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

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

Rich Americans Walking Away from Million Dollar Homes

Continuation from "Foreclosures : The Rich Walks Away from Homes" 


Rich Americans Walking Away from Million Dollar Homes

But with housing market still years away in recovery, many are finding that foreclosure to be a worthwhile solution after all. Stuck with puffed up home mortgages following a long run up in home values, numerous high-end homeowners have decided on to engage in a strategic default. Although they can manage the regular monthly mortgage obligations, they continue to decide to walk away from their property for the reason that they will owe more on the home than it is worth.

In the more affordable housing (under one million) you might see much more homeowners defaulting because they are unable to pay for the payments and it's a decision between providing for their family and having to pay the home loan on a home that's under water.

In million dollar properties, you might be looking at folks who can manage it, but has made a business and financial decision to just walk away.

At the very least everyone can take your time packing up all of your belongings. It takes around 350 days for a foreclosure to be completed (depends on how busy your area is, some states takes longer, some shorter). You may get nearly a year of free housing out of the deal and if you're smart, have the banks write you a check for your moving out expense. some of my clients on average have checks written to them on average of $4,500 - $15,000 (depending on home value). Free housing for a year and up to $15k!!!WOOT!

Anyway Don't be expecting a few million dollar homes in foreclosures to bring down the neighborhood. A single or two foreclosure in an otherwise affluent area is not going to impact surrounding values.

Freedie and Mae owes more than 2,000 Foreclosed Homes in the Bay Area

Fannie Mae and Freddie Mac have turn out to be a significant residential owners in the Bay Area’s toughest Foreclosure hit neighborhoods, many thanks to the mortgage disaster.

Based on information supplied by local bay area experts, the two government controlled loan organizations now own over 2,230 foreclosed properties in the Bay Area, value believed to be around $500 million. Numerous homes covered in junk, are blighted, unkept lawns, junk cars, damaged paint and shattered windows.

In between the two, Fannie Mae and Freddie Mac, own the majority of California home mortgages in excess of over 60% and compared with most of the biggest banking institutions — will not agree to lower the balances on mortgages for debtors who owes far more on their houses than they are worth.

The East Bay of the Bay Area CA accounted for almost 60 percent of all of the homes possessed by the disorganized Freddie Mac and Fannie Mae. Most of these homes are in hard hit cities such as Oakland (371), the bankrupted city of Vallejo (160), San Jose (137), and Richmond (110).

Short Sales numbers are up 15%

Short sales are beginning to develop into the chosen procedure for banks to get rid of homes who are delinquent. In short sale, debtors who owes more on their mortgage loans than their properties are value agree with their lender to market their house at the lower market value. In return, the financial institution agrees to take up the loss.

There were far more than 88,000 short sales throughout the last quarter of 2011, an increased of more than 15% in comparison with a year earlier. Short sales amounted to ten percent of all properties sold for the duration of the quarter. At the same time, sales of real estate owned by bank or REO decrease twelve percent year-over-year to 116,000, amounting 13% of all sales during the quarter.