We avoided a deficiency judgement

The last  story for my state representative This one happened in 2011….

Judith and Sam,

Judith and Sam are friends of mine.  I was at their wedding.   Their story is a little different They only had one mortgage and it was for a mobile home on a rented lot.  They bought their home right after the marriage for $59 K… Things were going OK even thought they were paying over $900/ month for their mortgage (payment) and lot rental…Then Sam lost his job.  He was unemployed for over a year.  They did some things to try to keep body and soul together.  A paper route and a home day care business. But it wasn’t enough. Plus they had 4 children.  I heard though the grapevine that they were in trouble and I got involved.  After 10 years of owning their home they still owed $57K on it and it was worth $30 K. Molbile homes are on rented lots are different.  They are repossessed like cars but they are really homes that people live in.  All the laws to protect homeowners do not seem to apply to these people.   I asked 3 0r 4 lawyers for opinions.

I talked to the bank.  They were most unhelpful.  I tried to get them to modify the loan.  I suggested that they lower the principal and put the mortgage at 8%.  That would bring the payment down to place they could afford.  The banker kept saying that they could afford their mortgage.. They could not…  They had 4 children, the youngest a newborn.   I then suggested a deed in lieu of foreclosure The banker seemed to sneer over the phone line.   I set up a plan with a charitable group.  They had offered help with the deposit and some rent.  I suggested we needed a lawyer to give pro-bono work for a bankruptcy and that the charitable group  would pay the fees.  They could also help with the deposit Time passed and the phone rang.  It was another banker and she offered a deed in lieu of foreclosure and gave them 2 months to move out and $300.  I also had them agree not to go for the deficiency so they did not need the bankruptcy lawyer J.    Despite all of my friends problems the only item they were behind on was the payments for the mobile home.

Without the negotiation my friends would have been hit with a deficiency judgment and forced to declare bankruptcy.

 

 

Not all bank owned properties are created equal….

During 2010 and 2011  most of my work was as a buyers agent for REO’s or bank owned properties…..  One would think they are all the same but they are not…..I know HUD does not like to be considered REO or bank owned by for the purposes of this comparison I will include them in the description.   Bank owned property is property that the bank foreclosed on or took in leiu of foreclosure.   The bank  owns the property and wants it off the books… They often sell at a discount.  More importantly not all bank owned properties are created equal…..

So what types of properties are there?  The are HUD, Fannie Mae, Freddie Mac, OCWEN, Wells Fargo, Bank of America, IFHA,  Chase…… You get the picture….. Every different bank or entity has a different procedure…Perhaps different areas are different.  I work in the Treasure Valley of Idaho and I serve Ada, Canyon and Boise counties….

It used to be that bank owned properties were typically trashed.  No one would bother to go clean them up.  There would be trash, dog pee, weeds, etc.  This is rarer (except for HUD listings).  Many bank are willing to put money into the listing to sell them quickly and at a higher price.  This is nice for us because we have better homes to show are clients….

First we will start with the government and quasi- government foreclosures…. These include HUD, Fannie Mae, Freddie Mac and some OCWEN (VA)…. It probably also included rural development but I haven’t worked with those so I wont discuss them.  The really cool thing about HUD, Fannie Mae and Freddie Mac is they have a owner occupied period for bids.  That means that if you are looking for someone planning to live in the home they have the opportunity to bid and be considered before anyone else.   This is very important because investors often have cash and look better on paper.  It allows people to own the American dream for less… In my area most of these homes that are nice sell before the owner occupied period is up.  Not all bank owned properties are created equal

HUD is part of the federal government…. They make the rules for everyone else but they do not play by those rules… What you see is what you get.  HUD homes are never fixed (at least in my area)…. They wont even fix the property enough to test the systems… Not only that you are not allowed to fix anything either.   This can be very inconvenient.  The homes are listed on the multiple listing service and www.hudhomestore.com.  Your HUD qualified  agent (ME) enters bid.  You have no idea what the others have bid are.  There is no contract (until your bid is accepted).  That is the easy part.  If you are successful with your bid the fun starts.  Your agent writes the contract and has to get their broker and the lender to sign it.   Then the agent has to express mail it and beat the time deadlines.  Any mistakes and HUD threatens and sometimes do cancel the deal.   Most of these homes can have FHA loans because the government did the inspection and appraisal.  If you bid for more then the appraisal you have to pay the difference in cash.  It is usually possible to get 203K loans on these too. They are often a good value but do not  show very well since the government is not willing to make them nice.  It doesn’t matter what the lender requires.  The inspection is either a go or no go….You the buyer have to turn on all the utilities at your expense and then re-winterize the home… Not very fair..We real estate agent used to get an extra 2 % in the Treasure Valley but no more….  It sort of made it worth the hassle.  These homes sales are ulcer producing…. That said I have closed every HUD home that I put under contract.  If anything ever makes me into a Republican it will be dealing with HUD foreclosures… I have gone to my Republican Congressman twice on HUD problems….  This is the same Congressman I ran against in 2008. By the way I am not allowed to use the words distressed, bank owned, REO, foreclosed when describing a HUD property…. HUD thinks these words have a negative connotation.  Not all bank owned properties are created equal

Now we will take a detour and talk about the bidding process on most of the rest of the bank owned properties.  The real estate agent writes the offer on the normal real estate form… I find I can almost always get 3% closing costs but I cant always get price reductions on REO property.   You must have either proof of funds or pre-approval.  The earnest money often has to be a cashiers check (usually for at least $1000).  I often bid with a personal check that will get converted into a cashiers check when I know the title company.  The seller always chooses the title company and often the earnest money is held by the title company or the listing broker.  That is not typical in the Treasure Valley.  If there are multiple offers you asked to submit your highest and best… Your buyer also has to sign a form acknowledging that they are in a multiple offer situation.   If your bid is accepted the bank will send a huge addendum which basically negates the original purchase and sale agreement.  It is a form written in favor of the bank but if you don’t sign it you don’t get the home.  The bank will tell you they wont fix things but they will often do so if the lender requires the fix.   I have even gotten the banks to concede on price for cash deals if the inspection is bad.  You must have an agent that is very confident when dealing with the banks.  These deals require around 2 extra weeks because the the time it takes to get the seller signatures and a the time at the end for the REO bank to approve the HUD-1.  The other thing about these deals is that the buyer signs everything before the seller signs anything.  This means that you can’t have the home inspection until you have seller signatures on the addendum and the sales contract.  If there is a hang up and there are lender required repairs that will also slow down the sale since it has to go to a higher level of management for approval.  Mostly these sales will progress like a normal non-distressed sale.  Not all bank owned properties are created equal

Fannie Mae and Freddie Mac are quasi-government agencies.  They are backed by the federal government.  Lately Fannie and Freddie are willing to fix a house up in order to sell them.  They sometimes paint, carpet and fix things so the buyer will bid.  There is usually a 15 day first look program for the owner occupied buyers.  They are usually well priced and show better then their HUD counterparts.  Because of the owner occupied first look program they are ideal candidates for owner occupied buyers…. Fannie Mae has a Homepath financing avenue.  This is a 3% owner occupied and 10% investor down rate.  There are fees that are high but there is no private mortgage insurance.  There is also no need for appraisal… Make sure your agent does a market analysis and listen carefully to your inspector.   Freddie Mac’s gimmick is that they give a free 2 year home warranty for owner occupied dwellings.  These will proceed like a normal sale once it is started. My favorite REO’s might be Fannie and Freddie’s.   Not all bank owned properties are created equal.

Wells Fargo and Bank of America both have the annoying feature that you must prequalify with their bank to submit a bid unless you are a cash buyer.  It adds a day to the process and they will offer some incentives for going with their bank but be forewarned these are big banks and they tend to delay closings….  The asset managers do not seem to talk to the mortgage department so being with the same bank doesn’t get the loan closed any quicker.  I also wonder about a conflict of interest.  I had a case where closing was delayed by more than a week because B of A mortgage department wouldn’t put out the closing docs with less then 3 days before closing and the assest manager didn’t want to extend the contract…. My buyer almost pulled out.  These banks are good to take your investor too.  There is no owner occupied period.   Not all bank owned properties are created equal

The other banks will have different quirks.  Small banks work faster at getting the deal done.  IFHA in Idaho is particularly good to work with.  These homes sell and they sell fairly easily.  The buyer usually gets a good price for their new property.

So I hope this helps with understanding some of the differences with different bank owned properties.   If you happen to be in the Treasure Valley of Idaho and want to buy a bank owned property contact Debbie Holmes.  I will get you the best possible deal and I have a lot of experience dealing with different banks.  Because you now know just like me …. Not all bank owned properties are created equal!