Opportunities still abound…
While the market for purchasing Real Estate Owned (REO properties) is not as rabid as it was even just a couple of years ago, it still represents tremendous opportunities for property investors. If you have the temperament to go in and renovate or repair an REO property, then deals can still be had. Most of the foreclosed homes coming on the market in recent months have been on the sidelines for years, languishing in a type of suspended animation. In a state like New York, for example, where the foreclosure process must go through the court system before being placed up for sale, a sizeable backlog of foreclosed homes is now hitting the market. It has taken years for some properties to make it through the full foreclosure process.
When a foreclosure occurs
A foreclosed home comes on the market after an owner has defaulted on his mortgage. This occurs after he has been delinquent in his loan payments for many months…or years, depending on the lender. Once the lender is able to successfully complete the foreclosure process on any given delinquent loan, the bank then assumes ownership of the property. At that time the property is referred to as an REO property. Most banks have stables of REO properties they are trying to unload on the market at any given time. And coincidentally, the bureaucratic red tape for buying an REO property is quite large. Property investors considering acquiring foreclosures need to fully understand this process – it’s not as simple as purchasing from a seller directly (whether a Realtor is used or not). Certainly, if you’ve got the patience and stamina to handle the red tape inherent in the process when dealing with lenders’ REO properties (which could take up to six months or longer from the time you get an accepted offer to closing), then foreclosures could be a great opportunity for you as a property investor.
Cash is king with foreclosures
Always keep in mind that acquiring a foreclosure is best done using all-cash offers. In this way, a bank doesn’t have to worry about any mortgage contingency, where you can back out of the deal if you are unable to get a mortgage loan commitment on the property. All cash offers mean substantially less risk for the bank, making them more preferable to deals involving bank financing. Also, keep in mind that asking the same lender who is selling their REO property for the mortgage loan will most definitely result in a higher sales price. The more risk to the bank, the more they will want in return.
Best ways to locate REO properties
If you’re searching for foreclosures by yourself, I would recommend going right to the source of the greatest number of foreclosed homes. Fannie Mae (FNMA) homes that have been foreclosed are easily accessed by their marketing arm, Homepath. Simply go to homepath.com to search their huge inventory by your preferred local area. In addition, be sure to check out HUD homes (portal.hud.gov) for additional inventories of their foreclosed properties currently available for sale. And don’t forget to continue your search through large inventories of bank-owned REO properties by reviewing the offerings from Citibank (through Citimortgage at citimortgage.com). Additionally, Citimortgage can get you qualified for one of their investor mortgages as well at the same time. Another good site for your search should be Ocwen (at ocwen.com). This is an excellent foreclosure prevention company that specializes in high-risk loans. However, they are also an excellent source for information on foreclosed properties as well.
If you’ll be utilizing the services of a Realtor (and it’s a good idea to work with one exclusively), try to search out a Realtor who has a good working relationship with local lenders and their foreclosure departments. This may not necessarily be your main Realtor, but sometimes working with a specialist (for example, a Realtor that deals in primarily foreclosure listings) is a good way to go. Lenders get used to working with a select few number of Realtors in any given geographic area. They prefer the specialization these Realtors provide. Be sure to use them in your search for the best REO properties as well.
photos courtesy of forsalefortcollins.com, psdgraphics.com, newgeography.com