Mortgage broker Bill Nazur and real estate investor Danielle Babb, authors of Finding Foreclosures (Entrepreneur Press, 2007), respond to your foreclosure questions.
Q: With foreclosures, which states are redemption states and which are nonredemption states?
A:Mortgage-Investments.com lists out, by state, whether it is judicial or nonjudicial, the number of process days, publication days, and redemption period. Otherwise, you can request the information from most title companies, or closing attorneys should be able to show you information for their respective state. Understand the redemption period better than any single piece of information in the foreclosure process. Worst case scenario: Your buyer purchases a property that the previous owner has a right to redeem six months, one year, or even two years later in certain circumstances. As an exercise, look at the Dakotas, New Mexico, and Tennesee for fun.
Q. How can real estate practitioners with little background in foreclosures find opportunities in this expanding market? Is there room for newcomers?
A: You will be very pleased to know that (unfortunately, or fortunately) there is plenty of foreclosure business to go around, so the opportunities are endless. There is plenty of room for newcomers to get into this market, though here comes the caveat: Most lenders, banks, and asset managers want to work with an agent that has at least 5 years of experience in the real estate field, preferably longer as foreclosures are extremely time intensive. This does not mean that you cannot break in with less experience, but you must know ahead of time that on-the-job training is very much frowned upon in this specific niche.
I’d recommend that you start building a real estate resume, outlining your successes in the market. Have you dealt with difficult buyers where you came up with a solution that required some creativity? Do you know REO terminology? Are you organized enough to manage multiple projects, meaning if tomorrow you received 10, 20, or 30 REO listings, that you would be able to
manage all of them effectively, while efficiently communicating with the asset manager as to the upside and downside potential of each project? Are you willing to do Broker Price Opinions that require 2 hours on average to earn $50-$125 per transaction? If yes, why? If no, why? This last question is not a trick, but should provide you with additional insight as to your motivations.
Q. Do lenders and banks use preferred REALTORS® to handle their REOs? If so how can you become a preferred REALTOR® to a bank?
A: Remember that resume I mentioned? This is the perfect follow up. Teams are preferred in this market niche. Regardless of how many tasks you can handle at one time, partner up with someone who’s been in the business, or who is as equally committed at breaking into this segment as much as you do. You will be able to split up all of the costs AND handle more listings than you know what to do with. The rule of thumb is that each bank will give an individual practitioner up to 40 REO listings.
As far as becoming a preferred referral source to the bank, if you are representing a buyer of a foreclosed property, ensure that all of your paperwork is 100 percent complete before you submit it to the bank. Failure to do so will place your offer at the bottom of the stack, and it will not be reviewed. Do not ask for an exception. It will not be granted, and you will only frustrate the person you are working with. If you agree to a due date, meet or exceed that due date. It sounds simple, but I cannot begin to tell you how many loss mitigation group managers rarely receive a complete package. If you do everything right from the start, they will take a notice, and may even help guide you through their internal maze.
Q. Is it legal for a real estate agent to purchase homes in foreclosure from the seller (before bank repossession) and then resell those homes on the MLS? How does Civil Code 1695 apply?
A: Legal, yes, though according to law firms that specialize in this area of real estate, an unequivocal caution. Wise, NO. Each state has their own set of laws, which for the most part clearly favor for good reason the current owner of the property. Would you like your Department of Real Estate, Attorney General, or other governing body in your state to come after you as the “professional” who preyed on the “distressed” buyer, because you sought to save a few bucks?
I will speak to California where we’re based. Are you using the right forms when writing the offer, presuming you are choosing to pursue it before the bank forecloses on the property? Is the Notice of Default Purchase Agreement being used in conjunction with the Home Equity Explanation Act? Are you aware that Section 1695.17 requires a financial bond that you cannot possibly deliver? Do you understand where your agency relationship ends in these deals, and the referral relationship begins?
Presuming that you complied with everything, you can turn around and sell them via any method that you wish to employ, including but not limited to your MLS. One note regarding the MLS, is that you must be thorough, have plenty of pictures, and disclose, disclose, disclose. My attorneys represent several REALTOR® Associations in Southern California, and have been very clear that the litigation in the coming years will shock you. Consumers who feel they have been wronged or steered into a mortgage product or an investment home, or other real estate, including their primary residence, even if they clearly knew what they were getting into, will create a backlog in the courts like we haven’t seen in years.
Q: For bank-owned foreclosure properties, do you have any general guidelines for the kind of repairs or amount of price concessions that bank sellers will pay or negotiate once the inspection results and reports are completed and submitted to the buyer on “as is” properties?
A: So you want the property at 50 percent below market value, with closing cost assistance, and all repairs so the house is turnkey? Buyers market or not, this is still a business transaction, and deals like that are almost nonexistent. What are you willing to sacrifice as the agent, and/or the buyer? If you’re asking for a price that severely discounted, be prepared to explain the condition of the property that is going to challenge the Brokers Price Opinion that says the property is worth much more, and do not ask for repairs or closing cost assistance.
$8K is the most I’ve ever seen in closing cost assistance. Lending regulations normally keep closing cost assistance at 3 percent for conforming loans (those $417,000 and under) and 6 percent for nonconforming (or jumbo loans $417,001 and over). You should know this as a real estate professional.
Repairs may be made if they address safety or security. Cosmetic repairs will rarely be made. Price concessions may be made but will usually already be priced in. Unlike having an inspection report that is presented to a current home owner that feels obligated to make any improvements, the banks will have disclosed in their initial addendums that the property is “as-is,” not ‘’as-the-buyer-would-like-it-to-be.”
Q: What are the best ways to contact and meet the people who are dealing with the foreclosures locally for many of the banks?
A: Bear in mind that rarely are any of the decision makers local for many of these banks. In fact, finding the right contact is half the battle. Start by going to their individual Web sites, looking for the REO link, bank-owned properties, properties for sale, just to be able to determine what their inventory looks like. From there, spend the next 30-45 days concentrating on NOTHING but education. The ones who are already in the business are more than willing to share their knowledge so long as it helps make their jobs easier by moving properties, not training new people. Remember, humility with a little bit of assertiveness will get you further than your ego ever will.
Aside from the organizations we have already mentioned, you can go to our Web site. We’ll be adding additional resources, including a seminar series for beginners, intermediate buyers and investors, and serious investors that desire a multiple day training format, along with training for real estate brokers and companies that wish to get into the foreclosure market, including short sales, which present a great opportunity as well.
(Disclaimer: The authors are not attorneys and their responses to the above questions should not be construed as legal advice. Their responses are based on their opinions from working in the foreclosure business.)