Monday, May 28, 2012

Understanding REOs (Real Estate owned by banks)

If you are getting involved with real estate you may have heard the term REO without really knowing what it refers to and how it could play a part in your current or future investments. REO is actually just an acronym that stands for real estate owned by the bank. REOs aren’t all that common because the bank doesn’t want them, but they do happen and you can really cash in as a result.

How a Property Becomes an REO

When a bank forecloses on a home or property owner, it is requires by law to hold a public foreclosure auction. Sometimes, because of lack of publicity or other reasons the home will not get any bidders at the auction, and the bank will end up owning the property. When the bank ends up owning the property it is then known as real estate owned by the bank, or an REO. An REO isn’t something that the bank wants, but many investors consider them gold mines.

Why the Home Wasn’t Bid On

There are a variety of reasons that a piece of property will become an REO. The mot common reason is that the property had very little equity in it. Many investors will not bid on a property that has less than 30% equity. In fact, statistics show that banks end up with most houses that do not have at least 30% equity. Many homes become REO when the property was simply in terrible condition. Most investors or individuals won’t invest in a home that is in poor condition because they see it as too risky. When a home that is in poor condition becomes an REO they are often gold mines waiting for the right investor to come along. Another reason that homes are not bid on at an auction is because there are IRS liens attached to the property. The problem with IRS liens is that there is a 120 period after the purchase of the home that the IRS has the right to take the property and refund the money that you have paid for it, but not the money you have put into the house updating it. For some investors, this 120 day redemption period is just too risky.

Why the Bank Wants To Get Rid Of REO’s

Banks do not want to own property, which is not what they are set up for. Basically, an REO is the sign of a bad loan that was given by the bank and the REO is a liability, not an asset. Every month that a bank owns a piece of property means they are losing money.

One of the biggest reasons that a bank does not want an REO is that their insurer will make them pay a full or partial settlement on the property. The bank is also aware that it doesn’t matter how much they sell the home for at an auction, they will probably suffer a loss. Banks are actually penalized for having too many REOs by the federal government, as they have to borrow funds from the government to stay in business. The federal government views the REO as a bad loan, and has a vested interest in making sure that a bank does not make too many bad loans. The bank will also have costs that are associated with the property such as taxes, insurance, sewer, water, and electricity bills, as well as homeowner association dues. The property must also be maintained and winterized, all of this costing the bank money.
Another problem for the bank is that it is not used to having to deal with the fixing and selling of property. Banks don’t have contractors and such on hand to do the repairs, so they are at the mercy of contractors that may charge them too much for the services due. It also takes time to make a house marketable, and all of this time they are paying the costs to upkeep the home, when they aren’t used to doing so. The bank will usually hand the big task of managing and selling an REO to someone that has another job, a more important job, and this will actually end up stressing out bank personnel until the home sells.

The bank will also pay to hire a real estate agent to sell the property once it has been repaired. While this may not seem like a big deal to most people, it can add up when the bank is expected to pay at least 6% of the sales price to a real estate agent for every REO! These costs really add up over time, so it’s plain to see why the bank simply does not want an REO.

Why Investors Are Attracted to REO’s

Most investors know that homes that need some work done to them usually are the biggest gold mines. Because of this, REOs are generally a very attractive business deal for these investors. The banks are willing to do just about anything to get rid of their owned property, which means that businesses or individuals can get the bank to make them a really nice deal so that they can buy the home, do the necessary repairs, and then sell the home if they choose, and still be able to make some money for themselves. For those that know how to do it right, there is a lot of money to be made in REOs.

REOs aren’t hard to find because banks want to get rid of them as quickly as possible, and advertise them to the best of their ability. Investors simply need to inspect the property to be sure it is something that they can repair and still profit from if they want to. Many homes become REOs because they are not in a desirable part of town, so the investor that is looking into an REO must be sure that the home is in a desirable part of town if they hope to get their money out of it.

Author : John Nazareno @copyrighted 2006 all right reserveyou may used this article providing that you provide a live link back to this blogForeclosure Information

Monday, May 21, 2012

What to Expect At a Foreclosure Auction

Whether you are an investor that would like to get into buying foreclosed homes for your personal use or to flip the property or if you are having your home foreclosed on, you should know what to expect at a foreclosure auction. Of course, the actual steps that will be taken can vary a bit from state to state and from house to house, but it’s good to know what you will be getting into when you go to a foreclosure auction. Foreclosure auctions can be exciting, even fun, but knowing what to expect will help you make the most of the experience, whether you are an investor or a homeowner that is trying to get your house back.

Before the Auction

You’ll likely find out about the foreclosure auction in a local newspaper and on the flier may be information to pre-qualify for bidding. This will allow you to put down a deposit so that the auctioneer knows that you are a serious bidder and can fulfill your bid if you are the winning bidder. Being pre-qualified just sort of speeds up the process so that you don’t have to mess around with the deposit on the day of the auction. During this time you should also do some research on the house by looking into any liens that may be against the property, how much the property is worth, how much it has appreciated in the last few years, as well as property values in the area. If the home looks as though it will need some repairs, you should consider this as well when trying to come up with how much you will be willing to pay for the house. Without this research, no amount of knowledge about what goes on at a foreclosure option will help you because you won’t know where to start when it comes to actually making a good bid.

What Happens At the Auction

The auction will typically start with the auctioneer reading legal notices as well as a legal description of the property. The auctioneer will usually then begin taking bids on the property. If the auctioneer has pre-qualified bidders the process is more streamlined, if not, each time a bid is made the auctioneer will then ask for the bidders deposit check, which is typically right around $5,000 for residential auctions. After each bid the auctioneer will attempt to solicit bids for higher amounts. Each auction is different, but the auction increments usually are set by the auctioneer and may be by $100, $500, or $1,000 per bid. The auctioneer will continue to solicit bids by this increment until it is clear that the highest bid has been reached. Then, the auctioneer will announce, “Going once, going twice, three times, sold!” indicating that the auction is over and the property has been sold to the highest bidder.

Once the bidding has ended a foreclosure deed and purchase papers will be drawn up and validated by the new owner or purchaser and the mortgage holder. A grace will likely be given to allow the purchaser to find financing or to come up with the funds to cover the full amount of the bid. This grace period is usually 30 days unless the purchaser and the mortgage holder agree to other terms. After the grace period a closing will take place, so that the new owner can formally take the title to the property.

What Happens, Now?

The purchaser can do what he or she intended to do with the property, whether it is to move into the home or to sell it for full market value. The money paid by the purchaser will be distributed in order of priority, first of which would be taxes. After taxes money will be paid to the mortgage, then the second and third mortgage if applicable. If there is still money after paying these debts, remaining money will be paid to lien holders and creditors. There is a very slim chance that there will be money left over after all of the debts are paid, if this is the case then the monies will be paid to the former home owner.

What about the Original Owner?

The original owner will often be at the auction so that they can bid on their home, and this is legal as long as they have the deposit required. If the owner of the home that has been foreclosed does bid on the home they must remember that the deposit is not refundable and the deposit assumes that they will be able to finance the home within the grace period. Owners must also remember that if they buy the property back old debts may merge and become reinstated such as second and third mortgages that became void when the first mortgage foreclosed on the property unless one has filed bankruptcy and is truly free and clear of these debts. Owners will often drum up the funds to make the deposit so that they can have another 30 days to try to save their home. Owners may or may not be successful in their attempts to save their home at a foreclosure auction.

As you can see, there are a lot of things that go into a foreclosure auction, but none of them are all that difficult to understand, but knowing about them makes the auction more enjoyable. The auction itself is not all that complicated, but it can be very fast paced. At some foreclosure auctions there are a lot of people, at others there are only a few because of the location or just the debts attached to the property, or even the state of the property. If you are serious about the property you should pay close attention when bidding starts so that you are sure that you can get your bid in when you feel it’s time so that you have the best chance of being the top bidder.

Author : John Nazareno @copyrighted 2006 all right reserveyou may used this article providing that you provide a live link back to this blogForeclosure Information

Monday, May 07, 2012

No! The Bank Doesn’t Want Your House!

When faced with the threat of foreclosure it is very easy to assume that your bank or lender simply wants to foreclose on your home and it isn’t worth the fight to keep the home. This defeatist attitude will not help you keep your home, and the reality is that the bank does not want you to think like this! The bank really doesn’t want your home, and a bank never wants to foreclose. Ever. Having this information can help people that are in the process of being foreclosed on develop the right attitude and keep their homes instead of losing the homes that they have worked so hard for.

The fact of the matter is that foreclosures are a pain in the side of banking or financial institutions. They do not want to mess with the court proceedings, with the auctions, and with the local laws in your state or county. They simply want the money that they lent you when you purchased the home, paid in full with interest. If they foreclose on the home they aren’t getting that. Sure, they are getting the home back, but that is not what they set out to do. Foreclosure costs the bank money and they aren’t in the business of spending money, they are in the business of making money. So, if you work with your bank you can stop foreclosure a good deal of the time because they are just as adverse to the process as homeowners are. The bank will often work to keep the home with the owner harder than the owner is willing to work to keep their home.

While many of us feel contempt toward the bank while going through a foreclosure or when we are threatened with foreclosure, this needn’t be the attitude. Your bank wants to work with you to arrange for repayment, so start taking their calls and responding to their mailings. In the long run both you and the bank will be better off. The bank is so willing to work with most people that fall behind on their mortgages that they will often allow them to repay their debts before making current payments, they’ll help owners refinance so that they can more easily afford their monthly mortgage payments, and they’ll even waive late fees that can add up and make the situation even more overwhelming for those trying to get on top of their debts.

Most of us don’t think about it, but foreclosure isn’t good for the bank, either. It takes time to foreclose on a house, and during this time the bank will not be making any money off the money that was borrowed from them by the buyer of the home. The home will be sitting, sometimes empty and uncared for and the bank will often have to repair the home to make it suitable for sale or to keep up with deed restrictions. All of this costs the bank money that they did not intend to spend on your home.

Even when the foreclosure process comes to an end, the losing of money is not over for the bank. Many foreclosed homes are sold at auction, and while most of us assume that the bank makes back all of their money at auction, they often do not. The first buyer is usually required to pay the difference, but this is a debt that will commonly go unpaid for years because the foreclosed on owner simply cannot afford to pay back the money. So, the bank is still short the money that should have been paid on the principal, not to mention the interest that would have been paid over 13 or 30 years for the original mortgage.

Many people that are about to be foreclosed on will file for chapter seven bankruptcy. While this provides the owner with the respite that is needed from over due bills and collection agencies, this is not what the bank wants you to do. In a chapter seven bankruptcy all of the debt is usually taken away, meaning that the owner will be allowed to keep the home, but the unpaid debts will never be paid. The bank is expected to just deal with the loss and go on. This is another reason that a bank or lender will usually try really hard to work with the owing party, because they would rather wait for the money than not get it at all.

As you can see, the bank simply wants their money. They don’t like to foreclose on homes because it means that they won’t be getting their money right now, and they certainly won’t be getting the interest on the money that was borrowed from them, that they were planning on. Working with individuals that owe money gives the bank a better chance of recovering the funds that they are owed than taking a house.

It is important for people to realize that the bank simply does not want your home. They want to work with you so that you can keep you home and they can get their money that is due to them, with interest. Because the bank is watching out for themselves and they want their money, this gives the individual in debt quite a bit of wiggle room to work out payment arrangements and keep the foreclosure process from going any further. With this knowledge you can change your attitude toward the bank or lender and pick up the phone and respond to mailings so that you can get the situation straightened out. If you make a reasonable attempt to pay off the debt you will realize that the owner actually has the upper hand because the bank is willing to avoid foreclosure just as much or more than the owner! Foreclosure simply costs everyone too much time and money, and this does not just apply to the owner, it applies to the bank as well!

Author : John Nazareno @copyrighted 2006 all right reserveyou may used this article providing that you provide a live link back to this blog Foreclosure Information

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