Submitted by Don Smith and Sarah Frech
Today’s news broadcasts are filled with reports that the number of home foreclosures is extremely high. Georgia, in fact, is now leading the Nation in home foreclosures and the trend seems bound to continue for a while. This situation has been brought about by an assortment of factors including a period of extremely lax credit requirements, faulty appraisals, and misunderstood adjustable rate mortgage programs, just to name a few. The result has been that many people have found themselves in newly purchased homes or adjusted mortgage rates that they simply can’t afford, and that translates into foreclosure.
When a foreclosure occurs the lending institution or mortgage company that made the loan ends up becoming the owner of the foreclosed property. Banks, mortgage companies and other lenders do not want to be in the real estate business, but they must dispose of the foreclosed properties in order to recover the money they advanced in the original loan. Generally, this is done by listing the property with an agent or Broker who has been certified to represent the lender.
The Fauscett Team has a full time Foreclosed Properties (REO) Department that is headed by Don Smith. Our REO (Real Estate Owned) Department currently represents Fannie Mae, the Veteran’s Administration, Ocwen Financial Services, Countrywide Home Loans and various local lenders in the management and marketing of their foreclosed properties. We have a number of foreclosed listings in a variety of price ranges and receive new assignments on a weekly basis.
If you are interested in shopping the foreclose market for a personal home or for a potential investment, there are many things you need to know and many misconceptions you need to be aware of. The following are just a few tid bits that might help you more fully understand the foreclosed home market.
DON’T EXPECT THE DEAL OF THE CENTURY
Everyone wants to find a great deal and occasionally foreclosed properties can be bought under market value. The fact of the matter is that there are hundreds of full time investors out there who do nothing but watch for under market “deals” on real estate. Many times these investors are aware of distressed properties before that foreclosure even takes place. In a lot of cases the “great deals” never make it to listing. That is not to say that good deals can not be realized by the average person, but it requires a lot of dedication and research . It is also very important that you be prepared to act quickly when a desirable property is found. If you found it, a lot of other people have found it, as well. Having your ducks in a row includes being pre-approved for necessary financing and being knowledgeable about offer procedures and necessary documentation, Generally, it is highly recommended that you work closely with an experienced real estate professional who is well versed in the foreclosure market and who can help you move quickly when you make the decision to place an offer.
IF IT IS PRICED LOW THERE MAY BE A REASON
Lenders and foreclosure companies are not in the business of losing money. There is no motivation for the lender to sell a property significantly below market value simply because it is a foreclosure. There is also no requirement that the lender or foreclosure company sell the property for the amount owed at the time of the foreclosure. Actually, the outstanding balance on a defaulted loan plays a very small part in the ultimate pricing of the property. Every attempt will be made, by the lender, to market the property at or very near market value. So, if you find what appears to be a bargain basement price on a foreclosed property you may be well advised to look deeper to determine why the price is so attractive. Often the low price is evidence that there are costly repairs needed that the lender simply did not want to perform. Since most foreclosures are sold “as is” the expense of performing those repairs will be your responsibility.
Most lenders and foreclosure companies make provision for an inspection period on their properties. Some allow a specific period of time to inspect after an offer has been accepted and some require that all inspections be done prior to the offer being submitted. It is important that you know the inspection provisions stipulated on the particular property you have an interest in before submitting an offer.
YOU ARE DEALING WITH A CORPORATION…NOT AN INDIVIDUAL
In a normal real estate transaction the parties are generally an individual home owner who is the seller and an individual buyer who wants to buy and live in the house in question. The seller generally has a personal reason or need for selling the property. Sometimes the reason or need may be financial or it may be emotional but there is usually some motivation on the part of the seller. In working with foreclosed properties you will be dealing with a business. Usually the Asset Manager who has been assigned a property will have never seen the property except in photographs supplied by the listing agent. To that Asset Manager the house you so want to buy is nothing more than a file, there is no emotion involved. It is important to remember that these businesses deal with hundreds and thousands of properties. As such they have their own rules and procedures that have to be followed without variation. Simply put, if you don’t want to play by their rules you don’t play in their game. When entering into a transaction on a foreclosed property it is a good idea to ask the listing agent to provide you or your agent with the Purchase Addendum used by the seller. The terms of the Addendum should be carefully read and you should be sure that you understand and agree to those terms. Most lenders and foreclosure companies do not allow any alteration to or variance from the terms of their addendum. You will also note that there will usually be a clause in the addendum that states that if there is a conflict between the terms of the addendum and any other document related to the transaction, the terms of the addendum will prevail. In other words, you can write what ever you want into the Georgia contract, but if it is not supported by the seller’s addendum it will have no effect on the transaction.
MAKE REASONABLE OFFERS
As was said earlier, the lenders and foreclosure companies are not in the business to lose money. If you do have a serious interest in a particular property it is important that you make serious offers. Asset Managers for these lenders and foreclosure companies are very busy people who do not favor taking the time and effort to respond to and counteroffer extremely low offers. In some cases an extremely low offer will not receive any response at all. You, or your agent, should ask the listing agent whether or not this particular seller will extend counteroffers. Many lenders and foreclosure companies have a policy that prohibits them from making counteroffers…they either accept or reject. It is also important to bear in mind that an extremely low offer may have a negative effect on your ability to negotiate down the line if the Asset Manager starts out with doubts about your sincerity in the transaction.
DON’T SHOOT THE MESSENGER
Most lenders and foreclosure companies utilize the services of a local real estate agent or Broker to assist them in marketing their properties. That agent or Broker is trained in how to follow the rules, procedures and guidelines of the lender as the listing agent. The listing agent does not work for the lender, he or she does not set pricing on the properties; he or she does not make the rules or establish procedures (nor does he or she have the authority to change or alter the rules and procedures); and he or she has no influence in the acceptance or negotiation process. Even though the listing agent is a representative of the lender or the seller, you should be able to look to him or her for advice and assistance in placing an offer in the proper manner. Bear in mind that it is a primary goal of the listing agent to see that the property is sold and a commission is earned. On the other hand, if you are not happy with the requirements and procedures in the offer and purchase process, remember that the listing agent is merely a middleman representing the seller. Please don’t take your frustrations out on the listing agent.