REO Q and A (Frequently Asked Questions)

Q: How do you find foreclosures?
A: Notice of action and foreclosure sale dates are published in the local newspaper. Records are available for public view at the County Court House. REO Specialists have current information and are your best and most accessible source.

Q: Who are the primary players in the foreclosure market?
A: Freddie Mac and Fannie Mae.

Q: Do many institutions deal directly with the buyer?
A: No. Most use Realtors.

Q: What is the minimum investment? (down payment)
A: There are some 10% down investor programs available in Florida. Fannie Mae and Freddie Mac may offer investor programs with no PMI on their REO through designated lenders. Other programs depend on your personal financial situation for owner occupied and include 5% down with no PMI for Fannie and Freddie, 5% down conventional, 3% down FHA and in some areas "0" down Farmers Home Loans(if you qualify). The condition of the property often dictates the type of financing available.

Q: Can you just take over the payments?
A: Very unlikely. In the majority of foreclosure sales in Florida, the title has been cleared and there is no mortgage to assume.

Q: What about low cash to mortgage assumable non-qualifying mortgages?
A: The last FHA ANQ's were issued in 1988 which indicates the cash to mortgage is most likely $15K+ by now. Those days of picking up a property with little cash down and no qualifying are gone, and if a low cash to mortgage ANQ should exist out there, the Realtors probably found it first and bought it. If you read somewhere this was a good way to buy with low money down, you need to look outside this market area.

Q: How can you finance a property needing extensive repairs?
A: Although it is complicated, the FHA 203(k) program works for properties needing $5000+ in repairs . This is a combination home purchase-improvement mortgage based on the increased market value after renovation is completed. Or, you can ask the seller to make repairs prior to closing.

Q: What are the most important points to consider in making an offer on an REO?
A: Condition of title, value of the property and location, location, location.Q: How do you know if the property is a 'bargain'?
A: Order an independent appraisal at a cost of $225-250 for a single family home. Ask your Realtor to provide a Comparative Market Analysis.

Q: Can you buy a property on the court house steps at a better price?
A: At the majority of Court House sales, the primary or secondary lien holder will acquire the property to protect their interest. Less than 10% of the foreclosure sales are to "others". Purchasing a list of foreclosure sales(part of the public record) from other than the County itself is a waste of money.

Q: How much profit can you expect on a 'fix-up' property?
A: It depends. Buying a house in good condition and hoping to earn a profit is not realistic. Don't count on buying a house, giving it a quick paint job and reselling it quickly for a big profit. Look for a sound well-located property priced below market value needing improvements that add more value than cost. The property offering financing is another plus as some rundown homes cannot otherwise be financed easily. Unfortunately there is no magic formula and you may need to hold for a long term or offer seller financing for a substantial profit.

Q: What kinds of improvements add value?
A: Paint, carpet, landscaping and other inexpensive cosmetics generally add value above cost. Major structural improvements (new roof, foundation repairs, plumbing replacement and rewiring) generally add less value than cost. Some improvements such as new cabinet facings and new appliances usually add only their cost in value but improve salability.Q: What about appreciation in real estate values?
A: Average home sale prices are appreciating at about 3% annually, depending on whose statistics you believe, keeping pace with inflation.

Q: How can you be sure a foreclosure property is structurally sound?
A: Order an independent inspection by a professional building inspector. This report will detail everything that is wrong with the property as well as everything that's right and how you can make it better. A good inspector will give you an estimate of repair costs. The fee is about $225 and well worth it.

Q: How can you be sure to get a clear title with no liens against the property?
A: Institutional sellers in Florida traditionally provide a title insurance policy as part of their closing cost to give evidence of a title search and insure there are no outstanding liens against the property.

Q: Do you need an attorney?
A: Always advisable especially if you have any questions. Traditionally in Florida Title Insurance Companies, who have attorneys working for them, prepare documents for closing and handle the closing procedures adequately.

Q: What is the risk of buying a property 'as is'?
A: The majority of foreclosure properties are offered 'as is, as seen, at the time of closing' because the seller has probably never seen it and has no knowledge of the history. Most sellers offer an inspection period of 5-10 days after an accepted offer - take advantage of it and get a professional inspection so you will know exactly what you are buying.

Q: How low can you go on an offer?
A: Foreclosure properties are aggressively priced for a quick sale which means they are already priced 10-15% under market with consideration for repairs already factored into the listed price. In this area, foreclosure properties usually sell at 94-97% of list. If you come in with a very low offer, expect a counter back to full price or a rejection. But, institutional sellers do negotiate aggressively.

Q: How long does the negotiation process take?
A: Allow at least 5 days for a response on an offer. Some institutional sellers must go through several levels of management to get approval and it may take longer.

Q: Can you write an offer on your own contract form the way you want it?
A: You can certainly specify the terms and conditions you want, but most institutional sellers have their own contract forms and special addendums. Generally you must do it their way without any changes or deletions on the sellers' forms.

Q: Can you ask the seller to do the financing and get a better deal?
A: With Freddie Mac, YES. Fannie Mae's philosophy is evolving, but if their special financing is available, YES. The majority of other institutional sellers prefer NOT to finance their REO. (Some exceptions for finance companies like The Money Store, AVCO, Household Finance)

Q: What does an institutional seller look for in a buyer?
A: Pre-qualified buyer, earnest money deposit of $500-1000, no contingencies other than financing, quick closing date.

Q: Can you make an offer based on the sale of another property(present home)?
A: No. Q: Do you get a discount for all cash offers?
A: The closing date is key and the end of a calendar month closing may mean $$ in carrying costs to the institutional seller. If source of cash funds can be verified, a cash offer is usually seriously considered with a quick closing date.

Q: How much do you need for closing costs?
A: The buyers' closing costs are those associated with obtaining a mortgage and include survey, appraisal, termite inspection, points, origination fee, title insurance(mortgagee), documentary stamps on the note and other miscellaneous fees + optional fees for home inspection, warranty, radon test, etc. The seller traditionally pays for title insurance (owner policy), documentary stamps on the deed, recording fees and the brokerage. These costs are traditional and vary by area.

Q: Can you find a foreclosure with a 'rent to own' or early move-in prior to closing?
A: No.Q: What is the best strategy to compete in the bidding process?
A: Most institutional sellers hear offers on a first come basis. Offers are presented in the order they are received. HUD and VA foreclosures accept bids up to a published deadline and most of these properties are sold well above the published minimum. In a competitive situation, offer your highest and best based on the most reliable information and a thorough inspection and hope for good luck.