Vol. 4, No. 1, January 2008
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One Man’s Problem Is Another’s Opportunity
Foreclosures and short sales bring bargains for many
A foreclosure occurs when a homeowner can’t make his house payments and all sales efforts have failed. The borrower comes in and puts the house on the market, sometimes at a price far below market value. A “short sale” is an aggressive marketing campaign to sell the property before it reaches the foreclosure stage.
For those who have saved wisely, are aggressive real estate investors or are simply looking for a bargain, foreclosures can represent an opportunity. While no one can tell how far the real estate market is going to fall, many experts predict it will bottom out in 2008 and then begin to rebound. In Las Vegas, it’s hard to see how it won’t bottom out soon, given the fact that people moving to Las Vegas haven’t stopped, and that will surely escalate as the casino industry continues to grow, along with other non-gaming businesses in the state.
So is it time to consider investing in foreclosures?
Here are five places to look for them. Like any real estate bargain, you have to know where to look. The lenders (banks, credit unions, mortgage companies) don’t want to be in the real estate business, so they want to unload their unwanted inventory as soon as possible.
The website RealtyTrac lists foreclosures by ZIP code and foreclosure stage, ranging from pre-foreclosure property to bank-owned real estate. It’s a broad and complete picture of foreclosure availability in your area.
Check the websites of local banks next, then the national chains. They often have listings of foreclosures that they feature on their websites.
Banks and credit unions sometimes hire agencies to help sell their properties. Check Keystone Asset Management, Lenders Asset Management Corporation and HomeEq Servicing.
Government agencies such as FHA, VA, HUD and the Department of Justice sell real estate, visible through a single portal. And government-backed Fannie Mae and Freddie Mac also operate sites. The variety of properties available is, shall we say, wide, but Fannie Mae in particular lists a lot of solid mainstream real estate values.
Making an Offer
There are three factors when deciding to make an offer for a house in the “short sale” mode or in foreclosure:
1. Learn how motivated the seller is to make a deal.
Some sellers are literally days away from bankruptcy or some other factor that will disrupt theie lives. Discover, for example, if the sellers have already purchased another home. If that sale has closed, they’re likely to be more willing to make a deal.
If the property has been on the market for a long time, sellers will entertain any offer.
Talk to the seller’s listing agent. The information he provides can
provide valuable clues as to what kind of offers they’ll consider.
2. Make your case with hard facts.
Don’t just tell the seller what you’re willing to pay—explain how you reached that number. Mention comparable sales and the amount of inventory in the immediate surrounding area. If there are two years’ worth of inventory, properties should sell for 5 percent or 10 percent less than what houses have sold for in the past year in that neighborhood.
You may even consider personally writing a letter to the sellers to make your point, as you may have when the market was hot and you wanted to stand out from the crowd.
3. Prepare for the possibility of rejection or negotiation.
Making an aggressive offer that the seller might see as too low could backfire. He could reject the offer out of hand and walk away insulted.
Be realistic. Make an offer that can be a starting point for negotiations, so there’s that potential for a seller to counter-offer, especially if there haven’t been many other bids.
And all hope is not lost even if a seller doesn’t bite immediately.
Sometimes after time passes, the seller comes around and decides to negotiate, or new information—such as the sale of a comparable home at a lower price—can nudge a seller to give an aggressive offer a second look and open the negotiation process.
Foreclosures and short sales can be opportunities if you approach them in a reasonable and rational manner.
Real Estate Quiz
Justin Fairbanks, RE/MAX Platinum
How can you avoid foreclosure if you're falling behind on your mortgage payment?
Call your lender to negotiate a workout plan if you're behind or fear you're about to fall behind. Most people wait until they're so far behind that they can't recover before they do anything. If you have an ARM loan, ask for them to convert it to a fixed rate if possible. Most lenders are not easy to work with contrary to what you hear on TV or read in the newspaper. For the most part, the banks only want to know when you're going to pay, and how much. In my experience, banks don't listen until borrowers are behind.
Should you fall into a situation that begins the process toward foreclosure, what should you do?
If you're behind, and heading for foreclosure sit down to put together an honest evaluation of your financial situation. If you're upside down by $30,000 or more on your home, seriously consider letting it go and starting over. There's no point to throw your hard earned money into the black hole of a bad investment. It just doesn't make financial sense. Decide which is more important—having cash or having credit. Renting is usually much cheaper than the mortgage on your home, which allows you to save money to build for the future. Most people never catch up on the back payments and penalties that the banks charge so it's important to honestly evaluate your situation so you can start moving forward. There are options available to avoid foreclosure even if you're upside down so contact a real estate professional to discuss the short sale process. Short sales cost you nothing as a homeowner, are less damaging than a foreclosure to your credit, and are usually cheaper than foreclosure for the bank.
If you lose your house to a foreclosure, how can you rebuild your credit?
If you lose your home to foreclosure, you need to start over with credit repair. Stay away from the people advertising on the side of the road, on telephone poles, or on your windshield while you're at the mall. Start by making sure that you have copies of cancelled checks to your landlord to be able to show a future lender that you're making your housing payments on time so they can look past your low credit score. If you're turned down for a traditional credit card, set up a secured card which is backed by a deposit to a financial institution—usually a few hundred bucks. You've got to start small and build a positive payment history. Use your credit responsibly by paying it off and not using more than 50 percent of your available credit. The process takes time and effort, but will come back if you work at it. Beware of people or businesses promising a quick fix as it just doesn't work that way.
Justin Fairbanks deals with foreclosures and short sales, helping distressed homeowners through what is one of the most difficult and stressful times in their lives. RE/MAX Platinum is one of the leading firms in the short sale/foreclosure arena, providing a no nonsense, straightforward approach to the process to help people get back on their feet.
