What to Know Before Buying Foreclosures in San Mateo County

What to Know Before Buying Bank-
y g
Owned Homes,
Short Sales and Foreclosures
Presented by…

Chris Williamson Raymond Stoklosa
Mortgage Advisor Managing Broker and Co-Owner
Mortgage California The RayChel Realty Group

The RayChel Realty Group
www.RayChelRealtyGroup.com

Introduction

• Public Infatuated with Real Estate
• Almost Everyone Loves a Bargain
• Foreclosure Suggests the Lure of a Deal
• Foreclosures are S ll S b t of O
F l Small Subset f Overall
ll
Market
• Most are Low End Homes in Need of
Rehabilitation


Peninsula Real Estate

Unique

Competitive

Expensive

Scarce


Why is Peninsula Housing So Scarce?

• Mandated Open Space
• Growth-Management Laws
• Community Land Use
Restrictions
• Environmental Laws
• Dedicated Farmland
• Historical Preservation
• 60% plus of San Mateo
60%-plus
County Land is Protected


Why is Peninsula Real Estate So Expensive?

• Acute Shortage of
Buildable Land
• High Cost of Land
• Confined Geographic
Boundaries
• Finite Supply of Houses
• Economically Vibrant
• Desirable Amenities
• Supply and Demand
Imbalance

It’s Not About the Market, It’s About You

• The best time to get a good deal in real
estate is any time you can
can.

• Th right time t b a h
The i ht ti to buy home i whenever
is h
you find the right home for you at this point
in your life
life.


Buy Value

Historically Distress Real Estate

Offers Potentially

Great Value


Buying Foreclosures

• Media Reports…
Glut f
Gl of Foreclosed Homes
l d
Not Enough Buyers


Insights

• Bargain Hunters Beware: Perfect Homes
Seldom Exist
• Extremely Desirable Homes Will Probably Not
Suffer Foreclosure
• M
Most Desirable Homes Will Sell in Any Type of
D i bl H S ll i A T f
Market
• H
Homes i a Great Location with G
in G tL ti ith Great
t
Features Will Sell in the
Conventional Market


Stages of Foreclosure Process

Pre-Foreclosure
Short Sales
Sh t S l

Foreclosure
F l
Trustee Sale

Post-Foreclosure
REO’s
REO’


Short Sales

Bargains or Bl k H l ?
B i Black Holes?


What is a Short Sale?

Sale
• Between Owner and Buyer y
• Lender Approval Required
• Lender Must Agree to Accept
g p
Less than Amount Owed
• Seller Receives or Pays No Money
y y
• Seller Does Not Sign Promissory Note


Who is Eligible?

Eligibility of Seller is…
• Completely Up To Lender
• Each Lender Sets Own Rules
• Rules Vary Lender/Loss Mitigators


Who Usually Qualifies?
Homeowners with Genuine Hardship
• Job Loss
• Medical Reasons
• Divorce
• Involuntary Relocation that Depletes
Homeowner’s Assets
• Cannot Pay New Loan Payment – ARM
Adjustment


What is NOT a Hardship?

• Home Worth Less than
Borrower P id
B Paid
• Borrower Does Not Want
Home
• Borrower Does Not Want
to Make Payments
• Borrower Wants to Buy
Another Home


Ineligible

• Homeowners with Significant Assets or
Income
• Homeowners Who Have Bought 2nd Homes
g
• Investors


Benefits of a Short Sale

Seller/Borrower
• Less Negative Impact on Credit – 2/5/7
• Move on with Life

Lender
• Cut Losses
• Eliminates Non-Performing Asset
Non Performing
• REO Inventory Unaffected


Potential Benefits for Buyer

• Prices Lower than General Market
Buy Less Than Outstanding Loan
Balances


Buyer Beware

• Many Alleged Short Sales are Not Attainable
Seller Cannot D
S ll C t Demonstrate H d hi
t t Hardship
Price NOT Acceptable to Lender
• Code Violations
Habitability & Corrective Issues
• May Not Open Short Sale File Until NOD
• Lender’s Right to VOID Sale after Sale


Challenges of Short Sales

• Outcome is Uncertain
• High Failure Rate
• Lengthy Processing Time
• Technically Complex
y p
• Unfamiliar with Local Market
• Unresponsive
• Seller’s Not Proactive
• Recovery Demand Unacceptable
• Foreclosure Date Too Near
• Potential Opportunity Loss


Investors – Proceed with Caution

Home Equity Sales Contract Law

Special Contract required when…
• Buyer is an Investor
• Property Being Sold is Residential 1 - 4 Units
• Owner Currently Occupies the Property
• Notice of Default (NOD) has Been Recorded


Seller Has Legal Rights

Upon Recording Notice of Default

• 5 Day Cancellation Period
ll d
Seller may cancel
• 2 Year Contract Rescission P i d
Y C t tR i i Period
Rescission for any unconscionable acts
• N W i
No Waiver b S ll
by Seller
Any waiver is void
• No Limitation on Damages
Limiting investors liability is void


Finding Short Sales

Where to Look…
• M l i l Listing S
Multiple Li i Service (MLS)
i
www.MLSHomeInformation.com
• REALTOR
REALTOR.com
www.realtor.com
• Yahoo Real Estate
www.realestate.yahoo.com
• Public Records
Legal Publications


What’s Going on Now?
Single Family Homes & Condos in San Mateo County Oct 2009
1519 Current Total # of ACTIVE Listings
187 ACTIVE Short Sale Listings
597 SOLD Short Sales Last 12 months
1351 NEW Short Sale Listings Within Last 12 months
910 EXPIRED/CANCELLED Short Sale Listings
Within Last 12 months
89.53% Sales Price vs. Original List Price of Short Sales that
Actually Sold in the Last 6 Months
141 Avg Days on Market for Short Sales that Actually Sold
in the Last 6 Months
Source: MLSLISTINGS, INC.


Active Short Sales


Reality of Short Sales

• Locally 70% + - “Alleged” Short Sales Fail
• Nationally Only 10% - 20% Succeed

Short Sales are REO Preview


Keys to Buying Successfully

• Be Patient
• Follow the Process
• Set Realistic Expectations
• Understand the Property
• Professional Representation


Foreclosure Sale

The Most Dangerous Way To
Buy Real Estate May Be
Potentially the Most Profitable!
Seriously High Risk, Potentially High Reward


The Trustee’s Sale

What is a Trustee’s Sale?
• Non-Judicial
• Forced Sale
• Highest Oral Bidder
• Public Auction
• Conducted by Trustee
• Power of Sale

What Are You Bidding On?

• Lien Owned By The Beneficiary
• Winning Bidder Responsible
for All Liens Senior
• All Junior Liens Wiped Out
• Trustee’s Deed Upon Foreclosure
Trustee s
No Warranties as to Title, Encumbrances, Possession
or Condition of Property
p y


Trustee’s Sales are Risky

• All Cash
• As-Is, Where Is
• No Disclosures
• No Inspections
• No Contingencies
• No Deficiency Judgments
• Senior Liens Remain in Force


Finding Trustee’s Sales

Look for Notice of Sale (NOD)
• Legal Publications
• Public Records
• Subscription Services


Keys to Success

• Money
• Knowledge
• Time
• Support Team
Attorney
Real Estate Broker
Insurance Broker

REO

The Mother Lode or Just the
Shaft?


What is an REO?

• “REO” is an acronym
Real Estate Owned

• Property Repossessed
via Foreclosure

• No One Would Pay
What Bank Was Owed


Overview of Foreclosure Market

Fannie Mae and Freddie Mac own $6.9 Billion
• Si l Family Homes and C d i i
Single F il H d Condominiums

8,500+
8 500+ other Banks own $8.5 Billion
$8 5
• In Single Family Homes and Condominiums

Fannie and Freddie are America’s Largest
Landlord
a dlo d


Banks Have Problems

Internal Staffing Problems
Overwhelmed, Understaffed & Poorly T i d
O h l d U d t ff d P l Trained

Utilize 3rd Party Vendors for Assistance
Independent Asset Managers for Processing
REALTORS® for BPO’s and Marketing
BPO s


What’s Going on Now?
San Mateo County – MLS
S M t C t
Single Family Homes & Condominiums Oct 2009

57 REO’s Currently Listed For Sale
1519 Non-REO’s Currently For Sale

536 REO’s SOLD within last 6 months
2968 Non-REO’s SOLD within last 6 months

100.98% List Price vs. Sale Price REO in Sept ‘09
97.50% List Price vs. Sale Price Non-REO in Sept ‘09

64 Average Days-on-the-Market REO in Sept ‘09
68 Average Days-on-the-Market Non-REO in Sept ‘09


Active REOs


San Mateo REO Market

• Inventory Shortage
• High Demand
• Multiple Offers Common
• Over Bidding Anticipated


What’s Coming?

More Foreclosures
½ of Newly Modified Loans are Already 30 Days Past
Due
Government Agencies Lift M t i
G tA i Moratoriums
Avalanche of Subprime, Alt-A, & Stated Income ARM
Loans About to Recast


Keys to Buying a Bank-Owned (REO)

• Know Why You Are Buying
• Know What Y A B i
K Wh You Are Buying
• Be Financially Prepared
• Respect the Process
• Have Realistic Expectations
• Give the Bank a Reason to
Accept your Offer


Finding Ban OwnedH m es
k o
Where to L k
Wh Look…
• Multiple Listing Service (MLS)
www.MLSHomeInformation.com
• REALTOR.com
www.realtor.com
l
• Yahoo Real Estate
www.realestate.yahoo.com
l t t h
• AOL Real Estate
www.realestate.aol.com
www realestate aol com
• Public Records
Legal Publications

REO’s Are Not Right For Everyone

If You Are…
Not Sure You Want
Not Sure Where You Want to Live
Not Emotionally Ready to Buy Now
Not Financially Capable of Buying Now
Not Prepared to do Repair Work
Need Time to Make a Leisurely Buying Decision
Afraid you’ll get stuck with a “LEMON” because the
Bank didn’t disclose something

Don’t Buy An REO!


Challenges of Buying an REO

• Over Priced vs. Well Priced
• Banks Dictate the Process
• Unconventional Transaction
• All Sales are “AS-IS”
• Must Use Bank’s Contract


REO Myths

• Bargain Pricing
• Deep Discounts
• Banks are Desperate
• New Financing Offered
• Bank Pays Termite Repairs
y p
• All Cash Offers Get Better Deals
• Banks Do Not Have to Provide Disclosures
• Will Accept Home Sale Contingency Offers


Realities of REO’s

• Buyer P A
B Pre-Approved by Seller’s L d
d b S ll ’ Lender
• As Is – Where Is
• Cannot Speak Directly to Bank/Asset Manager
• All Communication through Listing Agent
• Email Communication Only
• Listing Agent NOT in Daily Contact with A/M
• Don’t Call or Don’t Expect Updates
• New Listings May Require Seasoning
• Usually No FHA, VA or CalVet Loans


Realities of REO (continued)

• Don’t Expect Rejection Notice
• No Re-Negotiation
• Proof of Funds
• Expect Verbal Counter Offers
• Highest and Best
• Short Contingency Periods – 7/10/30
g y
• Passive Contingency Removal
• p y
Bank Chooses Title and Escrow Company
• Per Diem Penalties for Late COE


Realities of REO (continued)

• Most REO Homes Are Far from Perfect
• Quality of REO Inventory Inferior to General
Re-sale Market
• Best REO Homes Sell Significantly Higher Than
Listed Price
Li d P i
• Demand for Quality REO Homes is High
Owner Occupants
Investors


Red Flags

• Bank’s Addendum (aka Counter Offer)
Heavily Favors Bank - Read
y
Carefully
If Possible, Review Bank’s
Possible
Addendum Before Writing Offer
Supersedes Provisions in Offer


How To Get Your Offer Accepted

• Pre-Approved by Direct Lender
• Earnest Money w/Offer: 1%-3% of price
E M /Off 1% 3% f i
• Document Proof of Funds
• Short Contingency Periods
• Submit Highest & Best Offer at Outset
• Work w/Knowledgeable, Experienced REALTOR


Financing a Foreclosure

Three Financial Keys for a Successful Closing
• Get Your Mortgage Professional Involved Early
• Direct Lender
• Mortgage Banker
• Mortgage Broker
• Get Pre-Approved
• Know Your Financing Options


Get Your Mortgage Advisor Involved Early

Financing Solutions to Match your Buying Needs
Determine What you Can Afford
Down Payment and Closing Costs
Programs that Meet your Short & Long Term Goals

Work with Your Foreclosure Specialist to
Structure Contract to Reflect Loan Program
Use Contract Contingencies to Protect You


Pre-Approval vs. Pre-Qualification

Get Pre-Approved, Not Pre-Qualified

• Pre-Qualification
An informal estimate of what you can afford
• Pre-Approval
Al
loan commitment f
it t from a reputable l d
t bl lender


Mortgage Pre-Approval

A Pre-Approval Requires Verification of…
• Income
• Asset
• Credit Score
• Continuing Liabilities

A Pre-Approval Gives You...
Pre Approval
• Purchasing Power
A Pre-Approved Buyer is a CASH Buyer
• The Upper Limit of What You Can Afford


Property Condition

Property Must Meet Certain Physical Conditions
for Conventional Lender’s Approval
Lender s
All heath and safety items must be addressed
Must have a stove, sink, toilets for FHA

Properties that Don’t Meet Physical Requirements
Special P
S i l Programs f P
for Properties th t D ’t M t
ti that Don’t Meet
Physical Standards for Conventional Financing
Up to $35,000 to Put Towards Fixing Cosmetic Defects
Loan Amount Up to $729,750 to Put Towards Major
Repairs Including Structural


Fannie MaeH m e Path Confor ing Loan
o m

Fannie Mae’s Conventional Loan Program for
Financing Fannie Mae Owned Homes

• 30 Year and 15 Y
Y d Year Fi d
Fixed
• Maximum Loan Amount $417,000
• 3% Down Payment for Single Unit D lli
D P f Si l U i Dwellings


Fannie Mae Foreclosure Financing

Program Highlights
• N M
No Mortgage I
Insurance
Lower Monthly Payment than FHA
• N A
No Appraisal R
i l Required
i d
• Sellers Can Contribute Up to 6% Towards
Closing Costs
No Money Back to Buyer
• Minimum Credit Score 580


My Job As a Mortgage Advisor

Financing Solutions to Match your Buying Needs
Down Payment and Closing C t
D P t d Cl i Costs
Programs that Meet your Short & Long Term Goals
• Structure an Affordable Monthly Payment
• Find Competitive Interest Rates
• Compare Programs and Lenders
• Minimize Out of Pocket Costs


Knowledge is the Key

• Don’t Use the Media as Your Only Resource
• Don t
Don’t Fall into the Trap of Online Lenders
• Know All Your Options
• Choose a Mortgage Professional you Trust, Have
Trust
Confidence in, and Feel Comfortable With

The opportunity is out there, you just
have to ta e advantage of it!
k


Steal of a Deal?

Final Dose of Reality…
• If the P
h Property is S h a G d Deal, Wh Did ’
i Such Good D l Why Didn’t
it Sell on the Open Market?
• If Y P 50¢ on th D ll f th P
You Pay the Dollar for the Property,
t
it’s Probably Worth 50¢ on the Dollar.

Think About It!


Real Estate Technology Tools


LivingWellinSanMateo.co
m


http://budurl.co /SearchForeclosures
m


SanMateoMortgageBlog.co
m


REO Buying Guide

http://REOBuyingGuide.com


Upcoming Class in San Mateo

Guide To Buying Condos & Townhomes
i i

Tuesday - November 3rd 7pm – 9pm

For Reservations Visit:
http://budurl.com/CondoClass
http://budurl com/CondoClass

Our Next Webinar

12 Costly Home Buying Mistakes
Even Smart People Make

Saturday, Nove ber 7th 10a
m m
To Register Visit:
http://budurl.co / m eBuyingMista es
m Ho k

Webinar: Trustee Sales

Trustee Sales – The Most
Dangerous & Most Profitable
Way to Buy Real Estate

Tuesday, Nove ber 14th 6p
m m
To Register Visit:
http://budurl.co /TrusteeSale
m

Questions

Your Questions are Invited
Q


Free Consultation

Chris Williamson Raymond Stoklosa
Mortgage Advisor Managing Broker and Co Owner
Co-Owner
Mortgage California The RayChel Realty Group

Phone: (650) 520-0915 Phone: (650) 533-8531
Chris@ChrisEWilliamson.com RaymondS@RayChelRealtyGroup.com


What to Know Before Buying Foreclosures in San Mateo County

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