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In The RayChel Realty Group's recent class, What to Know Before Buying Foreclosures in San Mateo County we discussed what to watch out for when buying foreclosures, dispelled some common myths about buying foreclosures and presented a few foreclosure financing programs San Mateo County home buyers can use to buy San Mateo County real estate.
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What to Know Before Buying Bank-y gOwned Homes,
Short Sales and Foreclosures
Presented by…
Chris WilliamsonMortgage Advisor
Mortgage California
Raymond StoklosaManaging Broker and Co-Owner
The RayChel Realty Group
The RayChel Realty Groupw w w . R a y C h e l R e a l t y G r o u p . c o m
Introduction
• Public Infatuated with Real EstateAlmost Everyone Loves a Bargain• Almost Everyone Loves a Bargain
• Foreclosure Suggests the Lure of a DealF l S ll S b t f O ll • Foreclosures are Small Subset of Overall MarketMost are Low End Homes in Need of • Most are Low End Homes in Need of Rehabilitation
The RayChel Realty Group
Peninsula Real Estate
UniqueUnique
CompetitiveCompetitive
ExpensiveExpensive
ScarceScarce
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Why is Peninsula Housing So Scarce?
• Mandated Open Space• Growth-Management Laws• Growth-Management Laws• Community Land Use
RestrictionsRestrictions• Environmental Laws• Dedicated Farmland• Dedicated Farmland• Historical Preservation• 60% plus of San Mateo • 60%-plus of San Mateo
County Land is Protected
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Why is Peninsula Real Estate So Expensive?
• Acute Shortage of Buildable LandBuildable Land
• High Cost of Land• Confined Geographic Confined Geographic
Boundaries• Finite Supply of HousesFinite Supply of Houses• Economically Vibrant• Desirable Amenities• Desirable Amenities• Supply and Demand
Imbalance
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Imbalance
It’s Not About the Market, It’s About You
• The best time to get a good deal in real estate is any time you canestate is any time you can.
Th i ht ti t b h i h • The right time to buy a home is whenever you find the right home for you at this point in your lifein your life.
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Buy Value
Historically Distress Real Estate
Offers Potentially
Great Value
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Buying Foreclosures
• Media Reports…Gl f l d Glut of Foreclosed HomesNot Enough BuyersNot Enough Buyers
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Insights
• Bargain Hunters Beware: Perfect Homes Seldom Exist
• Extremely Desirable Homes Will Probably Not Suffer ForeclosureM D i bl H Will S ll i A T f • Most Desirable Homes Will Sell in Any Type of MarketH i G t L ti ith G t • Homes in a Great Location with Great Features Will Sell in the Conventional MarketConventional Market
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Stages of Foreclosure Process
Pre-ForeclosureSh t S lShort Sales
F lForeclosureTrustee Sale
Post-ForeclosureREO’REO’s
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Short Sales
B i Bl k H l ?Bargains or Black Holes?
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What is a Short Sale?
Sale • Between Owner and Buyery• Lender Approval Required• Lender Must Agree to Accept g p
Less than Amount Owed• Seller Receives or Pays No Moneyy y• Seller Does Not Sign Promissory Note
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Who is Eligible?
Eligibility of Seller is…
• Completely Up To Lender• Each Lender Sets Own Rules• Each Lender Sets Own Rules• Rules Vary Lender/Loss Mitigators
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Who Usually Qualifies?
Homeowners with Genuine Hardship Homeowners with Genuine Hardship
• Job Loss• Medical Reasons• Divorce• Involuntary Relocation that Depletes
Homeowner’s Assets• Cannot Pay New Loan Payment – ARM
Adjustment
The RayChel Realty Group
What is NOT a Hardship?
• Home Worth Less than B P idBorrower Paid
• Borrower Does Not Want HHome
• Borrower Does Not Want to Make Paymentsto Make Payments
• Borrower Wants to Buy Another HomeAnother Home
The RayChel Realty Group
Ineligible
• Homeowners with Significant Assets or Homeowners with Significant Assets or Income
• Homeowners Who Have Bought 2nd Homesg• Investors
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Benefits of a Short Sale
Seller/Borrower
• Less Negative Impact on Credit – 2/5/7• Move on with Life
Lender
• Cut Losses• Eliminates Non-Performing AssetEliminates Non Performing Asset• REO Inventory Unaffected
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Potential Benefits for Buyer
• Prices Lower than General MarketBuy Less Than Outstanding Loan BalancesBalances
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Buyer Beware
• Many Alleged Short Sales are Not AttainableS ll C t D t t H d hiSeller Cannot Demonstrate HardshipPrice NOT Acceptable to Lender
• Code Violations• Code ViolationsHabitability & Corrective Issues
• May Not Open Short Sale File Until NOD• May Not Open Short Sale File Until NOD• Lender’s Right to VOID Sale after Sale
The RayChel Realty Group
Challenges of Short Sales
• Outcome is Uncertain• High Failure RateHigh Failure Rate• Lengthy Processing Time• Technically Complexy p• Unfamiliar with Local Market • Unresponsive• Seller’s Not Proactive• Recovery Demand Unacceptable• Foreclosure Date Too Near• Potential Opportunity Loss
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Investors – Proceed with Caution
Home Equity Sales Contract Law
Special Contract required when…
• Buyer is an Investor• Property Being Sold is Residential 1 - 4 UnitsProperty Being Sold is Residential 1 4 Units• Owner Currently Occupies the Property• Notice of Default (NOD) has Been Recorded• Notice of Default (NOD) has Been Recorded
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Seller Has Legal Rights
Upon Recording Notice of Default
ll d• 5 Day Cancellation PeriodSeller may cancel
2 Y C t t R i i P i d• 2 Year Contract Rescission PeriodRescission for any unconscionable acts
N W i b S ll• No Waiver by SellerAny waiver is void
No Limitation on Damages• No Limitation on DamagesLimiting investors liability is void
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Finding Short Sales
Where to Look…M l i l Li i S i (MLS)• Multiple Listing Service (MLS)
www.MLSHomeInformation.com
REALTOR• REALTOR.comwww.realtor.com
Yahoo Real Estate• Yahoo Real Estatewww.realestate.yahoo.com
Public Records• Public RecordsLegal Publications
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What’s Going on Now?Single Family Homes & Condos in San Mateo County Oct 2009Single Family Homes & Condos in San Mateo County Oct 2009
1519 Current Total # of ACTIVE Listings
187 ACTIVE Short Sale Listings187 ACTIVE Short Sale Listings
597 SOLD Short Sales Last 12 months
1351 NEW Short Sale Listings Within Last 12 months1351 NEW Short Sale Listings Within Last 12 months
910 EXPIRED/CANCELLED Short Sale ListingsWithin Last 12 months
89.53% Sales Price vs. Original List Price of Short Sales that Actually Sold in the Last 6 Months
141 Avg Days on Market for Short Sales that Actually Sold in the Last 6 Months
Source: MLSLISTINGS, INC.
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Active Short Sales
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Reality of Short Sales
• Locally 70% + - “Alleged” Short Sales Fail• Nationally Only 10% - 20% SucceedNationally Only 10% 20% Succeed
Short Sales are REO Preview
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Keys to Buying Successfully
• Be Patient• Follow the Process• Set Realistic Expectations• Understand the Property• Professional Representation
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Foreclosure Sale
The Most Dangerous Way ToBuy Real Estate May Be Buy Real Estate May Be
Potentially the Most Profitable!
Seriously High Risk, Potentially High Reward
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The Trustee’s Sale
What is a Trustee’s Sale?• Non-Judicial• Forced SaleForced Sale• Highest Oral Bidder• Public Auction• Conducted by Trustee• Conducted by Trustee• Power of Sale
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What Are You Bidding On?
• Lien Owned By The Beneficiary• Winning Bidder Responsible • Winning Bidder Responsible
for All Liens Senior• All Junior Liens Wiped Out• Trustee’s Deed Upon Foreclosure• Trustee s Deed Upon Foreclosure
No Warranties as to Title, Encumbrances, Possession or Condition of Propertyp y
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Trustee’s Sales are Risky
• All Cash• As-Is, Where Is• No Disclosures • No Disclosures • No Inspections • No Contingencies• No Deficiency JudgmentsNo Deficiency Judgments• Senior Liens Remain in Force
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Finding Trustee’s Sales
Look for Notice of Sale (NOD)• Legal Publications• Public Records• Public Records• Subscription Services
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Keys to Success
• Money• Knowledge• Time• Time• Support Team
AttorneyReal Estate BrokerReal Estate BrokerInsurance Broker
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REO
The Mother Lode or Just the Shaft?
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What is an REO?
• “REO” is an acronymReal Estate OwnedReal Estate Owned
• Property Repossessed via Foreclosure
No One Would Pay • No One Would Pay What Bank Was Owed
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Overview of Foreclosure Market
Fannie Mae and Freddie Mac own $6.9 BillionSi l F il H d C d i i• Single Family Homes and Condominiums
8 500+ other Banks own $8 5 Billion8,500+ other Banks own $8.5 Billion• In Single Family Homes and Condominiums
Fannie and Freddie are America’s Largest Landlorda dlo d
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Banks Have Problems
Internal Staffing ProblemsO h l d U d t ff d & P l T i dOverwhelmed, Understaffed & Poorly Trained
Utilize 3rd Party Vendors for AssistanceUtilize 3rd Party Vendors for AssistanceIndependent Asset Managers for ProcessingREALTORS® for BPO’s and MarketingREALTORS® for BPO s and Marketing
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What’s Going on Now?
S M t C t MLSSan Mateo County – MLSSingle Family Homes & Condominiums Oct 2009
57 REO’s Currently Listed For Sale1519 Non-REO’s Currently For Sale
536 REO’s SOLD within last 6 months2968 Non-REO’s SOLD within last 6 months
100.98% List Price vs. Sale Price REO in Sept ‘0997.50% List Price vs. Sale Price Non-REO in Sept ‘09
64 Average Days-on-the-Market REO in Sept ‘0968 Average Days-on-the-Market Non-REO in Sept ‘09
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Active REOs
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San Mateo REO Market
• Inventory Shortage• Inventory Shortage• High Demand
Multiple Offers Common• Multiple Offers Common• Over Bidding Anticipated
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What’s Coming?
More Foreclosures
½ of Newly Modified Loans are Already 30 Days Past DueG t A i Lift M t iGovernment Agencies Lift MoratoriumsAvalanche of Subprime, Alt-A, & Stated Income ARM Loans About to RecastLoans About to Recast
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Keys to Buying a Bank-Owned (REO)
• Know Why You Are BuyingK Wh Y A B i• Know What You Are Buying
• Be Financially Prepared• Respect the Process• Have Realistic Expectations • Give the Bank a Reason to
Accept your Offer
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Finding Bank Owned H om es
Wh L kWhere to Look…• Multiple Listing Service (MLS)
www.MLSHomeInformation.com
• REALTOR.comlwww.realtor.com
• Yahoo Real Estatel t t hwww.realestate.yahoo.com
• AOL Real Estatewww realestate aol comwww.realestate.aol.com
• Public RecordsLegal Publications
The RayChel Realty GroupLegal Publications
REO’s Are Not Right For Everyone
If You Are…Not Sure You WantNot Sure Where You Want to LiveNot Emotionally Ready to Buy NowNot Financially Capable of Buying NowNot Financially Capable of Buying NowNot Prepared to do Repair WorkNeed Time to Make a Leisurely Buying DecisionNeed Time to Make a Leisurely Buying DecisionAfraid you’ll get stuck with a “LEMON” because the Bank didn’t disclose something
Don’t Buy An REO!
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Challenges of Buying an REO
• Over Priced vs. Well Priced• Banks Dictate the Process• Unconventional Transaction• All Sales are “AS-IS”• Must Use Bank’s Contract
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REO Myths
• Bargain Pricing• Deep Discounts• Banks are Desperate • New Financing Offered• Bank Pays Termite Repairsy p• All Cash Offers Get Better Deals• Banks Do Not Have to Provide DisclosuresBanks Do Not Have to Provide Disclosures• Will Accept Home Sale Contingency Offers
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Realities of REO’s
B P A d b S ll ’ L d• Buyer Pre-Approved by Seller’s Lender• As Is – Where Is• Cannot Speak Directly to Bank/Asset Manager• All Communication through Listing Agent• Email Communication Only• Listing Agent NOT in Daily Contact with A/M• Don’t Call or Don’t Expect Updates• New Listings May Require Seasoning• Usually No FHA, VA or CalVet Loans
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Realities of REO (continued)
• Don’t Expect Rejection Notice• No Re-Negotiation• Proof of Funds• Expect Verbal Counter Offers• Highest and Best• Short Contingency Periods – 7/10/30g y• Passive Contingency Removal• Bank Chooses Title and Escrow Companyp y• Per Diem Penalties for Late COE
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Realities of REO (continued)
• Most REO Homes Are Far from Perfect• Quality of REO Inventory Inferior to General
Re-sale Market• Best REO Homes Sell Significantly Higher Than
Li d P iListed Price• Demand for Quality REO Homes is High
Owner OccupantsInvestors
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Red Flags
• Bank’s Addendum (aka Counter Offer)
Heavily Favors Bank - Read yCarefullyIf Possible Review Bank’s If Possible, Review Bank’s Addendum Before Writing OfferSupersedes Provisions in Offer
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How To Get Your Offer Accepted
• Pre-Approved by Direct LenderE M /Off 1% 3% f i• Earnest Money w/Offer: 1%-3% of price
• Document Proof of Funds • Short Contingency Periods• Submit Highest & Best Offer at Outset• Work w/Knowledgeable, Experienced REALTOR
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Financing a Foreclosure
Three Financial Keys for a Successful Closing
• Get Your Mortgage Professional Involved Early• Direct Lender• Mortgage Banker• Mortgage Broker
• Get Pre-Approved• Know Your Financing Options
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Get Your Mortgage Advisor Involved Early
Financing Solutions to Match your Buying NeedsDetermine What you Can Afford Down Payment and Closing CostsPrograms that Meet your Short & Long Term Goals
Work with Your Foreclosure Specialist toStructure Contract to Reflect Loan ProgramUse Contract Contingencies to Protect You
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Pre-Approval vs. Pre-Qualification
Get Pre-Approved, Not Pre-Qualified
• Pre-QualificationAn informal estimate of what you can afford
• Pre-ApprovalA l it t f t bl l dA loan commitment from a reputable lender
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Mortgage Pre-Approval
A Pre-Approval Requires Verification of…• Income• Asset • Credit Score• Continuing Liabilities
A Pre-Approval Gives You...A Pre Approval Gives You...• Purchasing Power
A Pre-Approved Buyer is a CASH Buyer
• The Upper Limit of What You Can Afford
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Property Condition
Property Must Meet Certain Physical Conditions for Conventional Lender’s Approvalfor Conventional Lender s Approval
All heath and safety items must be addressedMust have a stove, sink, toilets for FHA
Properties that Don’t Meet Physical RequirementsS i l P f P ti th t D ’t M t Special Programs for Properties that Don’t Meet Physical Standards for Conventional FinancingUp to $35,000 to Put Towards Fixing Cosmetic DefectsUp to $35,000 to Put Towards Fixing Cosmetic DefectsLoan Amount Up to $729,750 to Put Towards Major Repairs Including Structural
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Fannie Mae H om e Path Conform ing Loan
Fannie Mae’s Conventional Loan Program for Financing Fannie Mae Owned HomesFinancing Fannie Mae Owned Homes
30 Y d 15 Y Fi d• 30 Year and 15 Year Fixed• Maximum Loan Amount $417,000
3% D P f Si l U i D lli• 3% Down Payment for Single Unit Dwellings
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Fannie Mae Foreclosure Financing
Program HighlightsN M I• No Mortgage Insurance
Lower Monthly Payment than FHA
N A i l R i d• No Appraisal Required• Sellers Can Contribute Up to 6% Towards
Closing CostsClosing CostsNo Money Back to Buyer
• Minimum Credit Score 580• Minimum Credit Score 580
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My Job As a Mortgage Advisor
Financing Solutions to Match your Buying NeedsD P t d Cl i C tDown Payment and Closing CostsPrograms that Meet your Short & Long Term Goals
• Structure an Affordable Monthly Payment• Structure an Affordable Monthly Payment• Find Competitive Interest Rates
Compare Programs and Lenders• Compare Programs and Lenders• Minimize Out of Pocket Costs
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Knowledge is the Key
• Don’t Use the Media as Your Only Resource• Don’t Fall into the Trap of Online LendersDon t Fall into the Trap of Online Lenders• Know All Your Options• Choose a Mortgage Professional you Trust Have • Choose a Mortgage Professional you Trust, Have
Confidence in, and Feel Comfortable With
The opportunity is out there, you just have to tak e advantage of it!have to tak e advantage of it!
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Steal of a Deal?
Final Dose of Reality…If h P i S h G d D l Wh Did ’ • If the Property is Such a Good Deal, Why Didn’t it Sell on the Open Market?If Y P 50¢ th D ll f th P t • If You Pay 50¢ on the Dollar for the Property, it’s Probably Worth 50¢ on the Dollar.
Think About It!
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Real Estate Technology Tools
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LivingWellinSanMateo.com
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LivingWellinSanMateo.com
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http://budurl.com /SearchForeclosures
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http://budurl.com /SearchForeclosures
The RayChel Realty Group
http://budurl.com /SearchForeclosures
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SanMateoMortgageBlog.com
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REO Buying Guide
http://REOBuyingGuide.com
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Upcoming Class in San Mateo
i iGuide To Buying Condos & Townhomes
Tuesday - November 3rd 7pm – 9pm
For Reservations Visit: http://budurl com/CondoClass
The RayChel Realty Grouphttp://budurl.com/CondoClass
Our Next Webinar
12 Costly Home Buying Mistakes Even Smart People MakeEven Smart People Make
Saturday, Novem ber 7th 10amSaturday, Novem ber 7 10amTo Register Visit:
http://budurl.com /H om eBuyingMistak esThe RayChel Realty Group
http://budurl.com /H om eBuyingMistak es
Webinar: Trustee Sales
Trustee Sales – The Most Dangerous & Most Profitable Dangerous & Most Profitable
Way to Buy Real Estate
Tuesday, Novem ber 14th 6pmTuesday, Novem ber 14 6pmTo Register Visit:
http://budurl.com /TrusteeSaleThe RayChel Realty Group
http://budurl.com /TrusteeSale
Questions
Your Questions are InvitedQ
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Free Consultation
Chris WilliamsonMortgage Advisor
Raymond StoklosaManaging Broker and Co OwnerMortgage Advisor
Mortgage California
Phone: (650) 520-0915
Managing Broker and Co-Owner
The RayChel Realty Group
Phone: (650) 533-8531
[email protected]@ChrisEWilliamson.com [email protected]
The RayChel Realty Group