Hot Props? Foreclosures...

[Pariah]

There is a commercial on the radio around here for Hot Props (I'm assuming that's the company's name) lately that seems too good to be true, but I don't know much about foreclosures. It is one of the typical ads of that sort, call for a free list of foreclosures (I'll probably be pressured into purchasing something at this point), if you're renting you could be owning for lower monthly payments, etc etc... Seeing as how we spend $830 a month on rent, the idea of actually owning a house and paying that much or less is very good. I've heard all of those amazing foreclosure deal stories, but how realistic is that for the average person? Do you need a big down payment (or one at all?) if you're purchasing a foreclosure?

Thanks.

[SleeplessMommy]

The very best foreclosure deals go to all-cash buyers. Don't go with the radio program, whatever it is. :-( Many houses may have costly repairs needed asap (water damage).

Your state may have a 1st time buyer assistance program or low income program. Look into it.

Next, get a free copy of your credit report and talk with your bank. Can you get pre-approved, and for how much?

Finally, talk with a couple of real estate agents. They work for themselves, not for you. Just FYI. Make sure any purchase agreement has an inspection contingency in it. I expect the "buyers market" to continue for years - you have time to save for a down payment and get educated about real estate.

[reedfamily]

what forclosures are avaelable in kc mo and suround area

[heatherdeg]

I wouldn't say all the best deals go to all-cash buyers.  It really depends on what you consider "the best deals".  If you're talking lowest acquisition price--yeah, probably: because they are likely to never pass an appraisal inspection because of the extensive repairs necessary (if nothing else, replacing all the plumbing--but all the mechanicals may not work and there's often not an appliance, or working appliance in the home).  So you'll pay less money of them, HAVE to pay cash for them, but overall--you still have a lot of money to dump INTO them.  That may not be the best deal for some people.  And really, you COULD buy these with a mortgage--but you'll get dumped into the 203k (rehab) program and it's no fun.

There are foreclosures that cost more, can be acquired with mortgage, but don't need as much work.  We just bought one for $159k that appraised (right before closing) for $194k.  No appliances and the bank fixed the plumbing (although I can see it was a shoddy job).  All the mechanicals worked and most of what needed to be done was cosmetic.  We bought it with 5% as a primary residence.  As an investor-owned property, these days you ARE pretty much locked into 20% down.

Are there good deals?  Yup.  Sure are.  Lots of them.  But getting them before the investors who make this a full-time job is hard. And getting through the process to a closing date can be even harder.  What you save in money, you pay in aggravation--I assure you.

If it sounds too good to be true, it probably is.

If you're looking for a primary residence, check the FNMA and Freddie Mac websites (homepath.com and homesteps.com).  Often, they will run promotions where if you buy by a certain date, they'll cover closing costs or they'll give you an appliance credit (to buy new ones) and they're usually pretty generous.  HUD has also moved most of their properties to hudhomestore.com.  IL just underwent that transition.  But all of these are good places to find foreclosures that you want as a primary residence.

Also, the banks are getting MUCH better at working with people who want to buy these properties.  In fact, just this February, we were buying a property as an investment property and everyone was pretty stunned that they offered to unwinterize the house for inspection--because that meant they had to fix the plumbing and heating.  :O  But they're starting to realize that they have too much backlog to get rid of and in the end, it pays for them to make it easier to buy these places.  In some areas, we've seen foreclosure properties that are spanking clean with new appliances compliments of the bank that owns the place--just to get them moved.

Good luck in your search!

[mattemma04]

I was looking at a house last week(37k) and the realtor was telling me you can get good deals on homes that are part of estate sales. I am still mad about a nice house listed at 75k that sold for 25k.

Forclosures are a good deal,but often the bank is firm on what they want.Estate sales or houses that have been listed for a long time often take low ball offers.

[swd12422]

A house around the corner from us went into foreclosure and was sold at auction. I don't know what the final selling price was, but the starting bid was $50,000. We went to the open house to see it before the auction, mostly out of curiosity, and the listing stated the price as $240,000. DH asked about the auction, and why they would put the (supposed) market price on the sheet, and the agent told him that it was a guideline b/c the house would not go at auction for $50,000, even if only one person bid on it for the opening bid. She said that generally the banks will not accept less than 60% of the market value of the home, even though the opening bid is so much lower than that. So it doesn't sound like it's all that easy to get a real bargain out of a foreclosure.

[heatherdeg]

Originally Posted by swd12422 

A house around the corner from us went into foreclosure and was sold at auction. I don't know what the final selling price was, but the starting bid was $50,000. We went to the open house to see it before the auction, mostly out of curiosity, and the listing stated the price as $240,000. DH asked about the auction, and why they would put the (supposed) market price on the sheet, and the agent told him that it was a guideline b/c the house would not go at auction for $50,000, even if only one person bid on it for the opening bid. She said that generally the banks will not accept less than 60% of the market value of the home, even though the opening bid is so much lower than that. So it doesn't sound like it's all that easy to get a real bargain out of a foreclosure.

The percentage of acceptable offer at auction is TRULY dictated by the bank and the particular situation.  But true: opening bid and sale price aren't usually related.  It's kind of like one of the eBay auctions with a reserve price where there is the opening bid and it goes up until it at least hits the reserve price or it doesn't get sold.  The sale price is public record--so you can find out what it sold for.  Back in NJ, you COULD find out at the town hall, but you can always find out at the county courthouse.

If a house goes to auction, the bank is desperate; because houses priced for the current market generally sell.  If something gets to auction, you have to wonder why.

Also, the banks (and HUD) go through a process of re-evaluating their bottom line when they get an offer.  So what they're "firm on" the first 30 days is different from what they're "firm on" at 120 days (and so on).  We won a house through HUD auction at price A (we had actually withdrawn the offer the afternoon before and they didn't get the message before sending word they'd finally accepted) and since we wound up not buying it, we saw that someone else bought it at a lower price 3mo later--despite the fact that they haggled the heck out of us and brought us up much higher than we were happy with.

Another house we submitted offer on, the price was lower than what they were authorized to sell it at.  But they put together their information and went to their higher ups to ask for approval to sell at the lower price--and it was approved.  They have a lot to consider... how long it's been on market, what that's costing them, how we're purchasing the house (cash/loan), how long before we can commit to closing, etc.  That changes month to month (as seasons change, sometimes property maintenance increases, etc.).  At the end of the day, you never really know what they're going to take until you submit an offer.

Estate sales and divorce sales CAN be good deals, but I know first-hand from my own grandmother's estate (and my father's career in real estate) that often, unless it's sitting a long time, you can have potential for extremely greedy heirs holding out for better prices and not really thinking rationally about it.  And estate sales are way less common than foreclosures these days.  Or short sales (which are another nightmare entirely--infinitely worse than foreclosures).

[TiredX2]

Originally Posted by heatherdeg 

Or short sales (which are another nightmare entirely--infinitely worse than foreclosures).

Can you explain this to me, please?

[cappuccinosmom]

Dh is a real estate investor (feels wierd to write that, he's not a hot shot, by any means, lol).  He found 3 houses between $15-20K.  We had the cash (inheritance) for them, and the process was fairly simple. *However*, because we didn't have a lot of money to remodel and repair, dh put many, many man hours plus a lot of blood sweat and tears into those things to make them acceptable for rentals.  And they are still "low income" rentals because he repaired and refurbished, rather than gutting them and putting everything new into them.  The house we live in was also a forclosure, but was 40K because it was essentially OK.  There was a little damage he needed to repair, and because it's an older house, something new comes up every year that needs fixing.  But we kept it from being a money-pit thus far because we have chosen to be content with the ugly carpet, 70's cabinets, and nauseating bathroom linoleum. :p  We just live with that stuff, so we're not spending a ton of money making the house "pretty".

The advertised programs are mostly money-making schemes (for the originators, not for you).  Look into estate sales, sherrif's sales, the county tax website, etc.

[heatherdeg]

Originally Posted by TiredX2 

Can you explain this to me, please?

Okay... here's "Short Sale 101"  :)

First, in case someone reading doesn't know what a short sale is, it's when more money is owed to the banks holding the mortgage(s) than someone can sell their house for.  So let's say they owe a total of $300,000 on a house that nobody in the market would possibly pay more than $250,000 on right now (or in the near future), but the homeowner needs to get out (either due to divorce, job loss, whatever) and they attempt to do so before foreclosure.  The total amount owed might be on one mortgage, or two mortgages.  If it's two mortgages, you have two banks to contend with--with the primary mortgage holder getting first rights to the proceeds of the sale and therefore not writing off as much (if any) of what the home"owner" owes.

I will use the term "homeowner" but clearly, these people don't own their homes--the bank does.  ;)

Homeowners have to be approved for short sale by their bank.  The bank has to evaluate the homeowners situation, whether they think there is a reasonable expectation that they will not be able to continue to pay the mortgage, for how long, etc. and therefore determine if they're even going to allow the homeowners out of the responsibility at all (vs. roll the dice and see if they stop paying--then foreclose).  This process alone takes a while.  They have to review bank statements, credit records, personal circumstances (divorce decrees & those payment agreements), job situations, etc.  They will also determine what they feel the homeowners can afford in the way of personal responsibility for whatever portion of the mortgage isn't covered by the short sale.  So they might determine that the homeowners can't afford to pay ANYthing towards paying off the mortgage; or they might determine that no matter what the sale price of the house--the homeowners can afford to pay another $20,000 towards what is owed (or whatever number they come up with).

Once they determine that the homeowners are compromised and should be let out of the mortgage responsibility (approving the homeowners for short sale), they then have to evaluate the marketability of the house.  The major problem with this is that generally they do a BPO (broker price opinion) instead of an appraisal.  This is partly because BPOs generate a potential market price based on the direction of the market in the future (per that broker's opinion of where the market is headed) where the appraisal determines the value as of the date of appraisal based on what has actually sold.  The broker doing the BPO may feel the market is going up, or going down.  Either way, it's highly subjective; and if the broker is wrong about where the market is headed, everyone's pretty much screwed.  But this is what the bank uses to determine what they will allow the house to be sold for.  And that takes time, too.  That process alone can be a 90-day ordeal.

When you put in an offer on a short sale, you first have to get into contract with the homeowner.  They have to agree to a price and terms that they want to send to their bank.  But then your offer goes off to the bank for THEIR approval of the sale.  And only then do you have a contract.  In the meantime, the bank can (and often does) counteroffer to try to get you to come up.  We were in a situation where we offered about $20k more than a house was going to appraise for (we figured we'd roll the dice that they'd come down when the appraisal came in based on the fact that nobody's going to pay more than appraised price for a house in this market) and the bank came back and wanted $20k more than THAT!!!!  We walked away.  We had already got our earnest money back (which takes more than a week) and they came back and said "the bank will take your offer now".  (we didn't buy that house, btw)

Anyway... some people put their house on the market for what the market will bear and if/when they get an offer, THEN they start the process of approaching their bank to approve themselves and the house for short sale.  It's not a short process.  Not by a longshot.  And if there's more than one bank involved--all the longer.

Some people will have gone through the process of having THEMSELVES approved for a short sale situation, but their bank has not evaluated the house for a price.  Some don't bother until they have an offer to consider because the BPO is only good for 30-90 days (which is pretty much the same situation in an appraisal) because markets change.  It's possible they could do the work and not have an offer before the BPO is no good anymore.  Not worth it.

Let's now compound all of this time with the homeowners potentially using both an agent and possibly also a lawyer that are not fluent in short sales, and therefore unable to properly manage the process, the expectations, or know how/when to follow up, run things up the chain of command, what options might exist to move things along, etc.

Occasionally you will see a short sale listed with an approved price.  It's possible that the homeowners can just make up the difference between what the market will get them in a sale price and what is owed; or it might be that the bank did the BPO and that "approved" price is only good for a set period of time.  And hey, if that time expires and the realtor doesn't update the description to say that the price approval has expired... oh well.

In several states, there are no clear rules on what the realtor can put in the listing or say about the status of a short sale.  I was stunned to see that here in IL, they can actually get away with lying about the state of affairs in a short sale with pretty much no recourse.

So there's a LOT of waiting, there's a lot of things that you probably won't get the owners or bank to pay for in the way of repairs, and there's no way of knowing when you'll not only be under contract, but therefore, when you'll close--and if the house doesn't appraise for the sale price, if the bank will agree to lower the sale price to the appraised value (or closer to it).  Given the amount of time you could be left waiting for them to respond and the fact that the market has been dropping--this is a serious concern.  To that end, it's best to have your inspections done BEFORE the offer is written up (or at least before it goes to the bank).  In fact, homeowners working with experienced agents will require that you do the inspection before the offer goes to the bank in case it uncovers a "deal breaker".  So there's money you could be out (in addition to whatever legal fees for your lawyer to review the contract--I know not everyone uses a lawyer, but we do--always).

So the problem really becomes that you have no clue when you will actually be under contract to buy the house; and then once you are, you have no idea if the bank will agree to lower the sale price if it doesn't appraise.  We tried to write into our contract that if it didn't appraise, that the sale price would be changed to the appraised price but the best we could get agreement to was that if it didn't appraise, we could legally get out of the purchase and get our earnest money back.  But the timing is really the bigger issue.  And that will vary by bank and the number of banks involved.

Foreclosures are somewhat easier because really, there's no approval or evaluation process to be done.  The bank already owns the house, needs to get rid of it, has set the sale price based on the market with the help of a realtor, and just has to evaluate the offers when they come in based on a series of factors internally.  It could take a week (possibly two) but usually, you have an answer within 24-48 hours.  Once you're under contract, the major delays in a foreclosure are getting repairs done to get it through an appraisal.  THAT can certainly take time, and that timeline is unpredictable; but it's quite a bit more predictable (and shorter) than short sales.  And honestly, in some areas, the bank has not only already made sure that the house mechanicals are working--but they've actually gone through and cleaned, replaced carpeting and painted.  In other areas, they haven't even cleared out whatever contents were left behind.  It differs by where you are.  But the timeline on them tends to be much shorter and predictable than short sales--by far.

[TiredX2]

Thanks for the explanation!  It's kinda crazy to me that a short sale would be easier than a foreclosure, but your explanation made total sense.  I appreciate your time.

[gmvh]

We're in a house that we bought through a short-sale and it was p-a-i-n-f-u-l.  I'm not sure I'd do it again but we opted to proceed vs. wait for it to go into foreclosure because we weren't sure if/when it would show back up for sale.

In addition to everything described above, if the homeowner's mortgage was an FHA mortgage, HUD also has to approve everything and that, of course, takes even longer.

Our offer was put in at the end of October and we closed at the end of March.

[heatherdeg]

Originally Posted by TiredX2 

Thanks for the explanation!  It's kinda crazy to me that a short sale would be easier than a foreclosure, but your explanation made total sense.  I appreciate your time.

NO! NO!!  The opposite!  Foreclosure easier than short sale!

Originally Posted by gmvh 

We're in a house that we bought through a short-sale and it was p-a-i-n-f-u-l.  I'm not sure I'd do it again but we opted to proceed vs. wait for it to go into foreclosure because we weren't sure if/when it would show back up for sale.

In addition to everything described above, if the homeowner's mortgage was an FHA mortgage, HUD also has to approve everything and that, of course, takes even longer.

Our offer was put in at the end of October and we closed at the end of March.

And that was a decent timeline with a mortgage company that clearly has the system down.

I should note that apparently (according to a good agent I know) many (not all, but many) of the banks are getting better about short sale timelines.  You can often be under contract in 90-ish days if the owner has already been approved.  But that's not all banks; and regardless, the reputation sticks.

Worthy of note that the Case-Shiller index also reported that prices have dropped again; and the prediction is that they will drop another 5% (more depending on who you ask) by the end of the year.  How the banks handle the backlog of foreclosures is really going to dictate what happens to market values.

[TiredX2]

Originally Posted by heatherdeg 

NO! NO!!  The opposite!  Foreclosure easier than short sale!

Sorry, that was a typo on my part.

[Jasamine Thomas]

The problem with foreclosures is the house may be cheap to purchase be sure and do the homework, title, inspection, foundation, flood, roof, lot size etc  know everything about everything like i started to say the #1 thing to be aware can the old owners redeem there house this is not available everywhere but in Texas there is a redemption period there is not one in California... just remember when it sounds to good to be true is probably is not true,...

[Ruthiegirl]

We just looked at a couple of forclosures  -- they didn't seem that cheap to me and all of them had been empty and neglected for a LOOOOOOOOOOONG time.  The mold and rot issues were enormous.  They were 4 bedroom/ 2 bath houses listed at 3 bedroom/1 bath prices.  And the work required would have been enormous.  

I wasn't that crazy about buying a forclosure.  I would have thought banks would be chomping to get rid of these houses.  But instead, the prices were firm and sold 'as is', so we could not ask that any repairs be made.  

 

[Al JCIII]

thats the part that sucks . the banks are trying some of them trying to get something for nothing.