F.A.QsHere is a collection of frequently asked questions that I have put together to help you in buying or selling a home. If you have any other questions, not listed here, feel free to call or send an e-mail.
By clicking on any of the questions below, you may view the answer.
Day 1: Record Notice of Default
Within 10 business days: Mail and publish Notice of Default
Within 1 month: Mail Notice of Default
After 3 months: Set the sale date
25 days before sale date: Send notice of sale to I.R.S. (when necessary)
Within 10 days from 1st publication: Send beneficiary request for property directions
14 days before sale date: Record Notice of Sale
7 days before sale date: If court action, 7day rule may apply
5 business days before sale date: Expiration of right to re-instate the loan
Sale date: Property is sold to highest bidder
Market value is going to be determined by the area the property is located in. Rehabilitation (Rehab) is often a requirement to bring a property to its Fair Market Value. Obviously, no one is going to pay market value for a property that needs significant rehab. That's where you, as an investor, come in with the knowledge and capability to accomplish a rehab allowing for the property to be sold at its fair market value. Your objective is to acquire the property at a price low enough to allow for rehab and holding costs until the property can be sold earning you a profit.
Ultimately, the only thing that will stop a foreclosure proceeding is repayment of the debt; everything else is delay of the proceedings.
KEEPING THE PROPERTY VS. SELLING THE PROPERTY
If your monthly house payment (including property taxes and insurance) does not exceed 40% of your gross monthly income, it should be possible for you to keep the property. If the payment is greater than 40% of gross monthly income, consider selling or transferring the property to avoid negative impacts to your credit. The objectives in order of importance should be:
1. Keeping the property if possible.
2. Don't give away equity if you can keep it or liquidate and put it in your pocket.
3. Minimize damage to your credit. You will need it later on.
Before exploring new options, have you tried to come to terms with your existing lender? Lenders want the loan to be current, not to have to complete a foreclosure. Can you make up the defaulted amount over a period of months? Can you re-write the note and include the defaulted amount? Can you give the lender a deed-in-lieu of foreclosure and preserve your credit? These are questions you should ask yourself and possibly your lender if you haven't done so already. They will want to know why the loan is in default and why you think you will be able to make the payments in the future. Temporary financial setbacks that have since been cured are the best candidates for this. Your lender will probably not be inclined to stop foreclosure proceedings if they have reason to believe they will have to start again in 6 months.
REFINANCING AND NEW JUNIOR LOANS
Basic lending guidelines will require all home loans will total up to less than 70% -80% of the current market value of the property. If you have more equity than that, you should have no difficulty in obtaining a new refinance or 2nd Trust Deed to bring your loan current. Expect higher interest rates and loan fees.
If you experienced a temporary financial setback that has since been cured and are going to be able to keep the property, first consider family and friends for a loan to get current. It's much cheaper than hard money loans, but MAKE SURE you will be able to pay them back. You do not want to put them in the position of having to foreclose to get their money back. Hard money loans are typically private investors who will lend money based on equity in the property. Credit and income are not issues of importance and loan approval is usually a matter of days with funding following shortly. Loan amounts will usually be enough to bring existing loans current, pay the financing costs and put some money in your pocket. Loans will be amortized over 30 years to keep the payments lower and the balance will be due in 3 to 7 years or maybe more. BANKRUPTCY
This is a major step that will have lasting impact on credit reports. Seek appropriate legal advice. If the Notice of Default has just been filed on your home, you have sufficient time to explore the options for new loans or selling the property. If the foreclosure sale is going to be held very shortly, bankruptcy is a very common way to delay the sale. But, when you file bankruptcy, your financial matters fall under the jurisdiction of the courts, which could limit your options and you may put yourself in a position that, temporarily, you might benefit from Bankruptcy protection but down the road you might regret your decision. IT IS BEST TO SEEK LEGAL ADVICE.
THERE ARE MANY PEOPLE PROMOTING "STOP FORECLOSURE" PROGRAMS THROUGH DEBT CONSOLIDATION AND/OR BANKRUPTCY. SOME PROMOTE THEMSELVES AS FORECLOSURE CONSULTANTS OR FORECLOSURE SPECIALISTS. IF YOU ARE GOING TO USE ONE OF THESE SERVICES, LOOK FOR ONES THAT CHARGE FEES ON COMPLETION OF SERVICE INSTEAD OF UP-FRONT FEES. THIS PROVIDES YOU A GREATER PROBABILITY OF GETTING WHAT YOU ARE PAYING FOR. BE CAREFUL AND GOOD LUCK!!
There are five basic tools required for successful foreclosure investing.
1. A notebook (I like the subject notebooks, wire bound on the side)
2. A pen kept in your car (maybe two, cars seem to eat pens)
3. A calculator (Nothing too fancy, just to do simple figures without making mistakes)
4. A Thomas Guide (This is the best way for finding locations and directions)
5. A mind willing to change behaviors and to learn new things.
The first three are fairly self-explanatory, you aren't going to be able to remember everything you see and everywhere you've been, so you'll need to make notes to refer to later, the calculator will help when you are running numbers on a property.
Let's start with an exercise in behavior. Take your Thomas Guide and follow the routes you take to go to work, go to the bank and go to the grocery store. How many neighborhoods do you drive by that you never actually drive through? How many streets with how many houses are there that you haven't seen in the last six months or last year? For the next week, leave for work 15 minutes early, pick one of those neighborhoods and drive through as many of the streets as possible at a fairly slow pace. LOOK at the houses, what condition are they in, how are they maintained, what kind of cars are in the driveways, do a lot of people park on the street? Any houses that are listed for sale and have flyers in front, you should stop, take a flyer and take note of the condition and appeal of the home. Then, after work, do the same thing in the same neighborhood on your way home. Need to buy groceries? Drive through a local neighborhood on the way. Same thing on the way back.
If you always take different routes and see different neighborhoods, you will begin to see properties that don't fit in with the neighborhood. It might be the lawn isn't mowed or perhaps it's not maintained the same as the others, maybe there are too many cars parked in front or sometimes the house just looks empty. The point of the exercise is to train your eye and your mind to always look for property that doesn't quite fit with the surrounding homes. You take a flyer from the listed homes to start to build an idea of what homes might sell for in that area. Each day, switch to a different neighborhood, you'll see differences between neighborhoods and individual properties will start to stand out more when they don't fit the neighborhood. As you become more practiced, look at the style of building in each neighborhood. Does the style and quality of construction conform with the other neighborhoods you've seen? Even if all neighborhoods are maintained virtually the same, quality of construction can vary widely between adjacent neighborhoods. The ability to drive into a neighborhood you don't know and fairly quickly determine housing quality in relationship to surrounding neighborhoods along with establishing an individual property's quality to it's neighborhood is essential for successful investing. This will be discussed more in following chapters, but for now, start using tool # 5, your Mind.
What else can a Thomas Guide show you? Things look very different when you look at a detailed map versus driving in the same area. Look at streets and areas you know well. Identify the neighborhoods and how they change throughout the area. Major streets divide neighborhoods, neighborhoods usually get more desirable as they get closer to amenities (parks, open space, golf courses), they usually get less desirable as they get closer to impacts (freeways, commercial areas, high density residential). Look at your area on the map, and then drive your area looking at the housing. Does it hold true? Sometimes it's just a little less maintenance, perhaps there are more rental properties than in other areas, but you will find that prices will also be lower for impacted properties. Properties nearer amenities will usually be highly maintained and sell for neighborhood top dollar.
If you've gotten this far, the two biggest problems of "I don't have the time and I don't have the money" have been addressed. 1. You can begin to learn about property and it's values by taking just a little extra time each day when you are going to be driving anyway. 2. You shouldn't have spent more than $35.00, most of that for the Thomas guide. Continue with driving different neighborhoods, expand into new neighborhoods and remember, you can't see what's there if you're driving 45 mph.
Notice of Trustee sale -A lender's initial action when a mortgage payment is not received even after failing a notice of default and setting a exact date to auction the property to the highest bidder.
Buying at Trustee's Sale- PROPERTIES ARE SOLD "AS-IS, WHERE-IS"FOR CASH OR CASH-EQUIVALENT. USE EXTREME CAUTION WHEN BUYING AT TRUSTEE'S SALE. YOU'LL OWN IT; YOU NEED TO KNOW EVERYTHING YOU CAN ABOUT THE PROPERTY!!
Information is everything! Up to date accurate information is essential for investing in foreclosures. Foreclosure sales are commonly postponed for many reasons, some because owners are trying to save the property, others because the lender needs more time for proper processing. You will need to track properties you are interested in, making sure to record postponement dates and reasons for postponement. KEEPING AN ACCURATE DATABASE IS ESSENTIAL. When a property has postponed many times, other investors will sometimes lose track of properties you are interested in, thus reducing competition at the actual sale. Properties are tracked using a Trustee Sale Number (TS#). This number is generated when a property enters foreclosure and is used by the interested parties. When you are seeking information regarding a property, this number is usually used to reference the property. Trustee's are the ones usually processing a foreclosure, typically the only information they will give out regarding a property will be the date, time and location of a sale along with a bid if it is available or a postponement date and reason if the sale postpones. Bids are available shortly before the sale; this can range from the day before up to the actual time of sale. When a bid is available, there is a good probability the property will be going to sale instead of postponing. Be aware that published bid amounts will differ from the actual bid amount at the sale. Sometimes they will be slightly higher to cover actual costs and sometimes the lender will reduce a bid making a property an attractive purchase. Posting companies handle the publication and posting of foreclosure notices along with acting as the auctioneer at the sale site. Typically cancellations of sales are announced, and then postponements followed by properties going to sale. Again, everything is referenced by TS#, pay attention so you don't miss properties you are interested in.
After The Bidding - If you are the successful bidder, you will need to sign checks over to the Trustee. Usually, after all sales are complete, the auctioneer will write you a receipt, ask how title is to be held and you'll be done. The Trustee can record the Trustee's Deed for you or they will send you the deed along with any excess funds from your checks. Sales are sometimes invalidated by legal reasons, if so, you will receive your funds back. Expect to have everything done one to two weeks after the sale.
You've got a house, now the question is "What to do with it"? The best first step is to evaluate the neighborhood. If the neighborhood has shingle roofs, vinyl floors and basic amenities in the homes, you don't need a tile roof, ceramic tile and gold plated fixtures. The objective when doing a quick cost-effective rehab is conformity with the neighborhood. Carpet, paint and some landscape are almost always a requirement to freshen the appearance of the property, after that, your rehab should focus on getting the most improvement for your investment dollar.
Structural Rehab- I strongly advise against a new investor purchasing properties needing structural rehab. If there are sagging floors, cracked foundations, fire damage, un permitted structural changes, water or dry rot damage, stay away from the property. While these kinds of property can be purchased very often way below market value, the rehab cost to bring them back can make your investment a non-profit effort. The difficulty in evaluating cost of repairs means this type of property should be left to more experienced investors and contractors.
Beginning Cosmetic Rehab - You've evaluated the area and know what the house SHOULD look like, now how do you get it there? If you start on the outside first pruning back overgrown trees, cutting shrubbery back and getting any lawn back to a normal height, that's the first step. Watering on a regular basis after your trim back will allow plants and trees to start to grow in an attractive fashion. You start with vegetation first, because you can control the speed of interior projects, but you can't make plants grow any faster. A freshly painted exterior on a home greatly improves its curb appeal. Since you have the existing plants cut back, now is a good time to proceed with exterior paint. Again, keep in mind you are looking for conformity with the area, colors should be in the same range as other area homes.
Inside Cosmetic Rehab - There are three basic inside area types - kitchen, bath and living. Kitchen is the most expensive to rehab, bath is the second most expensive rehab and living areas are fairly inexpensive to rehab.
Starting with basic living areas, pull the carpet from each room, roll it and store it in the center of the living room. You can leave the padding. It's much easier to paint without carpet, the living room is usually the largest room and closest to the front door. The new carpet installers will haul it off when they install the new carpet. Window coverings, electrical outlet covers, switch plates, light fixtures, doorknobs and hinges can all be pulled. Please keep in mind the power should be turned off at the breaker box anytime you are working around electrical fixtures and outlets. Mark all the doors on the top edge (no one ever sees the top) identifying which room they belong to and put them all in one room. You should be able to see every imperfection in the walls at this point, now is the time to patch, clean and prep for painting. Mask off doorframes, cabinets and window frames. When you've completed the prep, start the painting. Sprayers are the fastest method of applying paint, since the house is gutted, over spray isn't a major problem except around your masked areas. Ventilation is important though, so you'll want open windows wherever you're working. Living room first, then bedrooms, hall area last. Re-inspect each room 1-2 hours after painting to make sure everything is covered and even, retouch any problem areas.
Time to get an accurate count of outlets, switches, hinges, knobs and light fixtures. Go through the whole house counting everything you removed or will remove. Every light switch and cover plate should be replaced along with all outlets and plates. Every living area light fixture (don't forget bulbs) should be replaced, determine whether kitchen and bath light fixtures need replacement or are serviceable. Every door will need new hinges and a knob. Do you have to change everything? Maximizing returns is about impression. Used hardware will be discolored, scratched, have paint on it and not match throughout the house. A new knob (with striker plate) and hinges, a new light fixture, new switch, outlets and paint should cost less than $60.00 per room. For a standard 3 bedroom home that's $300.00 for the living type areas. Everything will match, be brand new and make the home much more desirable.
Doorframes, windowsills, cabinets and doors are usually going to be semi-gloss enamel paint. Since you are now done with interior wall paint, lay doors (in the door room) on the floor, 3 or 4 at a time. Prop one end up about six to twelve inches and you can spray one side and the two edges people see. Keep over spray off the walls. When they are dry, flip them over and do the other side. Brush or use a small roller for doorjambs and cabinets. Install light fixtures and outlets while paint dries, as doors dry, take them back to the room where they belong. After doors and jambs are completely dry, they can be re-hung and hardware installed. There's no need to rush, you can complete painting and installation as you rehab the bathrooms.
Bathrooms need individual attention. In many cases, fixtures have been upgraded through the years, so a full gut and rehab isn't necessary. Use your judgment. It's easier to paint and replace flooring if the toilet and any sink cabinet are removed. Re-install with new plumbing and seals and you will have a fresh bathroom with no water leaks or built up corrosion. New handle sets and/or spouts will sometimes be enough so you don't have to replace everything. Cabinet handles and hinges should all be replaced. Flooring and paint should be the same if there are multiple baths, often there will be different fixture styles in each, that's fine as long as everything matches in each.
At this point, you need to clean all the windows in the house, inside and outside. Pick up anything remaining in the rooms and take it to the kitchen or remove it from the property.
Kitchens are important. Clean and paint is the first step if you are keeping the existing cabinets. If existing cabinetry can be salvaged by intense cleaning and/or refurbishing, that will be your biggest cost savings. Cabinet handles and hinges should be replaced unless the existing ones are in extremely good condition. Counter-tops (if ugly or damaged) can usually be changed fairly easily; professional installation is worth it for a finished appearance. Flooring should be installed after any necessary cabinetwork, whether it's cleaning, refurbishment or replacement. The sink should be free of stains and corrosion; the plumbing underneath should be the same, if it's not, change it out. Clean and put down shelf paper in all the drawer and cabinet interiors. Make sure the lighting is adequate, if not, change fixtures or have additional fixtures professionally installed. If the oven or stove needs replacing, there are stores that sell used appliances; these can be a good deal.
Marketing the property can be started during kitchen rehab. When you have carpet in the property, a "for sale" sign can go in the front yard. The windows are clean, the property is immaculate and since you will be on-site anyway finishing the kitchen and a few other things, leave the front door open and place an "open house" sign in front while you are there. Any remaining rehab to the kitchen should not adversely affect a buyer's decision. They will be able to judge the quality of work by the rest of the house.
Finishing Cosmetic Rehab - It's time to finish the front of the house. Flowers should be planted where appropriate, either rehab or replace the mailbox, porch light, house numbers and doorbell. Keep in mind any plants planted close to the house might die if the house needs tenting for termites. Leave some room at the base of the house if possible. Take a critical look from the street; is there anything that stands out as being unattractive? Is your property now the best or one of the best looking on the street? If it's one of the best, there's nothing unattractive and you've priced right for the area, it will sell quickly.
You're still not done, so you can't rest yet. Smoke detectors need to be installed and you need to check all the systems (electrical, plumbing) to make sure they work properly.
1. SUBMITTING AN OFFER – The bank will require that all offers be submitted to them in 2 steps:
First, on a summary form which is called the "Offer Worksheet." This is aimed at simplifying the process for the Asset Manager, who will more often than not, have a large number of properties under management and often in multiple states with vastly different real estate contracts. This worksheet will have the “basics” only (Price, Terms, Concessions, Closing dates, etc.).
Second, on a CAR offer form
2. WHAT FORM SHOULD I USE? After you have submitted the offer Summary You should fax your offer on a standard C.A.R. form (RPA-CA) found in WINFORMS to 661-284-5025. Please check the "Broker Remarks" section of the MLS listing to see if you need to attach any specific addendums. If you do, please call our office at 800-561-4641 and request them prior to writing your offer.
3. HOW SOON WILL THE BANK RESPOND? We have no control over the bank's decision making process. On rare occasion they will respond in the first 24 hours. However, more than likely they will respond in 2 to 3 days. Please be patient and do not call us to check on the progress. We will notify you immediately when we get a response. Some banks do not look at offers until the property has been on the market for at least 5 days. Please be considerate, we are all working towards the common goal of closing on the subject property. IF YOU HAVE NOT HEARD FROM US IT IS BECAUSE WE HAVE NO UPDATE TO GIVE YOU- NOT BECAUSE WE ARE IGNORING YOU.
4. WILL I GET A RESPONSE OVER THE WEEKEND? Unfortunately No. Any offer submitted over the weekend will be presented the following business day. Any offer submitted by fax or E-mail over the weekends it will be date stamped automatically by fax machine or our E-mail server. The bank will know when you submitted your offer.
5. HOW DOES THE BANK COUNTER? Since all offers are submitted to the bank on the worksheet (Or online via the "Offer Summary") your counter offer may come back in the “worksheet” format (Simple details of what the bank is willing to accept). More than likely, your counter will be delivered to you orally or by E-mail with simple details.
7. IT LOOKS LIKE THE SELLER DIDN'T SIGN THE COUNTER OFFER? You may receive a Seller’s Counter Offer with no signatures. These forms are generated by the bank’s Asset Manager or the outsource company (and often come to the Listing agent as an E-mail attachment). Once an offer is accepted the entire “package” (which may include the Offer as well as Counters, Addendums, copy of the check, et.al.) is sent to the bank for signatures.
8. ARE THESE VERBAL AGREEMENTS? Once you are informed that your offer is accepted, it usually is (However it is only verbal and is not accepted until we receive the seller's signatures back). Acceptance may be accompanied by the before mentioned worksheet. REO departments and Asset managers give the “ok” and then go to their managers for signatures. (It is highly unlikely to have an Asset Manager “un-accept” an accepted offer, but it may occur) We realize it is an unusual business practice to agree to offers orally, but the banks have their own way of doing business and we appreciate your understanding.
**IF YOU ARE NOTIFIED THAT YOU HAVE AN ACCEPTED OFFER, PLEASE FORWARD THE OFFER TO YOUR LENDER SO THEY MAY BEGIN THE LOAN PROCESS. We realize that this contract is not signed by the Seller, but your lenders can jumpstart the process this way. **
9. WHO CHOOSES THE ESCROW AND TITLE COMPANY? – Choosing the companies who will help close the transaction is an agreement that both buyer and seller will come to through negotiation. The reality is, when buying a bank owned home there are "give and takes". One of the items that your buyer will need to be flexible about is that the bank will, more than likely, want to choose the title and escrow companies. (The Listing Agent has no say in the matter either - We have our favorite escrow companies and escrow officers too, so we are all in the same boat.) This is due to the fact that they have significant amounts of title work done during the foreclosure process so they usually want to stay with that title company. Please be aware that many of the escrow and title companies that banks choose to use are not local. They will, however, often have traveling notary services or local options for document signing.
ESCROW COMPANY CONTACT INFORMATION COMES WITH THE SIGNED DOCUMENTS FROM THE SELLER. While you may be anxious to send in the buyer's deposit check to escrow, the Listing Agent WILL NOT HAVE this information prior to receiving the documents back from the bank. We will notify you when we are informed who to use. We are waiting too and we will forward the information as soon as it becomes available to us. Continued multiple and/or daily queries slow down the process for everyone involved (and for other agents and purchasers you have never met in other states). Please be considerate, we are all working towards the common goal of closing on the subject property.
11. CAN THE BUYER DO INSPECTIONS? YES! Just like any other sale, your buyer has the right to fully inspect the property within the frame of paragraph 14.B of the purchase agreement. The Seller will not order or pay for any inspections. Starting your inspections prior to getting the signed contract back from the seller is at your own financial risk.
12. HOW DO WE SET UP INSPECTIONS? It is absolutely essential that you give us 3 BUSINESS DAYS NOTICE PRIOR to scheduling your inspection. Some utilities (such as electricity) will likely be on prior to your making an offer, others will not (such as gas or propane) The Listing Agent has NO control over the work schedules of the local utility companies. As such the Listing Agent will not be responsible for re-inspections and/or associated fees. It is not a bad idea to visit the property a day PRIOR to the inspection to check if systems are on and working. Your buyer will be responsible for DE-winterizing a property for inspection and then RE-winterizing the property after inspection at their own cost.
13. CAN THE BUYER CANCEL IF THEY FIND SOMETHING WRONG? The buyer has the right to cancel the contract and receive their deposit back if they do so within their contractual time frame (Unless specifically noted).
14. IF REHAB IS IN PROCESS: If the bank is, or will be, rehabilitating the home, their scope of work has already been determined and cannot be changed.
15. WHAT IF THERE ARE SECTION 1 ITEMS ON THE REPORT? Your buyer's lender may have a stipulation that Section 1 items must be corrected prior to close of escrow. Please be aware that your buyer will, more than likely, be responsible for correcting those not the bank. If you want the bank to pay for these costs, THEN YOU MUST ASK THE BANK FOR A "NOT TO EXCEED" AMOUNT IN YOUR OFFER.
16. WILL THE BANK PAY FOR A PEST CONTROL (Termite) INSPECTION? More than likely, we will already have a termite report for the property. If we have a termite report, we will attach it to the MLS listing under "Additional Documents" so you can download it from the MLS website. You can also obtain this report by calling our office at 800-561-4641.
18. WILL THE BANK ACCEPT CONTINGENT SALES? It is highly unlikely that any bank would accept a contingent sale. If the bank accepts your offer then finds out that the buyer really does need to sell a home in order to purchase (and you haven't disclosed that) the sale will be immediately cancelled.
19. CONTINGENCY PERIODS? Your buyer must adhere strictly to the contingency periods or they risk having their contract canceled and losing their deposit. This is a business transaction and banks don't like excuses or delayed decision making. Some banks institute a "per diem" charge for delayed closings.
20. WILL THE BANK PAY FOR RETROFITTING? More than likely not, so prepare your buyer (and your offer) to handle this on your own during escrow.
21. DOES THE BANK OFFER FINANCING? If they do, it will be noted in the MLS.
22. PROMISSORY NOTES OR …AND/OR ASSIGNEE: Please do not submit Promissory Notes or offers wherein the buyer is named "...and/or assignee."
“Cash” offers MUST be accompanied by Proof of Funds.
22. COMMISSIONS: Please note that most banks will only pay commission on the "NET" sale price. The gross sale price is often reduced if you are asking for the seller to credit the buyer any money at close for items such as closing costs or repairs. Please verify with the listing agent (prior to writing an offer) how your commission will be based.
Please feel free to call or email with additional questions or concerns. Our Team is looking forward to working with you!