be paid to the lender.

-A lender with a second lien on the property will get up to $3,000 of the short sale proceeds, or can pursue a short sale outside the program if it doesn’t agree to share.

-The lender will not be permitted to reduce the real estate agent’s commission after an offer on a property has been received.

Currently, short sales don’t make up a big piece of the real estate market, either regionally or nationwide, for a variety of reasons. One is they tend to be difficult and time-consuming. “I handled a short sale of a condo in Bensalem PA that took a year,” said real estate broker Christopher J. Artur. Typically, there is “so much aggravation and red tape involved that some buyers get so fed up they walk away.”

Nationally, just 14% of all existing-home transactions in January 2010 were short sales, the National Association of Realtors says. In the Philadelphia region, they made up 6.9% of total homes for sale at the end of January, said Art Herling, regional vice president at Long & Foster Real Estate.

“I call short sales ‘organized chaos,’” said Noelle Barbone, office manager of Weichert Realtors’ Media office. Each lender works short sales differently, “at their own pace, and it depends on how behind the homeowners are on mortgage payments, if the house is worth less than they owe and whether or not foreclosure paperwork has been filed.”

The new program is unlikely to make short sales easier, even as an alternative to foreclosure. “What one needs in a short sale is time,” Barbone said. But these days, as buyers race to meet the April 30 agreement-of-sale deadline for the federal tax credit, time is money. “I had first-time buyers recently with 20% down, and we found two houses they liked,” said Cheryl Miller of Long & Foster’s Blue Bell office. Both were short sales, however, and neither the seller nor the agent could give a definite timeline for even seeing an executed agreement of sale, she said. “Timing is pretty critical for the first-time buyer and viable houses that are short sales are remaining unsold” as a result, Miller said.

Sharga doesn’t think the new short sale program will be the answer the government seeks. “While we’ll likely see an increase in the number of short sales, I doubt that the reality will live up to the hype.”

(c) 2010, The Philadelphia Inquirer.

Distributed by McClatchy-Tribune Information Services.

In the Reno/Sparks area  about 1/3 of all real estate transaction are short sales.  These improvements to the process are badly needed as most short sales take 3 to 4 months to get third party approval.

As a Reno/Sparks real estate consultant I always welcome any comments or questions on the Reno/Sparks real estate or any of the articles I posted.  You can email me directly at  chance at ballard-company.com

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