Assume a Delinquent Home Loan--Genius or Mistake?

"I only want to look at foreclosures," buyers have requested. "I also want to take over someone else's loan." Buyers looking for the ultimate deal.

Sounds like a win win situation. Take over someone else's delinquent home loan, relieving them of their financial burden. At the same time, the buyer would put down a small amount to pick up the property at a low price with a low monthly payment

Years ago, people stayed in their homes paying down their mortgages, when suddenly tragedy would strike--a job loss, divorce or a death occurred. The bank would start the foreclose process. The banks would foreclose and the sellers would lose all the money they had invested into their home. That is when the opportunistic buyer would offer to take over the loan and keep the house from going into foreclosure. While there are laws that highly regulate this now, it was possible to assume a loan and come out ahead.

However, in today's market, most sellers have over-extended themselves by leveraging all the equity they have in their properties. For example, they may have bought the property back in 1997 for $174,000 and, for one reason or another, have borrowed up to $475,000 in 2006. With the housing market depreciation, that home may now only be worth $240,000. So if you were to take over their loan of $475,000, you would be paying more than the house was worth. Not a good deal.

Watch out for those Websites that advertise foreclosure properties for $15,000. It was brought to my attention awhile back, when several of my clients said that I was linked (without my knowledge) to such a site. Many of these websites are quoting what you need to pay in order to get the home loan back on track and out of foreclosure. Then you can assume the loan for a home that isn’t worth what is still owed on it. Not a good deal.

On the other hand, there are a lot of foreclosures and short sales still actively listed that are good deals on the market. With the help of an experienced agent, invest your money wisely. Start out the New Year right---Buy Low and Sell High!

--Virginia Hall

Take Off Those Rose Colored Glasses When Buying a Foreclosure--A Good Deal or Not?

According to the San Diego Business Journal 12/16/08, DataQuick reports that Foreclosures now make up the majority of home sales, 52.1 percent of transactions last month. A great opportunity for Buyers...or is it?

When you buy a Foreclosure or what they call a "REO", you will want to take off your rose-colored glasses and get ready to do some research. While buying a foreclosure property can be a great deal, the Buyer needs to BEWARE! The history of the house is unknown because the Bank Seller has not lived in it and thefore is not obligated, by law, to provide Buyers with any information that is normally disclosed by the usual selling homeowner. They do not know the neighborhood or the fact that the neighbor's dog may bark many nights. They do not know that there was a water leak and a recent insurance claim. They may not know that there is a crack in the foundation. This is why it is so important to have a Realtor® guide you through the process of inspections and check out any issues you have concerns on.

However, by law, the Bank Seller is required to provide you with any Material facts that they know of, including Meth labs, Lead Paint, and Megan's Law website information. However, quite often, understandablely they don't know anything about the property. They may not even be located in the state. They are also required to have smoke detectors and water heater bracing. No excuses there.

When buying a foreclosure you need vision. While you can get the home at a price below market value, you can expect that many of the homes will typically have deferred maintenence that could be very expensive. Most home owners losing their homes, are not putting money into a sinking boat. With vision, you can see the home fixed up. But remember that comes with a price.

In most transactions, the Bank Seller also expects the Buyer to pay for the termite inspections and any costs required to repair termite damaged wood and fumigation, if needed. The Bank Seller focuses on giving you a sales price that you will take the home "as is" understanding that you will have some work ahead. So you want to have a Realtor® that has a good grasp of the value of the comparable homes in the area and is able to provide them to you. Because ultimately, the Buyer makes the decision on the price.

While waiting for an accepted offer, it is not typically as long as a Short Sale (an oxymoron for a short pay sale). However, it is usually longer than the standard 72 hours Purchase Agreement period given to most sellers, but rather one to three weeks. None of the time frames for inspections or loan contingencies begin until after both Buyer and Seller have agreed upon terms and price in writing, an accepted offer.

While you are waiting for the acceptance you should begin gathering a list of referred licensed contractors (plumbing, electrical, roofer, etc.) that you may need to look at any major repairs for estimates. Down the road after you have gone through remodeling or major repairs, you don't to look back and say, "if only I had known."

Once you do finally get an answer, you may want to seek out legal advice. The Bank Seller normally has their own contracts written up by their lawyers. These contracts are definitely written with their best interest at heart. By law Realtors® , not being lawyers, are not able to interpret these contracts for you. Real Estate Agents typically use the standard Residential Purchase Agreements written by Lawyers who represent the California Association of Realtors®.

Once you feel comfortable with the contract and sign on the dotted line, then it is hurry up time. The Bank Seller will typically shorten the time periods alotted for the Buyer to do inspections, get their loans, and to close escrow. Usually the Bank Seller will stipulate a heafty fine if you close late. However, the knowledgeable Realtor® will keep the time frames on track and if at no fault to the Buyer, the agent may be able to get a time extension and delay late fines.

The one process that usually takes the longest is the loan process and can be addressed up front is the Buyer's loan. People are waiting in line to get loans, while lenders have cut back staff. You will definitely want to be preapproved and have provided your lender everything they need to get your loan approved in a timely manner.

The Foreclosure is a great opportunity for the Buyer who takes off the rose colored glasses and approaches cautiously.

--Virginia Hall

Take the Bull By the Horns: Selling Short Sale vs. Foreclosure

Many bury their heads in the ground in denial and allow their homes to go into foreclosure. This is not the way to go. While life throws you a curve ball: a death, a divorce, rising interest rates; and you may not be able to avoid foreclosure, home owners need to stand up to the hard times and need to take the bull by the horns. Even though a short sale and foreclosures impact your credit scores. In reality, the short sale shows creditors that the seller took responsibility for the problem and it will impact your credit for 2 years versus foreclosures impacting your credit for 5 years. Those facing Short Sales and Foreclosures should always consult their lawyers and accountants before listing their homes because there could be tax consequences.

While it says "Short Sale", it is the furthest thing from a short process. You need to be ready for the long haul 6 weeks to 6 months after an accepted offer. A short sale should be called a Short Pay. The seller is selling the home for less than they owe to the bank. At this time, Banks are inundated with short sales and foreclosures. In the end the banks are losing the difference. So they have appraisals to verify the value. The market has driven prices down and the bank's may have to agree to accept the loss. This is not an easy process, pulling thousands of dollars away from a bank.

The last thing people in financial crisis want to do is spend more money on a sinking ship. However, when selling a short sale you can actually get multiple offers when the home is clean and free of clutter. When there is trash thrown about and the weeds are growing out of control, buyers have a hard time seeing the potential. So take the bull by the horn. Hire a qualified agent who has handled short sales before and who you can trust to guide you through the process.

--Virginia Hall

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