DATELINE SANTA FE

Santa Fe Real Estate Blog

Foreclosures: Deal or No Deal

Last month several of the nation’s top banks announced a suspension in the sale of their foreclosure (REO) inventory in the 24 judicial foreclosure states which includes New Mexico. Concerns over fraudulent filings and improper procedures only compound the potential problems in store for those seeking deals on foreclosed properties. RealtyTrac, which tracks foreclosure data, reported that for the third quarter of 2010 foreclosure filings were up 4% from the previous quarter to a record of 930,437 properties. Halting the sale of these properties will create pressure in the market and we anticipate a corresponding spike in sales once the moratorium is lifted. If you are a homebuyer looking to find a deal on a distressed property, we would like to share some insights with you.

First and foremost, don’t go it alone. If you are thinking you can double down on your savings by negotiating with the bank on your own, you may be woefully mistaken. Foreclosures are challenging purchases and an experienced broker is your best strategy for success. All too often we see homebuyers who think they are getting a deal but end up overpaying on a foreclosure with many latent defects and little to no recourse.

Just because a house is a foreclosure doesn’t mean that it is priced below market value. Many banks list their REO’s at appraised value and take a wait and see approach. Use a knowledgeable agent to evaluate the property and ask him to provide you with a comparative market analysis, CMA. Keep in mind that what a home appraised for a year ago is of no value today.

Banks do not provide a seller’s disclosure and will sell a property “as is”. This means that it comes down to your own due diligence. Hire a good home inspector to provide you with a detailed report. Homes that have been winterized and utilities turned off require special attention. It is imperative that you have the bank turn on the water and electricity prior to your inspections. If they will not turn the utilities back on, back away.

If your foreclosure is a fixer upper, have a qualified contractor provide you with detailed estimates of the costs involved. Once you take the purchase price and add on the cost of repairs, it may no longer seems like such a great deal. If you are having trouble getting a loan because your lender doesn’t like that the dry wall is falling off and the kitchen has been ripped out, you may find help financing. The 203K is a mortgage that the F.H.A. offers to help homeowners buy and rehabilitate foreclosed properties.

Ask your title company to provide you with a current title binder and examine it carefully. The New York Times reported a story recently of a couple who thought they were getting a deal on a foreclosure at auction only to discover after the sale that they paid $137,000 for a second mortgage and there was a large, delinquent first mortgage in place. Ouch! In our state, the previous owner has the right to redeem their property within a certain time period so be clear that you know what that time frame is.

It’s too early to tell if this moratorium will become a major story but it is clear that foreclosure concerns will be with us for a while. Although opportunities are out there, buying a foreclosure is in no way a guarantee of value. Create a team of professionals to aide you in your purchase of a foreclosure and increase your chances of getting a deal.

November 22, 2010 Posted by | Realtor 121 | , , | Leave a Comment

Seller Financing

With the real estate market struggling, homes languishing unsold on the market and with mortgage options drying up due to the tightening regulations on lenders, an optional way to get your home sold may be to offer seller financing. Especially common when money is tight, seller financing or real estate contracts can be useful because it gives more buyers a choice and perhaps even the ability to purchase your home. This option can be attractive to both buyers and sellers so here are some tips to better understand what it is and whether it could be beneficial to you.

The sale works the same whether there is seller financing or a mortgage. The buyer and/or their Realtor present a purchase contract, conduct due diligence, present objections and work to resolve and close the purchase. The difference is in the financing whereby the seller becomes the banker. After the transaction closes, the buyer has equitable title while the seller holds legal title. Only when the terms of the real estate contract have been satisfied is a warranty deed for the buyer recorded.

For a seller whose property has not sold in these hard economic times, the real estate contract may be an option if they do not need the lump sum cash settlement. Sellers can negotiate better terms than most banks, which could mean a higher interest rate or a balloon payment at the end of the term of finance. Because of the seller’s flexibility, buyers who may not otherwise qualify for a traditional mortgage would be drawn to this option. The seller receives long-term cash flow and in some cases the tax advantages are considerable.

The restrictions on mortgage lending have pushed many motivated buyers to the sidelines due to lack of enough money down and the aspect of paying PMI (private mortgage insurance) which may just push that mortgage payment off the balance sheet. Newly married young couples and recent college graduates are good and likely candidates for a real estate contract since both have the promise of increased incomes over time. The buyer does not have to save for the large cash down payment and can purchase at today’s prices. With mortgages becoming increasingly harder to obtain coupled with the lowest prices on real estate in years, now is certainly a great time.

Concerns for sellers include the buyer’s ability to pay. If the buyer defaults then the process to clear the title can become litigious and time-consuming. And for buyers, the seller is required to deliver clear title only after the terms have been met by the buyer, which means clouds may appear on the title during the course of the term. For sellers to mitigate risks, have an attorney write the “contract for deed” and make certain you are named as an insured on the property on the insurance policies taken out by the buyer in case of catastrophe. Buyers should have an attorney review all documents and insist that an escrow company manage the payments to make certain that the payments are actually going toward the seller’s mortgage, if one exists.

Chances are that for most sales, seller financing is not the way to go. There are risks involved with this type of contract and it is best to seek legal advice prior to entering into any type of real estate contract. But it is an option that should be on the table for certain situations. Sellers can increase the pool of possible buyers while receiving better than market returns and tax benefits. Buyers who would otherwise be on the sidelines may realize the dream of home ownership and begin creating equity. This win-win situation can and does happen and may be an option for you.

November 2, 2010 Posted by | Realtor 121 | , , , , , , | Leave a Comment

   

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