We are in a market that is flooded with bank owned/foreclosure/REO properties. It appears that this will get worse, not better any time soon. Banks are “hiding” or withholding perhaps some 600,000 foreclosed properties from the market nationwide. About 80,000 are in California. If they were all released to the market at once, a very difficult market would become disastrous. In light of this the U.S. government and many state and local governments are offering programs to help buyers, thus helping to alleviate the glut of homes on the market.

For instance, the U.S. government is offering an $8000 tax credit to firstl-time homebuyers. The following link details the program: http://www.federalhousingtaxcredit.com/2009/home2.html

The state of California is offering a $15,000 tax credit to new home buyers. The credit is limited and buyers should act quickly to participate. Details can be found at the following link: http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml

Also, many cities are offering down payment assistance. I will be offering a list of cities that are offering this in the following posts. The one that I am most familiar with is the city of Brentwood. I am currently working with the city for two buyers. The city requires that buyers work with specific lenders to qualify with for the program. Details can be found at http://www.ci.brentwood.ca.us/pdf/new/comdev/housing/dap_brochure.pdf (PDF)
These programs in concert with the standard mortgage and property tax deductions currently make home purchases very desirable.

Contact me for a list of homes or visit www.bay-area-reo.com .

Mark

Buying a Foreclosure vs. Normal Transaction: If you are considering buying a foreclosed property you may be wondering, “How is this different from a normal home purchase?” Some of the main differences are; lack of disclosures, generally there are no presale inspections, longer time frames, and you have to get pre-approved by the seller’s lender even if you are already pre-approved. If you are using FHA financing then there are even more issues that pertain.

Since this is a “bank owned” property, the bank is not obligated to provide a Transfer Disclosure Statement” or any other typical seller disclosures. The agent for the bank must do an “Agent’s Visual Inspection Disclosure” and supply it to the buyers. If the property is a condominium or part of a “Common Interest Development” then HOA documents are required to be provided as well as a Title Insurance Notice and “Flood Insurance for Disaster Relief Assistance”. Also, what I call the “safety” disclosures are required; such as Lead Paint Hazards, Megan’s Law, Material Facts, Meth Lab Clean-Up Order, Smoke Detectors disclosures.

The common practice of providing pre-sale inspections is typically not adhered to in an REO sale. The buyers should acquire their own inspections such as a full home inspection, wood destroying pest inspection, roof, masonry (chimney), and any other pertinent inspections the buyers deem necessary (such as pool/spa, mold, etc.)

You will generally experience delays in receiving answers or signatures from the banks as they have so many properties that they are dealing with. If the seller’s agent is capable and proactive the delays should be minimized.

Many banks require that buyers go through the pre-approval process with them. This is done for a couple of reasons; to be sure that buyers are actually able to complete the transaction, (so the bank does not have to return the property to the market), and it gives them an opportunity for more business, particularly since they have lost so much on the foreclosure. If you are using FHA financing, the process may take even longer as FHA has other requirements.

If you really are considering the purchase of an “REO”/foreclosure home, be forearmed with the proper knowledge and have excellent guidance from your agent. Good luck!

What is an REO?

REO stands for “Real Estate Owned”. An REO property is what lenders call properties they own following formal foreclosure proceedings against borrowers who have defaulted on their mortgages. 

What is the process of foreclosure?

It begins when a homeowner missed making their mortgage payment, usually for 2 or 3 months. When this happens the lender may begin the foreclosure process. The decision to begin the foreclosure process is at the lender’s discretion and may vary. Once the lender has decided to begin the foreclosure process, the lender must file a 30-Day Notice of Intent to file a Notice of Default (NOD). This is a new law enacted by the State Senate (SB1137) in July of this year. It applies to owner-occupied residential properties sold between January 1, 2003 and December 31, 2007. After the 30 days have expired, the lender may file an official NOD. Lenders of residential properties that do not fall under SB 1137, may file an NOD after the first missed payment, this is also at the lenders discretion and may vary. The lender provides information on how to reinstate the loan and the homeowner has no less than 3 months from the NOD filing to do so.

If the home owner does not act by the end of three months after the filing of the NOD, the lender can proceed with teh foreclosure. The lender must publish a Notice of Trustee’s Sale, which is posted for 21-30 days. (The law requires lenders to post the sale for at least 20 days). The homeowner has a little over to bring their loan into good standing from the time an NOD is filed on their property. The homeowner may also, by law, bring their loan current until five days prior to the Trustee Sale. Even after the deadline to bring their loan current, the homeowner still has the option to to pay the entire loan amount up to the time of the Trustee Sale. However, once the Trustee Sale is recorded, the property is transferred to a new owner. In most cases it is the lender itself and the homeowner loses the home. The property is then owned by the lender and becomes a real-estate-owned or REO property.

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