How to Buy a Bank Owned Home

How to buy bank owned properties (REO)

There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject. Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know "the secret formula". The fact is that there are no secrets, and to make money does require effort.

What's an REO?

REO stands for "Real Estate Owned". These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of all that, you'll receive the property 100% "as is". That could include existing liens and even current occupants that need to be evicted. A REO, by contrast, is a much "cleaner" and attractive transaction. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be aware that REO's may be exempt from normal disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?

It's commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isn't true. You have to be very careful about buying a REO if your intent is to make money off of it. While it's true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The bargains with money making potential exist, and many people do very well buying foreclosures. But there are also many REO's that are not good buys and not likely to turn a profit.

Ready to make an offer?

Most banks have a REO department that you'll work with in buying a REO property from them. Typically the REO department will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, you'll want to contact either the listing agent or REO department at the bank and find out as much as you can about what they know about the condition of the property and what their process is for receiving offers. Since banks almost always sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it. As with making any offer on real estate, you'll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you've made your offer, you can expect the bank to make a counter offer. Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, you'll be dealing with a process that probably involves multiple people at the bank, and they don't work evenings or weekends. It's not unusual for the process of offers and counter offers to take days or even weeks.

Hard Money Lending: A Valuable Financing Option

Hard Money Lending: A Valuable Financing Option

What is "Hard Money"? Most people have heard the term before and are not sure exactly what it means. Don't be confused by the term "Hard Money." The name doesn't mean that this money is difficult to obtain, because in reality hard money loans are some of the easiest funds to procure. Generally speaking, the industry defines "Hard Money" as unconventional asset based lending where the collateral of the loan is real estate. It is considered unconventional because these loans do not meet the traditional underwriting criteria of Institutional Lenders (ILs).

A Hard Money Lender (HML) is typically the ‘lender of last resort’ due to the loan’s unconventional characteristics; fast funding timeline, a borrower’s credit score, loan type, etc. Private--or "Hard Money"--lenders include real estate funds, pension funds, insurance companies and/or private individuals with money available for lending. Some have deep pockets while others have limited resources. Based upon their own criteria, HMLs lend money primarily on a short-term basis, to borrowers who use it for a variety of profitable purposes. These may include the following real estate loan types: bridge, refinance, development, acquisition, rehab, etc. Since Hard Money is more expensive than traditional sources (10%+ interest rate and 2 points+ in origination fees), borrowers should have a significant financial upside for using these sources. These benefits out way the loan cost.

Typical Terms for Hard Money Loans

Terms and requirements for these types of loans will vary from lender to lender. Lenders may charge an upfront application fee, due diligence fee and commitment fee. Make sure to understand these fees when selecting a Hard Money Lender because these fees maybe non-refundable. Generally, a HML will fund a loan for 50% LTV on raw land and up to 70% LTV on the finished product, at an interest rate of 10%+ and for a period of six months to three years. Lenders will also charge between 2 and 10 points as an origination fee, to be paid out of proceeds. Loans can be either interest only or amortized. Some lenders will fund interest, origination fees, rehab money, etc.; others will not. Ultimately, when selecting a HML, borrowers will need to understand how these options fit best into their plans.

Why Is Hard Money a Good Financing Option?

Institutional Lenders (ILs) (i.e. banks, credit unions, etc.) fill a need for cheap money. Everyone is glad they exist and fulfill their need. Borrowers would love to use them on all real estate deals. However, there is a market out there that ILs cannot fund. That is where Hard Money Lenders come in and why they exist. They fulfill a need that ILs cannot fill due to government regulations, stricter underwriting guidelines, lower risk profiles, longer funding timeline, etc.

When deciding whether to apply for a Hard Money loan, here are the top ten reasons to consider:

1. SPEED
Most Hard Money Lenders (HMLs) can fund in less than two weeks after receiving all the necessary documentation, while most Institutional Lenders (ILs) can take 60 days or greater, if at all.
2. LOW DOCUMENTATION REQUIREMENTS
HMLs documentation is often less than the paperwork required by ILs. HMLs still require some documentation but they fund based on the value of the property; it is the asset that is under consideration, not the borrower.
3. NO CREDIT ISSUE
HMLs typically do not require borrowers to have good credit. For example, one client was able to obtain funding even though the borrower had a recent bankruptcy, foreclosure and a FICO score under 500. ILs almost always require a decent credit history.
4. FLEXIBILITY
HMLs give maximum flexibility in structuring the loan (i.e. term, interest reserve, draw schedules, cash out, financing carry, etc.). ILs typically have much stricter terms.
5. GAP/BRIDGE FINANCING
HMLs are usually very experienced real estate lenders who understand that projects do not always follow the given plan. If a gap in funding exists and the loan and supporting documentation make sense, HMLs will typically fund. Whereas, IL’s guidelines are typically not flexible and they turn down gap loan requests if borrowers get off schedule.
6. LOANS TO FOREIGN NATIONALS
HMLs will loan to foreign nationals, as long as, they are secured in the property. Most ILs have difficulty lending to non-US citizens under the terms required.
7. HIGHER RISK PROFILE
HMLs will fund pre-development, church, non-profit and other riskier loans due totheir understanding of the process and value of the collateral. ILs typically will not fund predevelopment loans or make loans to institutions which impact their profile in the community. For example, no IL wants to foreclose on a church; the publicity is terrible.
8. NO PERSONAL GUARANTEE
HMLs do not always require personal guarantees since loans are made based on the value of the property. ILs almost always require personal guarantees.
9. FLEXIBLE LTVS
HMLs decide what Loan-to-Values (LTVs) they will accept based on their affinity for the project, cross collateralization, possible equity participation, etc. ILs have very strict underwriting criteria, which turn down loans from the beginning if the LTV is too high.
10. SUBORDINATE LIENS
HMLs will make loans in a first, second, third or lower position, as long as, the value of the property is there. ILs might do a second, and almost never a third. Typically, ILs want to be in a first position.

Hard Money Loan Expectations

So, you have a good deal with a great LTV and the loan can't go to an Institutional Lender because of bad credit, or need for funding in two weeks or faster. Armed with the knowledge of the value and concept of Hard Money lending, the loan is sent to a HML. The bottom line is that the finance cost will be more expensive than an IL, but the deal will close. Here is what to expect. Each deal is unique; deal terms vary and nothing is set in stone. Lender criteria adjust based on the specifics of each deal, so borrowers will need to be flexible. Here are a few of the expectations to keep in mind when applying for a Hard Money loan:
Title insurance is a must.
All delinquent taxes, judgments, etc. and other liens on the property will typically be taken out of the proceeds unless specifically excluded.
Insurance, typically, will add the lender as co-insured.
Fund control is always set up on construction, development and any loans which have budgets.
Borrower will pay all closing costs, fees, etc. out of proceeds.
Many lenders require the property be put into a single asset LLC, which the loan is made to.
Borrower should be prepared to assign rents.
Interest, in most cases, at least partly will be reserved or prepaid.
Some HMLs require an upfront application fee, due diligence fee and commitment fee. Make sure you understand these fees and how they will be used and if they are refundable.
Almost all lenders require borrowers to have money in the deal. Additional collateral may be required by cross collateralizing other properties to keep the LTV acceptable.
One final suggestion is to try every institutional and conventional lender--first. After understanding that the loan doesn’t fit into their underwriting criteria and the loan request keeps getting denied for various reasons, keep Hard Money Lenders in mind. HMLs are a valuable option for many types of real estate transactions.

Hard Money Lender Directory @ http://www.thenoteservice.com

Guide to buying Foreclosure Auctions

Buying properties at foreclosure auctions can sometimes yield great buys, but you have to approach every auction with caution, because they can be disastrous if you don't do your homework well. Here are some tips for minimizing your chances of making a big mistake when looking at a property that's about to be auctioned off.

First, at least drive by the property to see what kind of condition the exterior of the house is in. Your chances of seeing the inside of the house are slim, unless it's vacant. The homeowners are going through a very trying time in their lives, so you can't expect them to be gracious if you ask to tour the home you are thinking of buying when they're forced to vacate. Assume that the house will need at least minimal maintenance, such as paint, carpet, and some upgrades, but know that they often need considerably more than that, because the owners have often been strapped for cash long enough to have put off maintenance for quite some time. If the house is vacant, don't be shy about peeking in the windows. You're a legitimate purchase prospect, and you're just doing a diligent inspection. Just remember: the less you get to see of the interior, the more careful you'll need to be when bidding at the auction.

Before you attend an auction, you'll need to be clear as to what you intend to do with the property if you're successful in winning it. Are you planning to live there yourself? Do you intend to fix it up and sell it retail or will you try to find another investor to buy it even before you've done any work to it? Will it become a rental property in your portfolio? Your ultimate goal for a property will be the sole factor in how much you'll be willing to bid for it. Regardless of your intention, you must exercise caution to make sure that you bid accordingly. If the price goes above what you think is a fair price, don't get caught up in the moment and bid higher. It's a mistake that can haunt you for a long time.

In most situations, you'll need to bring ten percent of the winning bid with you to the auction site. It can be cash or certified check, but most of the time you can't write a personal check for the down payment. You'll usually have thirty days to come up with the rest of the money, although some states require the entire amount to be paid on the day of the sale. Check with your local and state authorities to see what situation applies in your area.

Once you've decided to bid on a property, make sure you get to the auction site on time. Most auctions are over in an amazingly short time, often less than five minutes, so don't be late. If there are other people there, you'll find old-hands and you'll find folks who are only watching. This can be a great help to you if you're hoping to unload the property right away to another investor. Another investor may be willing to take over your interest on the spot, including a tidy profit, so don't be afraid to talk to other people at the auction.

Once the auction begins, keep your enthusiasm in check. If someone is bidding against you, bid up to the maximum amount you've determined ahead of time that you're willing to spend and then quit. If you don't, you could be making a big mistake, which could be devastating if you're a beginning investor. There'll be other auctions, and if you don't get the property this time, chalk it up to experience and begin your search for your next property.

Congress Approves Economic Stimulus Package

Congress approves economic stimulus package

Washington (ABC News) _ Congress has approved the rebate checks meant to stimulate the economy and President Bush is on board.
Timely, targeted and temporary, the economic stimulus package has been approved and the checks will be in the mail for about 100-million Americans.
“We stand here at the precipice of a fairly severe economic turndown and we must do everything we can to make sure that the severe effects of that downturn are mitigated,” said Sen. Charles Schumer (D-NY).
Individuals earning up to $75,000 a year will get $600. Families making up to $150,000 a year will get $1,200 plus an additional $300 for each child under 17.
In addition, 21 million seniors will get checks for $300, as well as disabled veterans.
“I thank members of Congress for their efforts on this legislation. This bill reflects our principles. It is pro-growth. It is robust and it will get money into the hands of American consumers,” President Bush said.
The plan is intended to get people spending in an effort to rejuvenate the economy.
“We are making history. What has passed the Congress in record time is a gift to the middle class and it shows that the work of Congress understands the struggles they have,” said Nancy Pelosi (D-Speaker of the House).
The checks will start being sent out in May.

Real Estate Auctions Gain Popularity

Real Estate Auctions Gain Popularity
As many homes remain on the market for extended periods of time, many sellers are turning to the auction format to sell their properties. There are several reasons for this, especially in today’s market conditions.
Australia, New Zealand, the UK and other countries have used auctions to sell valuable assets such as real estate for many years and in the US auctions have long been used since the War of Independence and the Civil War. It was originally used after a battle to sell the spoils of war, thus the term Colonel. Years ago, some auctioneers referred to themselves as Colonels for this reason.
During the depression, the auction method was used to sell properties in foreclosure and still is today. When a property sells on the courthouse steps from the foreclosure process, the lender usually ends up buying the property back to eliminate any junior liens and the property becomes what is referred to as an REO (Real Estate Owned). Most lenders do not like this term however and may refer to the property as a Special Asset.
Buying a property at a true foreclosure sale can be complicated, risky and one is usually competing against the lender and possibly other professional investors. It is not recommended for the novice for several reasons.
It is understandable that auctions have been associated with distress and a means of last resort. For years, they have carried a negative connotation with them.
This is not the case any longer. When you consider that the high-end auction houses such as Sotheby’s, Christies and other auction companies that sell assets from fine art to collector cars for hundreds of thousands of dollars into the millions, it’s not a wonder that real estate was going to enter the fold of assets for sale using the auction method. It is no longer a last resort and since the 1990s to 2007, real estate at auction has tripled and is a multi-billion dollar industry.
Some reasons many sellers are using or considering the auction method for selling their properties are Time, Holding Costs, Stress, Relocation, Job Change and Better Exposure to the Market.
Savvy asset managers and business people have long known the Time Value of Money. They consider the use of the money (Equity) now may be better than the risk of waiting for a longer period of time.
Holding cost are associated with on-going mortgage payments, taxes, insurance, utilities, maintenance and repairs, and changing market conditions such as the mortgage money supply and/or declining values.
With more and more buyers looking to the Internet for their home searches and information, auctions make sense for buyers and sellers alike. Many real estate auctions are done on line or use a combination of live, on line and phone-in bids to approved, registered bidders.
Buyers can assume that the seller is realistic in their expectations while sellers have a better venue for exposing their property and closing in a more timely fashion. This allows the parties to avoid the sea of over-priced properties. Over-Priced properties are one of the reasons there is a 10.5-11 month supply of homes for sale in Charlotte County alone. A normal supply would be approximately a 3 month supply. This same factor holds true in Sarasota and Lee Counties as well, according to many analysts.
“When you consider the very definition of Current Market Value, auctions are a scientific approach to selling”, said Bill Hoyle of The According To Hoyle Group-Shells Realty with offices in Punta Gorda, Burnt Store, North Port and Sarasota.
Bill said “If a property is worth what a ready, willing and able buyer will pay, with the proper exposure to the market in a given time period; then an auction compliments and supports this very definition of Current Market Value”.
The According To Hoyle Group has been involved in selling real estate since 1986 and has sold over 2,500 properties. They originated from the OH/MI area when they arrived in Florida selling Special Assets at Absolute Auction one week out of every month. They have been involved in teaching, selling and consulting in several states and sold properties all over the state of Florida. They would fly from one sale to the next in a small Mooney Plane in the same day.
“We’ve sold every type of property from single family homes, multifamily residences, golf courses, marinas, businesses, land and lots, bars, restaurants, an island and even schools for municipalities” according to Terrie Hoyle. Terrie is a Licensed Broker-Associate, a Mortgage Broker and has been involved with high-end marketing and negotiations. She is Vice President of According To Hoyle, Inc.
According To Bill Hoyle, there are 3 commonly used types of auctions when selling real estate. They are Absolute, Public or Reserve Auctions and a third type, Minimum Bid where a reserve is publicized as a minimum and discloses the lowest dollar at which the seller will guarantee a sale or where the bidding becomes absolute. A Public or Reserve Auction does not disclose the reserve or minimum, while an Absolute Auction sells to the highest bidder, wherever the bidding stops.
Any seller wishing to explore the auction option should consult a professional and experienced auction group when considering a sale. There are several specifics determined in advance such as the deposit from the buyer, who pays for what closing costs, the best dates, the type of auction sale, the marketing budget-exposure campaign and if the sale should be held live on site and or on line along with other options.
“We’ve been involved in real estate and auctions as a group, including some family members like my daughter for years” Bill Hoyle stated. Heather Hoyle-Jones is a Mortgage Consultant and a Licensed Realtor.
Bill Hoyle possesses the AARE (Accredited Auctioneer Real Estate) and the CAI (Certified Auctioneers Institute) designations.
The designations are taught primarily at Indiana University and are considered the Doctorate Degree in Real Estate Auctions among the auction community.
“Auctions are somewhat different than conventional sales” according to Mr. Hoyle. “With an auction, the sellers control the days, dates and times for the sales” Hoyle went on to say. “Usually, the only thing that’s determined on sale day or in the case of an on-line sale, the ending date merely sets the price offered. The buyers need to pre-arrange their financing in advance since the sale is usually not subject to or contingent on financing and the ability for a buyer to get a loan. That’s one reason we offer financing options up front for the convenience of the buyer”, Bill Hoyle stated. “Most savvy buyers go through the pre-approval or pre-qualification process already.”
When asked How Much Does it Cost or what fees are involved? Terrie Hoyle said “The seller participates in the exposure and advertising budget and the buyer will most often be required to pay the selling fee in the form of a buyer’s premium.”
The buyer’s premium is usually a percentage that is added on to the final, high bid in order to determine the contract or sales agreement price. The fee, as it was explained pays for the auctioneers, staff and cooperating brokers. Brokers can register their buyers for the sales in most cases and may be compensated if they procure the buyer that closes on the property. Brokers can refer their sellers to an auction firm as well.
When asked how the property is advertised or exposed, Terrie Hoyle sad “The sales can be advertised based on what we call Buyer Profiling. It’s based on where the buyers are most likely to come from, where they live, what income bracket they’re in, recent migration patterns, age demographics and many variables for the best exposure.” Professional auction firms have access to in-house database lists, other list sources, newspapers and print media sources, websites and web- portals, MLS, IDX, Realtor.Com and also do direct mailings. The signs usually have the date, time and e-mail address for more information along with the phone numbers and Website Address.
Auctions gain attention in a market where the choices have been diluted and in some cases made buying complex and even overwhelming to some buyers.
Buyers are looking for good buys and have many choices currently. Auctions freeze the market around competing properties and give the buyers an answer much sooner than a long search and negotiation process.
“The buyers can have the property inspected and usually have a seller’s disclosure statement prior to the sale” Bill Hoyle affirmed. “Our sales offer clear, marketable title and customary closing procedures as with a conventional sale too Sellers are obligated to disclose any known defects to the buyers as well. So the myth that you may get burned is simply not true, at least at our sales.”
We learned that most sales begin with a consultation with the auctioneer, a marketing period of 6 to 8 weeks and then a contract which usually allows for a 30 day period to close. We also found out that the usual marketing fees or budgets vary from one auctioneer to another but run from 2% to 4% of the expected value of the property. Hoyle mentioned that one should be leery of a very low advertising budget since advertising and exposure are critically important in selling a property and can influence the results drastically.
Newspaper advertising can be expensive depending on which papers you use and how often it is run. For example, running one small ad in the New York Times is approximately $700 per run. Then consider Chicago Papers and of course Canadian Papers. When coupled with local print media exposure, the newspaper exposure can be costly. This does not take into account Websites, E-Mail Campaigns, Signs, Direct Mail, Portals and in some cases, TV and/or Radio. “Each sale is done on a case-by case basis” Terrie Hoyle said. “This is discussed in detail with each seller based on the project and is our forte. Keep in mind that there are no miracle cures for selling. When our market was very strong such as in 2004-2005, almost every sale resembled an auction. There were multiple offers on many properties and the bidding process was going on then. That was a good time to do an auction however now that the market has adjusted and slowed, the results will reflect that. I always look at the definition of Current Market Value. If you live and breathe the business daily like we do, you’ll see the appraisers have really pulled in the reins and tightened up. Some conventional sales are not appraising and the negotiation process resumes if the deal is to stay together. There is no such thing as a better time to do an auction but certainly now’s a good time. We had our own brokerage and were doing mostly auction sales until the market boom of 04-05. Then we associated with Robert Milligan, a bright ambitious broker out of Sarasota with Shells Realty. At the time there were only about 5 or 6 of us, all top producers and our only office was in Port Charlotte with the Corporate Office in Sarasota. Now Shells Realty has approximately 150 agents, multiple offices and our office is in Punta Gorda at 207 Cross St.”
So you decide; as Auctions Gain in Popularity, which option is for you. It appears to be a growing trend and not one likely to go away anytime soon.

Real Estate Investors Share Keys to Success

A team of real estate investors have shared their keys to success in this real estate market.


1. Awareness. They were aware of the market shifting right
under their feet. They didn't go "bubble" crazy and spread
the fever. They were aware, not afraid.

2. Adaptabilty. These savvy investors who are still profiting
(some even MORE now) realize they have to adapt and overcome.
When the market shifted, they shifted with it.

3. Speedy Implementation. They spent very little time researching
and more time taking action. They did not wait; they acted.

4. They Take Their Real Estate and Marketing Education Seriously.
Yes, this includes the "gurus". You need to be 100% committed to
your education to stay ahead of the market.

5. Never Hesitate to Invest In Their Education. Real millionaire
methods come from being taught by the best.

6. Real World Testing and Tracking. Truly savvy investors know
what works and what doesn't through testing and tracking. They
have hard data and make results driven decisions to move their
businesses forward.

7. Automation and Business Systems. If you are ever going to
build true wealth and avoid stress you are going to have to
learn how to automate tasks and put confusing processes into
a simple system.

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