Friday, September 26, 2008

The REO Sale Process

The bank-owned property sale is fairly commonplace these days. The amount of foreclosures in the Carson Valley is unprecedented, and has resulted in a niche real estate market with unique business practices. When a bank owns a property the sale process is different than when dealing with a private party.

The first difference comes when they value the property. They begin before the foreclosure sale by getting a Broker Price Opinion, BPO. After they obtain title to the property via the foreclosure sale they usually order two BPO’s to determine value. After that they select an agent to list the property with and ask that the agent prepare yet another BPO. During this process the property value usually plummets due to the post-foreclosure condition of the property. With one of the first lender actions subsequent to obtaining title being to turn off all utilities causing the value to continue to drop as the landscaping dies.

Most lenders hire an Asset Manager, AM, to handle the sale for them. The Asset Manager orders the BPO’s, prepares the property for sale, hires the listing agent, negotiates the contracts, and sees the escrow through to close. The BPO Listing Agent communicates with only with the Asset Manager, and primarily via computer.

When an offer is presented it isn’t emailed or faxed to the Asset Manager, rather there is a computer menu that the agent completes by checking and filling in the appropriate boxes to reflect the terms and conditions of the offer. There is also an area for notes so the agent can make comments to the AM to provide some perspective about the offer circumstances. Counter Offers are also made via computer. We have actually received an AM Counter Offer at 6:00 p.m. on a Saturday. That is refreshing as it is in keeping with conventional real estate to keep the negotiations flowing. Historically, bank owned property transactions were a M-F/8:00-5:00 operation.

Once accepted the offer and related documents are sent to the AM via email. They are signed and returned with the AM’s special Disclaimer documents (a must-sign, non-negotiable package) for execution by the Buyer, and the escrow is opened. From there it is pretty much business as usual.

Our Advice: The REO sale process has been streamlined since we last wrote about it. The AM’s are more responsive, act quicker, and are willing to engage in “Ping Pong” negotiations until a transaction is put together or it is accepted that it cannot be put together. The AM Seller has no emotion in the transaction – they are just dealing with numbers and circumstances - which can be a benefit to a Buyer making a reasonable offer. The Seller isn’t concerned about their next purchase, their perceived “loss” since the market dropped, or the memories incurred during the course of ownership. Make a good clean offer that highlights your strengths and you can be making the proverbial “scream’n deal” in no time.

REO’s offer a realistic means to make a good deal today. Their historical burdensome processes are now themselves history. Don’t fear the REO – consider the brown lawn a welcome mat to a green return on your investment.

Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, 775-781-5472,,

Thursday, September 11, 2008

Is It Safe To Buy From A Bank Without Disclosures?

We are seeing an interesting phenomenon in our Market with all of the “bank-owned” properties offered for sale. Known as REO’s (real estate owned), “bank-owned” properties aren’t always owned by a real bank, but they are owned by a lender and are being marketed by the lender, or an asset manager hired by the lender. REO properties bring a new set of challenges for the agent as well as the Buyer.

The primary change has been the unwillingness on the part of the lender to make any disclosures regarding the condition of the property. The properties are, of course, offered “as-is in its present condition with all faults…” The lender didn’t live in the property, hasn’t seen the property, and generally has no knowledge with which to disclose anything about the property. Most lenders are requiring a waiver of the Seller Real Property Disclosure Statement, SRPDS. Per NRS113, a Seller must provide an SRPDS, and the only way to not have one is for the Buyer to sign a waiver in front of a notary.

A lender’s insistence on a SRPDS waiver (Seller’s Real Property Disclosure), and the additional many pages of non-warranty, hold harmless, as-is language they require Buyers to sign, though foreboding at first blush, aren’t all bad for a Buyer. One can split hairs and say that the lender knew, or should have known, about property deficiencies. We’ve seen rodent infestation, missing roof shingles, obvious water, mold, or sheetrock damage, etc. in REO homes that they must surely know about, but they aren’t disclosing. Remember that lenders have many floors of lawyers in their office buildings. It is their job to protect the lender which they do by a providing a good “clause shield” in their transaction documentation, no disclosures position, and requirement for only “as-is” sales.

A return on an investment must be considered in relationship to the risk taken. If you are looking for a good buy in a REO property you must consider the risk of the as-is burden you are accepting. Most things are obvious, i.e.- the lawn has died, painting is required, etc. Your main risk is the unknown, that which you can’t see. It can be under the house, in the attic, underground (sewer or sprinkler lines), title, well/water quality, neighborhood, etc. A thorough inspection of the house should reveal major defects. Most REO homes are simply in a state of disrepair and deferred maintenance.

Our Advice: Don’t try to fight the lender on disclosures if you want the house. Make sure you understand the extent of any damage on your own before you irrevocably commit to buy the home. Hire an inspector if you can’t do it yourself. Turn on the power and check out the systems – consider it cheap “insurance”. If squirrels have infiltrated the walls of the house you could have a major electrical problem – rodents love to chew on wire often resulting in stripped insulation, a serious fire danger. Better to know what you are buying before you close escrow to minimize the risk of your investment.

You don’t need a disclosure to buy with confidence. Don’t look for trouble, and don’t expect it – just be smart about your investigation and inspection process. The bank is acting to protect their overall assets from the liability of litigation. Protect your assets by investigating your potential acquisition thoroughly – you will be well rewarded whether or not you close escrow.

Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, 775-781-5472,,

Wednesday, September 10, 2008

Are All the 100% Loans Really Gone?

High loan to value loans are still available – call your lender and ask about them. In that conversation remember to ask about the USDA Rural Development Guaranteed Housing loan. The facts about this loan program may seem too good to be true, and yet they are real. We recently closed one.

Consider the highlights: There is no ceiling for the loan amount – it is based solely on appraisal and payment capability. The loan can go to 102% of appraisal (the last 2% being the Guarantee Fee). Income used is adjusted gross. The income maximum for a family of five in
Douglas County is a generous $89,650, and is adjusted according to family size.

The ratios are more lenient than other loan programs, and even those can be exceeded with compensating factors such as zero or little payment shock, 660+ credit score, 2+ years on job, and more. You don’t need explanations for late payments with a 660 or better credit score. You can be in the 500’s and get a loan. Credit blemishes can be okay depending on other factors. If you don’t use credit you can qualify using non-traditional methods such as utility, child care, insurance and rental payment records. There is no Mortgage Insurance, just a one-time Guarantee Fee that can be financed, a huge savings from PMI premiums.

Additional parameters: You need not be a first time home buyer, in fact you can own a home that you are selling if you close escrow before you close on your new one, i.e.- close on one and buy the new one the next day. You can purchase a new stick built, modular or manufactured home. It is not available for resale manufactured homes. Douglas and Lyon Counties qualify, but the loan is not available in all communities. If you qualify for a conventional 80% loan to value loan (where you put 20% down) you many not participate in this program.

Here’s how it works – you apply for a loan with a lender or mortgage broker that offers this loan. The lender will review and approve your loan package before sending it to the USDA. The USDA will review your package and make a decision within 48 hours unless the property is over 50 years old in which case you must add 30 days for review as it must be approved by the Nevada State Historic Preservation Officer for historic significance. Once approved – it is funded. It’s that simple. With the leniency of the USDA requirements, and the fact that the USDA is guaranteeing the loan to the lender, it is hard not to get your loan approved.

Our Advice: If you are looking for a low or no down loan seriously consider this program. We have never seen a loan program with so much flexibility. The USDA representative we met provided so many illustrations of variances that it is clear they seriously want to make loans to get people in homes. Interest Rates? They are very competitive. Remember the gap in this loan – something nobody else allows. The loan amount is based on the appraisal amount unlike traditional loans that are based on the lower of either the purchase price or the appraisal. If the home appraises for more than the purchase price you can borrow the higher amount and use the “gap” money for closing costs, repairs, etc. Good loan … good prices … good time to act! Call a lender and start talking about your situation and this loan program – you will surely be delightfully surprised.

Thank you Jennifer Morrison, Mortgage Consultant, Greater Nevada Mortgage Services, 783-7591, for sponsoring an informative class on this special loan program. This is a unique product in a unique Market that will allow many people to buy homes that would otherwise be sitting on the sidelines in these exciting times.

Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates, 775-781-5472,,