Foreclosures Are Like Ants! We Don’t Want Umm; We Squish Umm, But We Need Umm!
Question: How many people do you know that haven’t made a mortgage payment in the last several months, and they haven’t received a notice of foreclosure from their bank yet? If fact, in some cases, they haven’t received anything from their banks yet!
More and more, we are seeing families staying in their homes without any action on the part of the banks.
But what is that really doing to our communities? Based on a recent report by DQ News, in what is called the “golden triangle” (which makes up the better part of the Southwestern Section of the Inland Empire) there are more than twenty-five thousand homes that no mortgage payment was being made, on homes with mortgages, and there were no Notice of Default letters sent to the home owners.
But what does that really mean? When you consider that when these home owners stop making their mortgage payments, they also stop paying their property taxes. So consider these numbers: Many of the people who have stopped making their house payment bought in 2007 and before. Many of these same buyers bought their homes at a price point of roughly $400,000 – $650,000. If, based on a property tax rate of 1.5%, for a $400,000 purchase price, the annual property tax paid by the home owner is $6000. Now multiply those $6000 by the 25,000 homes. You will find that $150 million stop going into the local economy! This a huge number that just keep growing!
So again, what does the lack of mortgage payment really mean; to our neighborhoods; to our cities; to our counties? It is not too difficult to understand why cities like San Bernardino, Rialto, and Stockon must declare bankruptcy! Why are so many government services no longer available? Why are city worker’s weekly pay checks in jeopardy?
A positive aspect in all this is that, because of pride and ego, and the fact that no one wanting the neighbors to know that they are going through hard times, families are staying in those homes and taking care of them! They are keeping up their lawns. They are making sure stays nice. No weeds, no trash, etc. This is very good for neighbor appeal and property values!
This morning, TBWS produced a wonder piece concerning our market, delinquencies and foreclosures.
In the end, though awfully painful, foreclosures serve a much needed service! The process allows banks to move the former owners out and re-sell the property. At which point, property taxes will begin to to paid again and the local economy and city appearance begins to pick up!
Foreclosures are kind of like ants, nobody wants them in our homes, but the service they provide is monumental! They move out what isn’t being used, they break it down, and it get recycled back into the environment.
Five Time Test Strategies For Success In Buying HUD REOs.
Baron Rothschild who said: “The time to buy is when there’s blood in the streets.”
Our faltering economy has hit a lot of families very hard! Many have nearly completely depleted their savings and retirement funds. In order to build back their portfolios, scores of people are attempting to capitalize on the purchase of foreclosure and short-sale markets!
At the same time, countless potential investors and homeowners are frustrated with the long waiting periods for hearing back on their offers from banks when buying short-sale properties. Depending on the mortgage needed for the purchase, many of the lending guidelines require that minimum health and safety standards be met before a foreclosed home transactions can close and transfer title.
In fact, many home buyers simply give up on the buying process because of the protracted waiting periods; that in some cases can take up to six months before they receive a response from the seller.
This is precisely why many future buyers are turning to HUD (Housing and Urban Development) homes. While there is a lot involved in the purchase and financing of a home, buying a HUD Home is different — for both buyers and real estate agents.
A house becomes a HUD home when the previous owner had an FHA insured loan and the home was either foreclosed upon, or it was given back to HUD (through a deed-in-lieu prior to a foreclosure proceeding).
Even though HUD has title on the property, they hire management companies to maintain the home, market the property, accept bids from registered real estate agents and manage the closing.
STEP ONE – The process works like this:
- New properties are advertised every Friday.
- If you plan to live in the home, you must occupy it for a least one year and may not purchase another HUD foreclosure for another two years.
- Real estate investors may bid on a property.
– If an investor wishes to bid on a house, they cannot place a bid
until the 10-day owner occupied bidding period has expired.
- If your bid has been accepted, your real estate agent has only 48 hours to submit your paperwork or your bid will be automatically cancelled.
- Your Earnest Money check, made payable to HUD, is only refunded if you are denied for a mortgage loan. Normally, a check for $500 is given for earnest money for sales prices of $50,000 or less. A check of a $1000 for sales prices over $50,000.
- If the buyer is paying cash, the buyer must provide proof that that they are able to pay cash.
STEP TWO – Don’t miss the key codes!:
When you buy a HUD home, HUD issues codes with each listing. These codes will become important if you need to finance your purchase. The codes are as follows:
- “IN”: Insurable with an FHA 203(b) Mortgage Loan. The property usually meets Minimum Property Standards with minimal repairs.
- “IE”: Insurable with Escrow. This means that the property is eligible for an FHA 203(b) loan but needs repairs. Since no work can be done to the home prior to closing, HUD may offer up to $5000 to assist with the “problems” with the home. Very important distinction: HUD doesn’t pay for the repairs and the dollar amount is added to the buyer’s loan, if they are financing the purchase. The lender may hold the money in an “escrow account” until the work is done and a physical inspection of repairs must be done before the money is released.
- “UI”: Uninsurable: These properties are generally in need of repairs in excess of $5000 and “may” qualify for an FHA loan that features a repair component called a 203(k) rehabilitation loan. It is important to note that this type of loan is only available if the buyer plans to live in the home.
STEP THREE – THIS NEXT POINT IS EXTREMELY IMPORTANT!!!!!
Bright side: You meet some interesting people with colorful backgrounds.
Mortgage fraud, which includes occupancy fraud (for example, stating that one will live in the house as an owner occupant, but in reality plans to purchase the property as an investment), is crime and is investigated by the FBI. Further, the crime is punishable by up to 30 years in federal prison or $1,000,000 fine, or both.
Investors must either provide their own conventional loan financing, or pay for the property in cash.
If your closing is delayed for whatever reason, and you will not be able to meet to agreed upon closing date, you will have options.
Your options will include requesting a 15-day extension to your closing date. This will cost the buyer a $10 per day (per diem). $150 must be paid to HUD, in the form of a certified check or money order, and if the closing occurs before the 15-days expire, credit will be given back on the closing statement of the purchase.
Note, the buyer will not be required to pay for the extension to the closing date if HUD or the management company delays the closing.
STEP FOUR (IF NEEDED) – Refund Policy:
HUDs Refund Policy states that a buyer can cancel their bid prior to being accepted and their earnest money will be refunded to them. Sometimes, a buyer can’t control the cancellation timeline. In those cases, a cancellation after a bid is accepted is treated in these possible manners:
- If HUD is unable to close the sale, the entire deposit will be refunded but not reimbursement for other expenses.
- If a sale of an Uninsured property is made to an investor, the entire deposit will be forfeited to HUD.
- If the buyer is being the property as an owner occupant, and they are unable to get financing because the mortgage underwriter denies the loan, loses their job prior to closing, suffers a serious illness, death, or the buyer’s financial circumstances change to the point that it affects the ability to close the purchase transaction, HUD will give a full refund of the deposit.
STEP FIVE – Let’s Get Started!
At this point, the buyer’s only concern should be to begin the process of getting their purchase funds in order. So, if the buyer needs to finance the buy, they must now be “Approved” for financing (which means that they must provide their lender a full set of financial documents, pay stubs, and all necessary items for the lender to make a credible lending decision).
The buyer must also select a real estate professional that is registered with HUD’s local management company in order to place a bid. All paperwork must be submitted within 48 hours after the buyer’s bid has been accepted, or the offer will be automatically cancelled.
The buyer must use a HUD registered broker to submit bids, use HUD purchase agreement forms, and an approval letter must accompany their bid. Further, all buyers must provide their social security numbers and full names and addresses when submitting their bids. The names listed on the purchase agreement MUST be the same individuals who sign the closing documents.
This article is intended to take some of the frustration out of the HUD buying process. For more information regarding this and other buying and financing options, we invite you to visit First Time Home Buyer 411.
Happy home hunting!
From the desk of Claudio Gormaz, First Time Home Buyer Specialist, with Golden Empire Mortgage.
Direct: 951.294.2274, Fax: 951.220.6707, claudio_gormaz@firsttimehomebuyer411.com
First Time Home Buyer's 411 