Winterized Properties

Even though warm weather is almost upon us, REO companies will keep their properties winterized into April. Some companies will keep them winterized year round. A property is winterized to help prevent freeze damage to the plumbing system during the winter months.

Since it can cost approximately $250 to dewinterize and rewinterize the property it is important to know up front who is responsible for the dewinterization/ rewinterization. Some companies will dewinterize the home for the home inspection and the appraisal, then rewinterize the property through closing. It then will be the buyer's responsibility to dewinterize the home after closing.

Other companies put this expense on the buyer for the home inspection and then expect them to rewinterize the property after the inspection. They will even hold the buyer responsible for any damages that occur prior to closing if they do not rewinterize the property.

Before placing an offer on a REO proper try, make sure you or your agent asks who will be responsible for the dewinterizing/ rewinterizing. This could be an added cost you were not prepared for.

Buying REO Properties Part III

I want to share a conversation I have with potential buyers almost daily.

Buyer- Hi, I'm interested in looking at 123 Main St.

Me- Wonderful. Let me tell you a little about the home. It is a REO property that needs quite a bit of work, the utilites are off and the furnace is missing. Are you looking for a fixer upper?

Buyer- Yes, my family has fixed up homes for years, we can handle anything.

Me- That's great. Do you have a proof of funds letter ready to go stating you have the cash to buy this property.

Buyer- No. I'm getting a loan.

Me- Oh...have you informed your lender that you are looking at REO properties? Are they aware that the utilities are off?

Buyer- No, but that won't matter.

Me- It won't matter?

Buyer- Yeah... I told you my family has been fixing up properties for years, I can handle the work. I want to buy this house!

Okay, the conversations are usually a little more in depth, but this sums it up pretty well. Most buyers looking at REO properties just look at price and not how they plan on paying for the home. If you are paying cash, you are in great position and you can go after any home you'd like.

If you are getting a loan, your choices are slimmer. Lenders have tightened their belts and are only loaning on properties that are habitable, and in order to be considered habitable the utilities have to be on and working.

To save yourself a lot of time and heartache, determine if the utilities are on before you run out to look at a REO property.

• You or your agent can contact the listing agent to verify if utilities are on
• Call the utility provider-they can tell you if they are on or off
• Look at the meter at the house, if there is movement, it's on

Most REO Asset Companies require that their listing agents turn on the utilities to their properties. Here are a few reasons the utilities would not be on-

• Property condition- missing furnace, exposed wires, missing plumbing, missing light fixtures, etc...
• Safety concerns- It could pose a hazard to keep utilities on
• High potential for squatters
• The utilties have been off for an extended period of time and the city or county will require the building inspector to inspect the property prior to turn on.
• My favorite- The LAZY lisitng agent.

Be careful of number four when you are looking at REO properties. If the utilties are off, have your agent call the utility provider to see if the home will require an inspection prior to turn on. If no ispection is needed and the property looks in pretty good condition, call the lisitng agent to find out why they are not on. It is their job after all to have them on. If yes, an inspection is needed, check with the local building department on their codes. Another good idea when an inspection is needed is to call an electrician who is licensed in that city to walk through the property with you. They should be able to give you an idea as to what will need to be done to bring the property up to code.

Bottem line, lending standards are strict, if you are getting a loan to buy a REO property, make sure the home is habitable before you invest too much of your time and energy.

Buying REO Homes Part II

Now that you are familiar with the foreclosure process and how a property becomes a REO property, it's time we start getting into the steps and nuances of purchasing a REO property.

As I previously stated, buying an REO property is very similar to buying normal real estate. You will still write up a purchase agreement, submit it to the seller (the asset company or lender in this case), and negotiate with the seller until an agreement is reached. Unless you plan on paying cash for the property, you will still need to get pre-approved and submit the pre-approval letter with the initial offer. If you are paying cash, it is a good idea to keep a bank statement on hand(with the account number blacked out) or a letter from your bank stating you have funds available in the necessary amount.

Here are the main differences you should know BEFORE you decide to start looking at REO properties.

1. Almost all of the companies selling REO properties WILL NOT accept contingent on sale or even contingent on close offers. This means if you have to sell your existing home prior to buying a new home, then a REO property is not the direction you want to go. REO companies are trying to move these properties quickly and do not want to lose the marketing time with contingent offers.
2. If you have to sell your house prior to buying a new home and you are dead set on buying a REO property, get your home listed NOW.
3. Be prepared for verbal counter offers. In normal real estate transactions, everything will be in writing up front. In most REO cases, the offer is submitted to the seller via email or a computerized system. The seller then counters verbally or by email until a verbally accepted offer is reached. The contracts are then finalized after the verbally accepted offer.
4. REO companies have greatly increased their response times to offers and most respond within 48-72hrs. In a few circumstances, there are many levels of management and/or companies that have interest in the property and have to sign off on offers. This can delay the response or acceptance of those offers more than 7 days at times. Bottom line, be prepared to wait. The REO companies will want you to move quickly, but, do to different levels of interests on their end, it is not always possible for them to move quickly.
5. Once you receive an accepted offer, the REO company will forward you their As-Is addenda and any disclosures they have on the property. Most addenda are similar stating- the seller acquired the property through foreclosure, it is being sold as-is, they have never been to the property and are unsure of the condition and that they will provide clear title. The two most overlooked items you need to be aware of are- The addenda supersede the purchase agreement. It does not matter what terms you write into the purchase agreement, it is the wording of the addenda that matter most. If you agreed to any closing costs or repairs, make sure this is in the seller addenda. Second, most REO companies have a clause in the addenda that they have the right to charge the buyer a per Diem if it does not close on time through no fault of the seller. These per Diem's can range from $25-$100. Some companies have even gone to deducting from the selling agent's commission if it does not close on time. The per Diem is not negotiable. I have seen companies waive it if an extension is needed, but you need to be aware that it is in the contract.

These are the main items that I find buyers are not aware of when they start looking at REO properties. If you have any questions or need clarification please do not hesitate to contact me.

REO Properties (Foreclsoures)

With all the talk of Foreclosed homes in the news, I feel it is important to have a good understanding of what you are getting into when looking at Foreclosed homes.

I have been listing and selling REO properties for over 8 years and have closed over 300 transactions on just REO properties. I'd say I have a pretty good understanding of the differences between REO transactions and normal Real Estate transactions. Although there are plenty of similarities when buying a REO properties and normal Real Estate, it is the minor details involved in REO transactions that cause the frustrations for buyers and agents alike.

The first step is understanding the process. Foreclosure is the process that the lender takes to recover possession of a property when the borrower stops making payments. This process differs in many states. Indiana is a Judicial Foreclosure state. The lender has to file a motion of foreclosure in court to start the process of retrieving the home. This process can take some time and is one of the reasons some homes sit vacant for so long.

Once the Foreclosure moves through the courts and becomes official, the property reverts back to the lender and becomes a Real Estate Owned property (REO). So if your looking to buy foreclosed homes, you are actually looking to buy REO properties. I get so frustrated with the ads on the radio stating, "buy a foreclosure for $200 a month!", if only it were that simple. I'll tackle those yahoos at a later date.

Once it becomes REO, the lender starts the process of pre-marketing the property. This includes the process of clearing title, paying back taxes and establishing occupancy of the property. Many times an eviction may be necessary before the home is put on the market. In most cases the lender employs Real Estate agents like myself to help them with these steps.

Once the property is vacant, the lender usually asks for two opinions of value either from two different real estate brokers of from a broker and an appraisal. Based on these opinion of values, the lender will develop a marketing plan and set a price. In many cases, the lender will make repairs to the property prior to listing the home to help make it financable and to help stabilize neighborhood values. Let me repeat that- help stabilize neighborhood values. This is what most lenders are trying to do. They most likely own other loans in the neighborhood, so the last thing they want is to give the homes away and bring down values. Don't get me wrong, REO homes can be good deals, because the lender is looking to move them quickly, but if you expect to buy a REO property for $50,000 when other homes in the area are selling for $200,000, you'll be wasting your time.

I hope this helps clarify the process. Please check back in the coming weeks as I plan to break down the REO process in more detail and provide tips that will make buying a REO property easier and less stressful.