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Bank owned owner occupied?

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Dan O.

Real Estate Investor from Massachusetts

Jul 09 '11, 08:08 AM


Would you buy a owner occupied bank owned property?
Do hard money lenders even lend on owner occ. properties that you would then have to evict yourself?
Thanks



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Jul 09 '11, 08:41 AM


Not sure I understand. Are you wanting to buy a REO that you would occupy? If so, that's no different than any other purchase. You can get whatever sort of loan you want. There may be issues with property condition, since REOs are often a mess. As long as its habitable, a conventional loan would work. FHA is probably not an option, since they're so strict about condition. But an FHA rehab loan (203K) might be an option if it needs work.

Hard money isn't the best option. HMLs don't like OO, too much emotional entanglement. "You're taking my home" vs. "Oh well, the deal went bad." You also need a strong exit strategy, which would be a refi. Doing a refi based on a new appraisal often takes a year's ownership. In that time you'll pay the HML almost 20% of the loan amount in point, interest, and fees, and you'll have the cost of the refi. If you can stomach that, you should be able to provide a nice down payment for a conventional loan.



Jon Holdman, Flying Phoenix LLC


Dave Barnard

HVAC Contractor from Santa Clarita, California

Jul 09 '11, 12:46 PM


I believe you want to know if investors will buy an REO while the previous owner is still occupying the residence. If I am correct you may want to read this thread.

http://www.biggerpockets.com/forums/67/topics/64944-the-occupants-from-hell-

People do it but be prepared for the worst!



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Jul 09 '11, 01:47 PM
1 vote


Don't believe a bank will ever sell a repo with the previous owners still there. They will get them out before they list it.



Jon Holdman, Flying Phoenix LLC


Jake Kucheck

Residential Real Estate Agent from Newport Beach, California

Jul 09 '11, 03:16 PM
2 votes


That's simply not true. I've seen plenty of REOs listed as "subject to interior inspection" and "please do not disturb occupants". Not saying that's how I would choose to handle an asset disposition, but I've definitely seen it.



Dave Barnard

HVAC Contractor from Santa Clarita, California

Jul 09 '11, 03:29 PM


That's right Jake. That exact scenario is what's involved in the thread that I provided the link to in my first post.



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Jul 09 '11, 04:20 PM


Unless I'm missing it, and I just re-read that thread, the property in question is not a REO. Perhaps it is, Will does at one point refer to them as squatters. I have looked at numerous REOs that had squatters. But they were people who had broken in and made little nests, or, in one case, what looked like a few batches of crack cocaine.

Now perhaps this is fallout of the "protecting tenants at foreclosure act" and the bank has chosen to list the property before the tenants have to leave. But I'm pretty sure a bank would put the owner out ASAP if they take the property at the foreclosure sale.

I could see an exception in states where there are owner redemption periods. They did away with that a few years ago here in CO, so perhaps that's why I've never seen an occupied REO, other than squatters.



Jon Holdman, Flying Phoenix LLC


Dave Barnard

HVAC Contractor from Santa Clarita, California

Jul 09 '11, 07:00 PM


Jon, I apologize if I mispoke. The particular house involved in Will's thread was not an REO. It was purchased from the legal owner via sub-to knowing the occupant was there and needed to be dealt with. However, he has purchased many reo's that were occupied by the previous owners. The difference is, they were purchased pre MLS with the current occupancy known by both seller and buyer. I agree that banks will evict before listing an REO on the MLS. Sorry for the confusion.



Joel Owens Moderator

Real Estate Broker from Canton, Georgia

Jul 09 '11, 07:37 PM


With the landlord tenant foreclosure laws tenants are protected.

For instance I sign a 1 year lease with a landlord.1 month in I get a notice in the mail the property is being foreclosed in 4 weeks at the steps.

The landlord I made the lease with for the house took the deposit money and rent and ran.The bank didn't know the landlord no longer lived in the property which is why the notice was mailed to the address the tenants were living in.

The bank forecloses and 10 months are left on the lease.Can the bank evict the tenants?? NO THEY CANNOT.

The bank has to honor the lease.Now if they were month to month that is a different scenario where the tenant has a certain amount of time to vacate the property.

If a tenant gets foreclosed on often times they do not know where to make the payments to.The tenant needs to set up a separate bank account and make the payment there every month.Then when the tenants and the bank go to court the tenants can show they have an enforceable lease and they were making payments each month the bank just didn't communicate to them where to send it.The judge will make the bank honor the lease because of the tenant foreclosure protection laws.

As far as right of redemption investors buying in pre-foreclosure in a post redemption state will pay a distressed seller money to sign away their redemption rights.

Some banks will want to dump a property with a tenant in place as they can't get rid of them by law and have to wait it out.If you as a buyer are willing to take the risk on the price should reflect that extra risk.

If the bank wants to dump a dog of a property it will cost them.Only an unsavvy investor would pay top price and be stuck with a holdover tenant.



Medium_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Mike Grayford

Rehabber from Simi Valley, California

Jul 09 '11, 11:12 PM


The bank forecloses in this market and there is still time left on the lease?? That must have been a really long lease.

My answer to the original question would likely be "no". Do I really want to buy a house with an occupant that the bank couldn't even evict?

And yes, I have seen it here. On one of the listings, the agent even noted, "occupant is not cooperative". No, thanks.


Updated: 10:14AM, 07/11/2011

To clarify, I don't know that the listings with occupants were actually owner occupants - my guess is that they were not.

Edited Jul 11 2011, 10:14


Joel Owens Moderator

Real Estate Broker from Canton, Georgia

Jul 10 '11, 10:18 AM


Mike there are the Federal laws which I am talking about and then on top of that tenant laws that vary by state.

As you know California is very heavy in favor of the tenant.So it takes a long time to foreclose.

In Georgia we have no post redemption rights after the sale and to foreclose the lender simply has to send a letter giving 30 days notice in the newspaper.

That doesn't mean the owner won't prolong by filing BK,trying a trial loan mod,short sale,etc.

If the tenant signed a 1 year lease and the went month to month that is treated differently then they signed a 1 year lease and it just expired and they signed another 1 year lease.



Medium_allworldrealtyJoel Owens, All World Realty
E-Mail: [email protected]
Telephone: 678-779-2798
Website: http://www.AWcommercial.com
www.AWcommercial.com 678-779-2798 [email protected]


Chris Martin

Real Estate Investor from Holly Springs, North Carolina

Jul 10 '11, 11:31 AM


Regarding "[i]The bank forecloses and 10 months are left on the lease.Can the bank evict the tenants?? NO THEY CANNOT.

The bank has to honor the lease.Now if they were month to month that is a different scenario where the tenant has a certain amount of time to vacate the property[/i]"

Where does this come from? Is this a GA law? I know it's not NC, and the federal law is 90 days notice. This law expires at the end of next year.



JEFF GATES

Commercial Real Estate Broker from MACOMB, Michigan

Jul 10 '11, 04:48 PM
1 vote


A bank owned home can be owner occupied. Freddie Mac has a program that the let's the old owner rent after foreclosure if they can prove they can make the new rental payments. They also make the agree to let the home be shown by agents and if they dont they have a property management company evict them.
I am a broker in Michigan and I have seen many of these, the guy next door to me is doing it right now.



Ed Beck

Residential Real Estate Agent from Boonton, New Jersey

Jul 11 '11, 09:12 AM


If the home that is foreclosed is occupied, the occupants are always offered cash for keys whether they are tenants or the previous owners. If the previous owner declines CFK, renting is never an option offered to them. Tenants on the other hand may choose to stay and pay rent to the bank, no lease (month to month), no credit check, and no security deposit. They must agree to cooperate with showings when the bank lists the property. As soon as they miss a rent check or if an agent calls the broker stating that the tenant will not make a showing appt, eviction begins...immediately. I have never, ever seen an REO property hit the market with the former owner still in the property. Not saying it's not possible, because some of you claim to have seen it, but the only time I've ever seen it is because of lies and trickery (owners spouse's with different last names claiming to be tenants for example...ha ha, love this business)...



JEFF GATES

Commercial Real Estate Broker from MACOMB, Michigan

Jul 11 '11, 09:45 AM
1 vote


Ed, I respect your opinion but you are dead wrong on this. Freddie Mac will offer the old home owners cash for keys but as far as never letting them rent you are wrong. If the old owner does not ask about renting I know they dont bring it up but they are doing it. Here is a link to the program.http://www.freddiemac.com/singlefamily/service/reo_rental.html



Ed Beck

Residential Real Estate Agent from Boonton, New Jersey

Jul 11 '11, 09:52 AM


And so it is. Ok you've proven it. I didn't say it wasn't possible, just don't see it here where I am.


Updated: 10:58AM, 07/11/2011

I shouldn't have used 'always' but 'typically' instead.

Edited Jul 11 2011, 10:58


Will Barnard Video Moderator Donor

Real Estate Investor from Santa Clarita, California

Jul 11 '11, 12:24 PM


Originally posted by Jon Holdman:
Don't believe a bank will ever sell a repo with the previous owners still there. They will get them out before they list it.
Not true, I have purchased countless REO properties from banks with occupants inside at time of closing. In all cases, I have offered CFK (cash for keys) and have been successful in getting the occupants (previous homeowners) to accept the CFK.

In the case of my thread of occupants from hell, Jon was correct that in that case, it was NOT an REO but a private sale.

The bank forecloses and 10 months are left on the lease.Can the bank evict the tenants?? NO THEY CANNOT.
This is definately not true. Similar to how a foreclosure wipes out a second lien, so does a foreclosure wipe out a lease agreement. Often, banks will offer the previous owners CFK to get out so that they can clean and market the property, but in some cases, they do not and market the property with the occupants in place and discliose the situation to any potential buyers as is required by disclosure laws. Then in other circumstances, a bank will sell an REO to an all cash buyer such as myself, BEFORE they evict, and before they ever attempt to market the property for sale. This is how I get many of my deals, direct from the bank while still occupied and before the property is ever listed on the MLS. In other cases, i can get them without occupants, but before they are listed on the MLS.


Updated: 05:18PM, 07/12/2011

I want to make it clear that if there was a real and ligitimate arms length lease transaction between the owner and a tenant, and that lease is at a reasonable market rent value, then and ONLY then would the foreclosing bank have to honor the lease. Most

Edited Jul 12 2011, 17:18


Medium_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]
Website: http://www.barnardenterprises.com
http://www.InvestorExperts.com


David Mithell

Real Estate Investor from San Diego, CA and all states

Jul 11 '11, 05:16 PM


Ya know folks, I don't bother if the home is occupied. Way too much risk and potential trouble. There are plenty of vacant homes around. That's at cherry-picking time. Our focus is to help people, so on that basis ...

If it's REO and I know the owner could stay with a lower mortgage payment, I'll buy low and resell back to the owner at a reasonable price. Can't do that on a short sale of course, but might do it at the court house steps or shortly thereafter. Occupant has to have the credit, assets and income to get their own financing, but elsewhere.

Cheerio!



Will Barnard Video Moderator Donor

Real Estate Investor from Santa Clarita, California

Jul 12 '11, 05:25 PM


Originally posted by David Mithell:
Ya know folks, I don't bother if the home is occupied. Way too much risk and potential trouble. There are plenty of vacant homes around. That's at cherry-picking time.
David, everybody has their own business model, but to say that such a model has "way too much risk & potential trouble" is not a fair statement or a complete one. Sure you have more risk, but saavy investors mitigate that risk by obtaining larger spreads in the dela to allow for the "potential trouble". I buy occupied homes all the time and I have been very successful in getting the occupants to accept cash for keys and my spreads are large enough to cover events that would require eviction costs, extra holding time costs, etc.

Most investors I know, particularly here in CA are having trouble finding good deals as there is NOT an overage of them sitting around. As such, we must find ways and means to get more deals.
If you are getting enough deals with real spreads that make sense without having to take on occupied properties, than congradulations, you are doing well in these market conditions. Perhaps we should talk about you sending some my way.



Medium_be_logoWill Barnard, Barnard Enterprises, Inc.
E-Mail: [email protected]
Website: http://www.barnardenterprises.com
http://www.InvestorExperts.com


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