Texas Coast Girls Like REOs
Little girls have pretty curls but I like REOs.
What is an REO?
normally foreclose on a homeowner, at a public foreclosure auction. If
there are no buyers at the auction, the bank ends up owning the
property. This result has a name: REO.
- REO stands for "Real Estate Owned by the bank".
WHY BANKS GET STUCK WITH REOS1. The property had little, or no, equity.
- Banks often sell REOs to investors at reduced prices.
No investor in their right mind would by a home at foreclosure for what it’s worth as there would be no room for profit.
2. The property is in poor condition
and no one would take the risk of buying it at the auction.
3. There was an IRS lien
attached to the property because the homeowner had owed back taxes.
Most bidders at foreclosure auctions will not take the risk of buying a
property that has an IRS lien due to delays in reselling the property.
WHY BANKS WANT TO GET RID OF REOS AS QUICKLY AS POSSIBLE
Banks REOs represent the evidence of bad loans that the bank has made. To the bank, they are a liability rather than an asset.
Every month that the REO remains unsold, the bank loses. There are many
reasons that a bank would sell an REO to you at a deep discount:
1. The bank has received a large cash settlement from their Private Mortgage Insurance Company.
Private Mortgage Insurance is also known as PMI is insurance that
covers the bank for its losses when it forecloses. Depending upon what
is bid at the auction, PMI will make the bank a full or partial
settlement. This cash infusion offsets some of the loss the bank may
have when it sells the REO at a discount.
2. Banks are penalized for having too many REOs
A bank numerous REOs may not be able to borrow money from the Federal
Reserve or may have to pay a higher interest rate on the money that the
Federal Reserve loans it. As stated before an REO on the books is
evidence the bank made a bad loan. Banks need to borrow money
from the Federal Reserve and they will sell REO’s at a steep
discount to protect that opportunity.3. Banks are not set up to deal with REOs
Many banks do not have the luxury or the need for an REO department.
When a bank gets an REO, it assigns the task of disposing of the
property to a high ranking manager, such as a department manager or a
regional manager. This unfortunate person receives this unwelcome task
in addition to his normal duties. He does not get paid more money to
deal with REOs. The REO will be a pain in the neck for him until he
finds a way to dispose of it. Needless to say, this person will want to
get rid of the property as fast as possible. This makes it easy for an
investor who knows what he is doing to make the bank a low offer and
get it accepted. 4. Banks frequently own mortgages to properties located in different states.
Some of these out-of-state properties end up going to foreclosure and
become REOs. When a property is foreclosed upon and a bank ends up with
an REO that is located in another state, it makes it difficult for the
bank to make decisions about the sale of the property. It is not
practical have a bank representative fly to another state, go to a
property, assess its condition, then hire contractors and real estate
agents. Even if the bank were willing to do this, the bank
representative would need to stay and oversee the work that is being
done. This would be too costly and time consuming. Some of your best
REO deals will be with local properties that are owned by banks located
in other states. 5. The bank will have carrying costs associated with the property
These include property taxes, water and sewer bills, insurance bills
and electricity bills. If the property is a condominium, there will be
condominium fees. If it is a townhouse, there will be homeowner’s
association fees. In addition to carrying costs, there are seasonal
maintenance costs. The property must be winterized in the colder
months. In the milder months, the lawn has to be cut and the shrubs
trimmed. As indicated above, banks are not normally in the business of
caretaking for real estate, and they dislike such responsibilities.
REO must be put into marketable condition. Banks are not set up to deal
with the renovation of a property. They are in the banking business and
do not have trustworthy contractors that they deal with on a regular
basis. They often pay too much for repairs and end up over-improving
the property, or worse, under-improving the property. Many banks have a
minimal amount of work done to an REO before they put it on the market.
They will get the property painted and that’s about it. They wait until
there is a contract with a home-buyer before they have other needed
repairs done. This often results in the property sitting unsold for
months and even years because 90% of homebuyers want a property that is
in move-in condition.HOW YOU CAN PROFIT FROM REOs
will get the biggest discounts on REOs that need repairs done to them.
REOs that are in fair to fairly poor condition can often be purchased
for a fraction of their value and quickly resold for huge profits. By
targeting REOs that are “fixer-uppers,” you will get tremendous
discounts and be able to make good money with them.
Do not buy an
REO if the condition is exceptionally poor. Houses with foundation or
structural defects are risky investments and should be avoided. If you
ever have any doubts about the structural condition of an REO, then get
a professional home inspector to perform an inspection on the entire
house. If it needs more work done to it than you are willing to deal
with, do not buy it. Stick to houses that are in fair to fairly poor
Many REO houses that are in fair to fairly poor condition
are listed for sale at reduced prices. Don’t let the asking price fool
you into thinking that the bank won’t take an even lower offer. Each
bank works differently, but one thing they all have in common is that
they want to get rid of their REOs. This represents a tremendous
opportunity for you to cash in on REOs.Timing is Everything
Timing can be important to your success. For example, some banks will sell many of their REOs at the end of their fiscal year or each quarter.
They do this because they want to clear their books. Some banks decide
to sell their REOs at discounts when they accumulate too many of them.
Many banks want to sell their REOs any way that they can and will often
accept low offers for them. You probably will not know when the timing
will be right, but be aware that timing is a factor that many banks use
to determine how low they will sell an REO.
Therefore, don’t ever
hesitate to make a low offer on an REO. Bear in mind that you can
always raise your offer if your first is not accepted.
Timing is a factor that many banks use to determine how low they will sell an REO for.
this: To be successful with REOs, you must continuously make offers! If
you make one offer each month, it will take you a long time to get a
good deal. If you make several offers each week, you will get a good
deal much faster. Don’t fixate on any one deal, as there are always
many more out there.
You can profit from REOs because banks are
eager to sell them. The main things you must know are how to find them
and how to get them at low prices. Once you have located an REO at a
low price, you’ll find it easy to sell it at a discount.
There are hundreds of REOs on the books in the Texas Coast region, but not yet on the market.
To discuss Texas Coast REO opportunities contact:
The Texas Coast region has experienced several major auctions lately, mostly for newer high-rise projects where the units sold for about 50% of retail. Read More.
by Bob Peltier, TexasGulfCoastOnline.com
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Comment By Mary Umberger - real estate writer in Chicago
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Comment By Matt Carter INMAN News
Unfortunately for many out-of-luck homeowners, many homes are being auctioned on courthouse steps these days. But those are not the whole auction story, and consumers ought to consider auctions as a viable means of buying a home.
Though so-called "distressed properties" -- foreclosures -- may be the popular image of auctions, sales by private auction firms run the gamut from builder closeouts, to banks disposing of seized assets, to individual homeowners who just want a quick and clean sale.
Residential real estate auctions grew by nearly 48 percent between 2003 and 2008, the most recent data available, according to the National Auctioneers Association in Overland, Kan. They may be becoming more mainstream, though some consumer education is still needed for broader acceptance, Levin said.
"You know, the normal, traditional way to sell a farm is at auction," he said. "Now, more (residential) consumers are starting to think outside the box."
"Auctions are the standard method (of homebuying) in Australia and parts of Europe," said Chris Longly, deputy executive director of the auctioneers' trade group, who said auctions here are on the upswing. "Today's consumers want things now and they want to pay the price they want now."
Five things for homebuyers to know about real estate auctions:
1. Buyers need to distinguish between so-called "sheriff's auctions" for foreclosures, and professional, privately conducted auctions of homes being sold for various reasons, Levin said.
"The sheriff's sale, that's a legal proceeding," he explained. In these sales, the lenders are foreclosing on delinquent mortgages, but they're not the legal owners of the property; the properties are usually bought by the lender for the value of the loan.
2. In those "courthouse steps" foreclosure sales, the buyers usually haven't been able to get inside to see the properties -- the lender who is foreclosing on the mortgage isn't the legal owner and doesn't have the right to let people into the home, he said.
But in regular auctions, usually the auction company will advertise the home for several weeks and will conduct open houses, Levin said.
"(Interested buyers) should want to come see them with a home inspector," Levin said. "If they don't, they certainly have to know what they're looking at, because in an auction, there are no contingencies." That is, the homes are sold "as is."
Longly said it's becoming increasingly common for auction companies to partner with mortgage lenders who will be present at the open houses for buyers who need financing. "It's a myth that auctions are cash-only sales," he said.
3. Levin said most auction houses permit buyers to involve their real estate agents, who will receive a commission on the sale.
"They can help (buyers) determine the value of the property, they can tell you what's going on in the neighborhood, they might be able to tell how the house compares to other properties," Levin said.
The auction company also should provide a packet of information at the open house that would include the required legal disclosures on the condition of the house and a blank contract the high bidder would be required to sign. Have it reviewed by an attorney, Levin said.
4. At the auction, of course, the best advice for the buyer is to decide how much he's willing to pay, and stick with that, Levin said.
Before the sale begins, auction firms will require bidders to present certified or cashier's checks for a designated amount, usually several thousand dollars, he said.
"The seller is willing to give the buyer a good value, but the buyer has to give the seller something," he said. "The way we insure that the buyer is making a real offer is to bring a little bit of real money."
5. The sale price may not be the whole price, however. The auctioneer also will collect all the fees and taxes that go along with a conventional property sale. Commissions and fees paid to the auction company and/or real estate agents who are involved typically are premiums added to the amount of the auction price, he said.
The sale typically will close in 30 to 45 days after the auction, Levin said. Thus, in this environment of tougher lending standards, it's important for buyers to get a mortgage preapproval before the auction in order to meet the deadline, he said.
- Read more...
Comment By KATHERINE FESER Houston Chronicle
The utterance of the term “shadow inventory” can conjure up fear, uncertainty and mystery about the future of the housing market.
First coined to describe the volume of lender-repossessed properties that haven’t yet reached the market as REOs (bank-owned listings), the term has been expanded by some to include homes in a foreclosure process and even those with delinquent loans that haven’t yet entered the foreclosure process.
There are lingering fears that the fragile recovery under way in many housing markets could be derailed by a “shadow inventory” of homes that have either been repossessed by lenders, are in foreclosure, or whose owners are behind on their loans.
An estimated 7 million homeowners are currently behind on their loans or in the foreclosure process — roughly double the number two years ago.
Not all of those homes will end up on back on the market. Some homeowners will “cure” their delinquent loans through a loan modification or by refinancing.
But lenders are also managing real state-owned (REO) inventories of between 775,000 and 1 million homes that they will need to liquidate. Only 25-30 percent of those homes are believed to be on the market.
Analysts who track the performance of home loans for investors in mortgage-backed securities are sounding alarm bells about the impact the “shadow inventory” of distressed loans and REO properties could have on markets.
But others who are keeping close tabs on the situation say fears that a sudden wave of foreclosed properties will drive down prices are overblown.
Some loans that analysts have counted as shadow inventory will actually be saved from foreclosure, they say, and those that aren’t will hit the market over an extended period of time and largely be absorbed by pent-up demand and growth in household formation.
One positive sign is that while a staggering number of borrowers are behind on their loans or in foreclosure, the growth in their ranks may finally be slowing as the number of good loans going bad begins to decline.
What alarms analysts who crunch numbers for investors in mortgage-backed securities: There is a steady growth in the number of loans that are delinquent or in the foreclosure process, suggesting that lenders have been playing a game of “extend and pretend” and putting off the inevitable day of reckoning.
The most recent data from Lender Processing Services (LPS) put the number of non-current home loans at 6.89 million at the end of February, including a record 1.79 million homes in the foreclosure process.
- Read more...
Comment By Los Angeles Times, Walter Hamilton and Alejandro Lazo
A flurry of condo auctions in the Galveston area
Chartwell Group will auction 35 units at The Endeavour high-rise on Clear Lake on Saturday. Bidding will start at $225,000 for units originally priced from $450,000 to $3.5 million. The auction will be held at the InterContinental Hotel near the Galleria.
In Galveston, the Diamond Beach resort's remaining 40 units will be auctioned by Kennedy Wilson last Sunday at another builder closeout. Starting bids will range from $140,000 to $375,000 on units previously priced from $360,000 to more than $1 million. The auction will be held at The Omni Houston Hotel at Riverway.
Kennedy Wilson recently held an auction of Palisade Palms in Galveston, where 27 units were sold for an average of $490,000 per unit.
Bidders can get details on The Edge sale to be held at the Hilton Americas Hotel at www.midtownedgeauction.com or by visiting the information office in Unit 106.
- Read more...
Comment By Molly Line at LiveShots
Investors Turn to Flipping for Quick Profits
Private equity firms and other groups of wealthy people are purchasing foreclosures at distressed prices, rehabbing them, and selling them for a quick profit.
This used to be a game for amateurs, but because of the lack of other investment opportunities, the money-management pros have stepped in.
The influx of new players is pushing up auction prices and making it harder to make a profit. The average discount at auctions — the difference between a home's sale price and its actual value — is 21.6 percent, down from 28 percent in January 2009, according to ForeclosureRadar.
"In crisis there's opportunity," says Rick Hudson, president of investment firm Prosperity Group Real Estate. "Right now there's huge opportunity with flipping houses."
- Read more...
Comment By AP
Now a new study, conducted by MIT and Harvard researchers, reveals the drop in value to a foreclosed property is even more staggering than many would believe.
"Foreclosed homes sell for less, not just a little bit less, but much less than comparable homes sold in the same area at the same time but voluntarily outside the foreclosure process," explains Harvard Professor of Economics John Campbell. "In fact, the discount on average is about 27% which is really a very large number."
And a foreclosure is bad news for the neighborhood...
The study-which examined 1.8 million home sales in Massachusetts from 1987 to 2009 reveals nearby homes within 250 feet of a foreclosure lose 1% of value.
One reason- the condition of a foreclosed house often deteriorates and falls into disrepair.
Real Estate Agent Danny Griffin runs his own firm selling property across Massachusetts. He points out that foreclosures often sell for a discount as banks look to quickly unload unwanted property.
"It becomes a hot potato on their books and they need to get rid of it and when somebody needs to get rid of something that's the deepest discount and not good for the neighborhood," said Griffin. "And a foreclosure, not being lived in, can absolutely have the broken window effect."
Often perceived as a retreat for the wealthy second home owner, Cape Cod is among the hardest hit areas in the state with foreclosure deeds up 74% in the first half of 2010 from last year in Barnstable County, according to the Warren Group, a real estate research firm.
Griffin says home values have fallen in general over the last several years and are now more in line with income levels. The drop is compounding the loss home owners facing foreclosure can suffer when a mortgage is higher than what a property is worth.
Few examples can better illustrate the loss in worth than a two bedroom condo just off the main street in seaside Hyannis, Massachusetts. Griffin sold it several years ago for 190,000.
"Now three years later it's a foreclosure. This property has actually been taken back by the bank, owned by them, given back to me as a realtor to resell. Within 30 days we had four offers on a pricing of 52,000 dollars," said Griffin. "Nearly a 75% discount on this foreclosed property only three years from the purchase date at 190."
Read more: http://liveshots.blogs.foxnews.com/2010/08/23/foreclosure-study-shows-dramatic-value-drop/#ixzz0xSdzKILu
- Read more...
Comment By Bob Peltier
Major banks are agreeing to give local governments and nonprofit groups the ability to buy foreclosed homes before they are sold to private investors.
The Obama administration said local officials could benefit from acquiring these properties and renovating them or using the land for redevelopment projects.
Congress has provided $7 billion to buy the homes, but these groups are struggling to spend the federal money because they are often outbid by speculators who are snapping up foreclosures.
"The fear is that they will purchase the property, make very minimal to no improvements on it, and either put it back on the market as a rental unit or let it sit waiting for the market to come back," said Sarah Greenberg, senior manager for community stabilization at NeighborWorks America, a nonprofit housing group.
The administration says the largest mortgage lenders in the country, including Bank of America Corp. and Wells Fargo & Co. have agreed to let the groups purchase the properties ahead of private speculators. The neighborhood organizations will have up to 48 hours to evaluate them.
"This agreement helps us level the playing field to give communities a better chance to stabilize these neighborhoods," Housing and Urban Development Secretary Shaun Donovan said in a statement. Donovan said about 100,000 properties are likely to be sold through the program.
A nonprofit group, the National Community Stabilization Trust, will collect information about foreclosed properties and help local groups to identify which ones to purchase.
- Read more...
Comment By Bob Peltier
LOS ANGELES -- Lenders took back more homes in August than in any month since the start of the U.S. mortgage crisis.
The increase in home repossessions came even as the number of properties entering the foreclosure process slowed for the seventh month in a row, foreclosure listing firm RealtyTrac Inc. said Thursday.
In all, banks repossessed 95,364 properties last month, up 3 percent from July and an increase of 25 percent from August 2009, RealtyTrac said.
- Read more...
Daily Real Estate News | September 16, 2010 | Share
70 Percent Say Buying Now is Good
A survey by Fannie Mae shows that 70 percent of Americans believe it is a good time to buy a home.
That is up from 64 percent in January 2010.
Still, 33 percent–up from 30 percent in January–say they’ll rent next time around.
About 67 percent believe housing is a safe investment, down from 83 percent of people questioned in a similar survey in 2003.
Source: Reuters News (09/16/2010)
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