Foreclosures/Short Sales
Investment Choices In Real Estate
With so many options to invest in real estate, why would you want to invest in a foreclosure home? While on the surface it seems like a better idea to buy a state-of-the-art condo or new modern villa that you pass by on your drive to work, a wise investment option is always a distressed property. These homes normally require some fix-up, but down the line increased equity is realized. That is why a foreclosure home can be an investors dream.
Have you ever looked at the asking price for the property of your dreams, and your jaw drops? Usually it is because you can not believe the high price. With foreclosure homes, your jaw drops too, but for the opposite reason. All foreclosure homes are sold at a discount of anywhere from 10% to 15%... sometimes even more. Look for the best bargains. Buy low and sell high to maximize your investment.FORECLOSURE
Foreclosure homes are a great choice. The reason homes go into foreclosure is because the borrower is behind on their payments and the lender takes action against them in order to seize the property. The lender becomes distressed when a borrower gets behind in making their payments. They are in the business of making loans and are not in the business of repossessing properties. When a borrower defaults, the loan becomes a non-performing asset at which time it is no longer earning interest. If a loan is not earning interest, it is not producing income for the lender.Bank owned properties commonly called REO or real estate owned is one of the most common foreclosure investment practices today. These are homes that have gone through the foreclosure auction and now because there were no bids, have become a bank owned property or bank foreclosure. Lenders are looking to sell these homes as quickly as possible.
SHORT SALE
A short sale means the seller's lender may accept a discounted payoff to realease an existing mortgage to avoid a possible foreclosure or bankruptcy. The bank agrees to a discounted sale and the seller avoids severe damage to credit scores. The real estate agent representing the seller negotiates with the bank. The homeowner will need to be in default, to have stopped making mortgage payments, before the lender will consider a short sale. Not all banks will agree to accept a short sale. Every circumstance is different. The seller must also be unable to pay the mortgage due to circumstances out of their control and be able to document their finances to the lender.
Why would the bank agree? In addition to not generating interest income, non-performing loans actually cost the lender more money because of the lost earning power of the assets and the legal and administrative costs associated with collecting the loan or repossessing the property.
An example of this scenario would be a lender with a $300,000 non-performing asset. In most states they are required to keep 6 to 8 times that amount in reserves which is $1,800,000 to $2,400.000. Therefore if the lender would take accept a discounted payoff and a sales price of $260,000 for the $300,000 loan, it would allow the lender to put back into circulation the $1,800,000 to $2,400,000 allowing them to collect interest. The interest would make up for the $40,000 short pay.
December 2007, the President signed a MORTGAGE FORGIVENESS DEBT RELIEF bill into law. This bill offers relief to sellers from being taxed for the short fall in a short sale or a refinance. So for people that need to sell, this can be an excellent opportunity to get out from under.
The list of homes in the Coachella Valley that are already foreclosed or pending foreclosure is growing every day. If you are interested in buying, I am happy to provide you more details by property type and location.
