Hiring a foreclosure expert real estate agent can be extremely helpful to real estate investors. In fact, having access to expert advice is an effective way to avoid the common pitfalls of real estate investing. A good example of this is when you’re in the market for an investment property.
The Basics of Foreclosure Sales
Most real estate investors are familiar with the concept of foreclosure sales. It refers to homes that the lender auctions off after the mortgage falls into default. The process involves several steps and buying a foreclosed home requires a firm understanding of all of them.
This is what triggers the foreclosure process. When the borrower misses at least one payment, the lender will send a Payment Notice. If the homeowner misses another payment, they will receive a Demand Letter from their lender. At this point, a quick resolution between the two parties is still possible.
The Reinstatement Period
If the borrower continues to miss payments, the lender will have to send a Notice of Default after 90 days. The loan itself will be transferred over to the foreclosure department. After this, the borrower will have another 90 days to make the payments. This period is called the reinstatement period.
Notice of Trustee’s Sale
After the end of the reinstatement period, the lender will record a notice of a Trustee’s Sale. Additionally, the public will be informed of an impending auction. The notice that the lender publishes contains all the essential information that pertains to the income property. This includes the name of the owner, the address, and the location and date of the auction.
The Public Auction
This is where real estate investors who are interested in buying a foreclosure can bid for the property. The auction starts with an opening bid that is based on the value of the outstanding loan. After the conclusion of the auction, the highest bidder receives a Trustee’s Deed Upon Sale. It’s worth noting that an auction does not always result in a sale. In some cases, the lenders will have to find buyers themselves as the properties become bank owned homes. This is usually done through an REO specialist (Real Estate Owned). As an investor, these are the properties that you have to keep an eye on.
The Steps to Making a Foreclosure Investment
Buying a foreclosed property is easier than you think. Here is how you can do it in a few simple steps.
Secure a Mortgage
Before thinking of hiring a foreclosure specialist, you must first secure a mortgage to finance your real estate investment. In fact, you will have to get a loan preapproval before starting the search process. You have the option of obtaining a loan from the same bank that is selling the property. This might seem like a conflict of interest, but in fact, banks keep the loan issuing department and the foreclosure department separate.
Find a Foreclosed Property to Invest In
The next step is finding the ideal foreclosure property to invest in. There are several options that are available to you here. Most novice investors opt for hiring a foreclosure real estate agent that can guide them through the entire process. Experienced investors, on the other hand, are more likely to take on the project by themselves. Even as a beginner, working with a real estate agent or a foreclosure specialist is not your only option. As a matter of fact, you can find and analyze foreclosures.
Finalize the Real Estate Deal
The way you close the deal varies depending on how you acquire the real estate property. Generally speaking, finalizing the purchase of a property after winning an auction is a simple and quick process. On the other side of the spectrum, buying a foreclosure directly from a bank can drag out for a while. Banks are extremely diligent when it comes to limiting their losses. Consequently, they tend to delay the process in order to properly assess the risk.
Working With a Foreclosure Specialist
A foreclosure expert real estate agent is a real estate professional that specializes in foreclosure deals. This includes everything from helping distressed homeowners restructure their loans to assisting investors with the purchase of a foreclosed property.
Work of a Foreclosure Expert Real Estate Agent
When working for a homeowner, a foreclosure expert will go over a litany of paperwork in an effort to find the ideal resolution for the client. Furthermore, they maintain close contact with all the parties involved to ensure that the process is progressing smoothly. When working for a real estate investor, the foreclosure agent will do all the groundwork for the client. This includes finding suitable foreclosed properties and carrying out investment property analysis on them.
How Do You Find A Foreclosure Expert Real Estate Agent
• Talk to local real estate agents and ask them to refer you to a trusted foreclosure agent
• Search for foreclosure expert online
• Filter MLS listings by short sales and REOs in order to find agents with foreclosure experience
Hiring a foreclosure agent can significantly facilitate the purchase of a foreclosed property. This especially applies to novice real estate investors. Specialized real estate agents command high fees that can eat into your margins.
How to Buy a Foreclosed Home
Purchase from a Homeowner
You don’t technically buy a home from a homeowner whose property is in foreclosure. What will usually happen in that case is that a short sale will happen. A short sale occurs when the homeowner sells a home for less than what they owe on the mortgage. When you buy a home in foreclosure, the bank (not the homeowner) needs to approve your offer. You might spend a lot of time waiting for approval.
Purchase from a Bank
You skip working with the homeowner altogether when you purchase a property through the bank. The bank usually clears the title and evicts the current homeowner before you buy a foreclosed property. Most banks won’t sell a home directly to an individual; you’ll need to talk to an experienced real estate agent to view available properties. These homes are usually sold as-is. However, you’ll usually get the opportunity to view the home and order an inspection before you close.
Purchase At Auction
You’ll get a home faster at auction than you would if you negotiated with the bank or a seller. However, most auctions only accept cash payments, which mean that you’ll need to have a significant amount of money ready for the purchase. By purchasing at an auction, you also agree to buy the home as-is without an appraisal or inspection. This means you take a big risk when you buy a foreclosed home at an auction. It’s an excellent idea to determine the foreclosure status of the home you want to buy or get in contact with a real estate agent who specializes in foreclosure sales.
Work With A Real Estate Agent To Facilitate The Purchase
Most banks hand foreclosed properties off to a real estate owned (REO) agent who works with standard real estate agents to find a buyer. Not every real estate agent has experience working with REO agents. An experienced foreclosure agent can help you navigate your state’s REO buying process, negotiate your price, order an inspection and make an offer. Research real estate agents in your area and look for an agent who specializes in foreclosure sales.
Get Approved For A Mortgage To Finance Your Purchase
Unless you buy a home at a foreclosure auction, you’ll probably obtain a mortgage to fund your home purchase. Once you’ve found an agent and you get started looking at homes, you’ll want to get preapproved for a loan. A preapproval lets you know how much you can get in a home loan. Choose a lender and apply for a mortgage preapproval to narrow your search.
Conduct An Appraisal And Inspection On The Property
Inspections and appraisals are both crucial when it comes to buying a foreclosure. An appraisal is a lender requirement that lets you know how much money a property is worth. Lenders require appraisals before they offer home loans because they need to know that they aren’t lending you too much money. An inspection is a more in-depth look at a home. An expert will walk through the home and write down everything that needs to be replaced or repaired. Because foreclosures usually have more damage than homes for sale by owner, you should insist on an inspection before buying a foreclosed home. Sometimes, you don’t get the chance to order an inspection or appraisal before you buy. You should only consider buying foreclosed properties if you’re advanced at home repair.
Purchase Your New Home
Read your inspection and appraisal results and decide if the home in question is really right for you and whether you’re okay with buying a home as-is. Contact your mortgage lender to finalize your loan if you have the money or skills to make any needed renovations. Your real estate agent will help you submit your offer and prepare you for closing.
Why You Should Avoid Foreclosure
Though it may seem like the simplest way to get out of your mortgage, the foreclosure process is not only burdensome in the present, but it also has lasting impacts on your credit score that are nearly impossible to recover from. When you go through foreclosure prevention, you have the ability to:
• Protect your credit score from the damaging effects a foreclosure has on it
• Avoid the hefty legal fees you are responsible for in foreclosure proceedings
• Begin recovering financially and avoid foreclosure penalties
How To Execute A Short Sale And Avoid Foreclosure
There are plenty of important steps you need to follow to boost the chances of completing a successful short sale. These five steps are crucial for everyone looking to short sell their home and prevent foreclosure.
• Determine Eligibility: Though being underwater on your loan is a good indication that you could be eligible for a short sale, you are not guaranteed to qualify. If you have missed consecutive mortgage payments, are facing a long-term financial hardship, and are unable to refinance your mortgage, a short sale is ideal.
• Find Your Short-Sale Realtor: Finding the right short-sale agent or foreclosure expert can make or break your ability to avoid foreclosure.
• Submit a Hardship Letter: Some foreclosure experts consider this the most important part of the entire foreclosure prevention process. Essentially, you submit a hardship letter to your lender along with the required documents that show why you are unable to make your mortgage payments.
• Submit Supporting Documents: After drafting your letter, make sure to include the following documents in your submission to make the process as smooth as possible: letter of authorization, preliminary net sheet, proof of income, and a comparative market analysis. Your short-sale agent will help with all of this.
• Complete the Short-Sale: After receiving approval from your lender, the short sale proceeds as a normal home sale until the final negotiations. Your short-sale agent will find the best offer for your property before negotiating with the lender to accept the offer.
Submitting an Offer on a Foreclosure without a Real Estate Agent
Foreclosures give buyers the chance to purchase homes for below-market-rate prices. According to online foreclosure, the average price of a foreclosed residence stood at $167,095 in the first quarter of 2013. That’s about 30 percent below the average price of a traditional home during that same period. Buyers don’t have to work with real estate agents to purchase one of these usually lower-priced homes, but going it alone could prove more of a challenge.
The Submission Process
Making an offer on a foreclosed home is similar to making one on any other home for sale. The main difference is that you won’t be negotiating with an individual owner. Instead, you’ll be negotiating with a bank or lender. If you find a foreclosed home you like, call the home’s listing agent. Even though a bank or lender is the official owner, you’ll still most likely deal with an agent that this lender has hired to market the home and receive offers. This agent can set up a tour of the home. If you still like the home after touring it, you’ll have to submit a written offer to the agent. The agent will take this offer to the bank, which will decide to accept it or reject it. If the bank rejects your offer, you might have the opportunity to resubmit a revised offer.
If the bank accepts your offer, hire a home inspector to tour the property before taking over ownership of the home. This inspector will look for any serious problems. This is important because most foreclosed homes sold by banks or lenders are sold in “as is” condition, meaning that you’ll be responsible for making any necessary repairs. If these repairs are too costly, you might lose any savings you would have gained by purchasing a foreclosed property. If the home inspector finds costly problems with the home you want to buy, you can back out of the sale.
You might want to work with a real estate agent when searching for foreclosed homes. Many private lenders prefer offers for their foreclosure properties that are made by a licensed real estate agent. Agents can also help you find foreclosed properties you might otherwise have overlooked. The agent’s services are free to you: Buyers don’t even pay real estate agents. Agents are paid by sellers when a home sale closes.