For homeowners facing foreclosure or bankruptcy–or considering a short sale of their property to avoid one or both–the effect the action will have on their credit is undoubtedly a huge concern. Though keeping their homes might not be an option at this point, there could very well be another one in the not-too-distant future, so knowing when they’ll be eligible to qualify for another mortgage is important. 

Be Aware of the Rules of the Road

Earlier this year, Fannie Mae updated its credit guidelines for borrowers who experience one of these circumstances. And, in general, the wait time will now range from two to five years. 

Homeowners who lose their properties to foreclosure or file multiple bankruptcies within a seven-year period will have the longest wait–five years. 

In the case of foreclosure, additional requirements and restrictions will apply after five years and up to seven years as well, which include making a minimum 10% down-payment, having a credit score of at least 680, and having limited cash-out refinance options. Also, the purchase of second homes or investment properties is not permitted. 

A shorter time limit (three years) does apply to both foreclosures and multiple bankruptcy cases if the borrower had what Fannie Mae considers to be “extenuating circumstances” that led to the foreclosure. Of course, the borrower must provide evidence and documentation that the action resulted, from, in their words, “…nonrecurring events…beyond the borrower’s control that result  in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.”  

Borrowers who experience a deed-in-lieu foreclosure must wait the next longest period–four years. However, if they suffered what Fannie Mae considers extenuating circumstances, then they too can qualify to have their waiting period shortened (in this case to two years). 

Bankruptcies–with the exception of Chapter 13 judgments–also mean a four-year wait from the discharge or dismissal date unless–once again–extenuating circumstances apply. In that case, the wait is cut in half to two years as well. 

Two years is the standard waiting period for pre-foreclosure or short sales (whether the mortgage was delinquent or not), as well as Chapter 13 bankruptcy judgments. There are no exceptions permitted for extenuating circumstances, however. 

Requirements to re-establish credit

In all cases, there are several requirements that must be met before credit can be reestablished. These include: 

• Having all accounts current as of the date of the mortgage application
• Including a minimum of four credit references (one of which must be housing-related and cover the period following the foreclosure, bankruptcy or short sale)
• Include no more than two installment or revolving debt payments thirty days past due in the last twenty-four months, or any payments sixty or more days past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action. 

Of course, this is a general overview of Fannie Mae’s new credit guidelines; for more detailed information, please visit their web site. 

Knowledge is power, and knowing the credit consequences of the various actions mentioned above can help a homeowner in financial trouble decide which course to pursue. As an agent, having this information to pass along to your clients, and having a resources behind you to help keep you updated on the latest legislation and guidelines—as well as help you provide them with foreclosure-prevention options—can help make you their super hero!

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This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Borrowers Should Be Aware of the Effects Foreclosures, Bankruptcies and Shorts Sales Will Have on Their Credit

In my previous posting with the VERY long headline the other day, I challenged any and all to contradict me when I —and a Congressional oversight committee—concluded that the Obama administration’s attempt, thus far, to gain meaningful mortgage modifications has totally flopped.

In even less time than I thought would be the case, I have been proven sadly right: A new RealtyTrac report just out says that foreclosures are up a full 5 percent from summer to this fall…..meaning almost 940 thousand properties were impacted….

And, in case you’re not counting (and who is??? anyone??????) RealtyTrac says that puts the number of foreclosure postings at about 3.5 million by the time the year is out, compared to 2.3 million a year ago. CNN is even reporting the headline, “Foreclosures: ‘Worst three months of all time’

As an Associated Press report points out, “unemployment is the main reason homeowners are falling into trouble.” God, what would we do without the keen insights of the A.P.?

And, what of the government’s program of foreclosure modification? Easier to find a brain inside of Paris Hilton’s head!

As I said in my last post—quoting from a newly released Congressional report–the fact is the banks have all but ignored the entire modification thing, opting , for the most part, to continue taking in all sorts of fees for late monthly payments rather than reducing the principal owed to make it easier for folks to stay in their homes and maybe one day actually pay off the mortgage…which is supposed to be the idea. Right?

Only a week ago, you may recall, Obama claimed the mortgage relief effort is working! Yeah, and I think I found that brain inside of Paris Hilton’s head.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Foreclosures Jump 5 Percent From Summer; Government Effort To Curtail Foreclosures Sinks Like Lead Duplex

As the, so far, jobless recovery continues, the White House is reportedly hunkered down trying to figure out what to do next. Obama administration officials are taking note of programs that have worked and those that have not done as well.

Among the programs that apparently fall into the “success” column is the $8,000 tax credit for first time home buyers.

The tax credit for first timers was part of the $787 billion dollar stimulus program and is being credited with helping the real estate industry stage a modest comeback—at least among first time home buyers.

All indications are that the tax credits will be continued well into 2010 and maybe beyond. Some legislators have even suggested that the credit amount be increased to help sales in places such as coastal California, where home prices tend to be much higher than in many other parts of the nation.

While helping first time buyers is great, we are still struggling with what to do with current home owners who cannot afford their mortgages and face foreclosure…still a growing problem.

With the unemployment rate expected to only get higher in the months ahead, and with thousands upon thousands of mortgages on the verge of resetting soon at much higher rates, no real recovery in the real estate market is likely until the foreclosure problem is dealt with more effectively than it has been. And, so far, it hasn’t been dealt with effectively at all.

The president still is resisting going to bat for a change in bankruptcy law that would allow judges to adjust mortgages–something he strongly advocated as a candidate.

And, despite some self congratulating newspaper ads, most major banks have been loath to adjust homeowners’ mortgages by any method other than reducing interest while leaving principal alone. Not a good way to go about this, many economists argue.

Helping lots of first timers buy a home while allowing countless current homeowners to be booted from their properties makes little sense…politically or economically.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

First Time Home Owner Tax Credit Likely To Stay; But Current Homeowners Still Face Uncertain Future

In today’s challenging real estate market where 30 offers on homes out here in Victorville, CA is the norm, (and I’m sure the same applies all over the United States) we need every little bit of information to help our offers stand out from the crowd.

I have made countless offers on REO properties including Freddie Mac deals, and these tips reflect my experience in dealing with them. These are the things that Freddie Mac always counters with and always wants flat out.

When making an offer to purchase a Freddie Mac or Home Steps owned property you should try and follow these guidelines to help your offer stand out from the crowd and help you save a day or two in negotiations with them.

The Top 20 Tips for Making offers on Freddie Mac, Home steps or FHLMC Properties

1. All offers should be submitted on your states association of realtors purchase contract. They will not touch an offer made with a contract you came up with or bought at your local office supply store.
2. All offers should include a pre-approval letter from your lender if you are obtaining financing. A direct lenders pre-approval will carry more weight than a mortgage broker.  A direct lender is one that lends its own money to put it simply.
3. Investors! Do not ask for closing costs! Sorry, but they will not pay closing costs for an investor period.
4. Do not ask for more than 3% in closing costs. You are wasting your time asking for anything more than 3%. If you try to raise your offering price above their asking price thinking they will pay more than 3% they will always counter back to 3%. Also when asking for closing costs ask for a dollar amount not a percentage. For example, in your offer you would state that seller is to pay buyers recurring and non-recurring closing costs not to exceed $5000. Remember this is only an example. Do not go asking for $5,000 on every deal cause Winston told you, lol.  They need a dollar amount so they can quickly figure out the final net to the bank. If they have 40 offers the last thing they want to do is extra math trying to figure out the percentage.
5. Do not ask for them to pay the property transfer tax. They will not pay this fee. Don’t ask for this cause they will always counter you back. I know the seller has customarily paid for this fee but Freddie Mac is exempt from paying this.
6. Loan Applications to be submitted within 7 days. If you are obtaining financing to purchase the property you want to state that your loan application will be submitted to the bank a least within 7 days of them accepting your offer. Anything longer than 7 days and they will counter.
7. Your offer should not expire less than 14 days. When you make an offer make sure that your offer will not expire until 14 days after the date it was submitted to them. Freddie Mac is inundated with a multitude of properties and things can delay them. The last thing you want is for them to toss out your offer just cause it expired and the other guys didn’t . Get my drift? When the bank has 40 offers to choose from don’t you think they look for any little thing to toss yours out?
8. Submit your HIGHEST & BEST offer off the bat. The banks sit around and collect a ton of offers on their properties. Then they look at each other and say, “gosh darn it! These offers need to be higher bro” so they tell the listing agent to go send out a note to all the people that submitted offers to tell them to send to the bank their highest and best offer so we can squeeze more money from you. You then have to think about how much higher you need to go because you know that everyone else is going to be raising their offer. In the beginning when you submit your offer sit down and offer the most you are comfortable offering off the bat. Write on the top of your offer “HIGHEST AND BEST” . Then they know you have been around the block and you know what’s going on.
9. Do you need that Home Warranty? You can ask for one but as long as it does not go over the 3% of the closing costs they will pay for owner occupied offers. It would be sad if you lost that deal due to a $300 home warranty.
10. State what kind of buyer you are. Let them know off the bat if it’s going to be owner occupied or non-owner occupied. If you are a first time buyer or not. Yes, I am sure it matters to them. Which one is best? I would assume a first time buyer and owner occupied.
11. Let them know if you are a licensed real estate professional. State on your cover sheer if the person purchasing the property is a licensed real estate professional.
12. Freddie will provide a pest report and natural hazard disclosures. Do ask for them.
13. Complete your inspections in under 10 days. The pre-printed length of days on CA contracts is 17 days. Freddie Mac will counter anything above 10 days. If you can complete all your inspections in 5 days then state it in your offer. I know some inspectors that will fly out to the property in 24hours and have the report back that evening. Remember you have to stand out of the crowd of 40 offers.
14. Buyer to pay $50 per diem. State in your offer that, “Buyer will pay $50 per diem for buyer delays only beyond the agreed upon close of escrow date“. Flat out this means that you understand that you can be penalized  $50 a day if the closing is delayed by any fault of yours (ex. Your real estate agent, your loan officer, your dog) for every day passed the agreed upon closing date.
15. If you are paying cash go no longer than 20 days for the closing date. If you are not obtaining financing for the purchase they want you to be able to close the deal in under 20 days. Also if you are truly paying all cash state this fact and that you are not obtaining a hard money loan. State you have liquid cash funds available for this purchase and that no financing whatsoever is being obtained for the purchase of this home.
16. Send proof of funds to close the deal. If you are paying all cash send a financial statement where the money is held. Hey people, don’t send a statement from Dec 2008, send them something current. If you do not have one go online and print one if you have online access to the account. You want to prove to them that you have the money for the down payment or the money to purchase the house outright.
17. Put a big down payment. The bigger the down payment the more serious you are about buying the property. If you are going FHA lets say you need 3.5% down payment anyways so why not place that as your down payment. If you want the property bad enough you have to stand out from the crowd that only places the minimum down.
18. State that you have visited the property. Some have been asking for proof that the buyer has physically visited the property. The reason for this is that a lot of investors are tossing out offers on properties and not physically going to see the property only to weasel out of the deal after inspecting the property. This wastes everyones time. When you go visit the property take a picture of yourself in front of the property on your camera phone or what not. Keep it as proof in case you are questioned.
19. Make sure everything is legible, neat and organized. Need I explain? When you have 40 offers to choose from and the guy at the bank is trying to decipher your English hieroglyphics and can’t make out what the heck something says then what do you think you are going to get as a response? You are going to get, “Sorry but the bank has accepted another offer. Thank you”.
20. Send a cover letter with your offer. On this cover letter you want to briefly explain the main selling points of your offer that you believe will make you stand out. Like for instance: A short closing period, huge deposit, short inspection periods, all cash, buyer has visited the property, owner occupied etc etc. Make sure to include all your contact information.

I hope these tips along with BiggerPockets.com in your toolbox will help you kick some tail out there in the game of real estate.

Good luck in all you do America!

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This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Top 20 tips for making offers on Freddie Mac/Home Steps REO properties

Due to easy, high leverage financing and falling commercial real estate values many apartment building owners are now facing foreclosure.  This leaves a lot of opportunity for those apartment building investors who are willing to invest the time and energy into finding a great apartment building investment at a rock bottom price.  It can be difficult to find listings of apartment building foreclosures because in many cases they are handed over to commercial Realtors who may not even advertise the apartment building as a foreclosure. 

Fortunately, the internet has a large number of websites which feature apartment building foreclosure listings, however, none of these websites is devoted solely to multifamily properties.  Therefore it is necessary to visit a number of different websites and do some searching within the websites themselves.  Below are some websites where you can begin your search.

Sources for Foreclosed Commercial Real Estate

Craigslist- is one of the largest and most popular online classifieds website.  You can begin by searching under the commercial real estate section for distressed owners who are selling their property.  Another strategy is to post an ad under the commercial real estate section so that commercial property owners contact you.  This allows you to be specific about what you are looking for.  Here is a sample ad below:

Headline: Are You an Apartment Building Owner Facing Foreclosure?

Advertisement: I am a professional commercial property investor who is ready to purchase apartment buildings from distressed owners.  I am able to close quickly on apartment buildings that fit my criteria.  Currently, I am seeking to acquire 10 to 60 unit apartment buildings without a lot of deferred maintenance.  Please contact me today to find out how I can purchase your apartment building quickly.

Loopnet – is probably the most popular commercial property listing website on the internet.  You will have to peruse the listings closely to find those apartment buildings that are in foreclosure or distressed.   Loopnet.com does not currently allow visitors to search specifically for apartment building foreclosures.

Bank Websites – Many commercial investors don’t realize that banks also list their commercial real estate on their own websites.  This method can be a great way to find bank owned foreclosures owned by smaller regional banks.  It will require more time researching to find their websites but many of these smaller banks may be eager to unload the property and make a deal that includes financing for the right buyer.

BiggerPockets maintains one of the largest lists of bank REO foreclosure websites, that you can use to assist you.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Where to Find Apartment Building Foreclosures

Several months ago I mentioned Nevada was finally joining the 21st century in regards to foreclosure mediation. The first two sessions – Nevada doesn’t jump into these things – will happen on Sept 14th with two properties in Las Vegas as the “test” properties.

I know other states have already set up their mediation programs and have been up and running with what some say is a great success rate, i.e. the homeowners got to stay in their homes. In fact, Marquette University Law School on their website makes this comment: “…jurisdictions that have used mediation in foreclosure cases report a high success rate, and more and more jurisdictions are turning to mediation as a solution for this crisis.”

Because Nevada is the turtle in this race only 97 mediators have completed training and were appointed last week (Aug 17-21). The State expects to phase in more mediators over the next few months. They better if they are to be in compliance with state law and put out a program designed to help distressed property owners.

Mediations Per Month

I didn’t do any research to determine how many mediations Ohio or New Jersey, or any other state for that matter, are doing per month but Nevada expects to do more than 1,000 mediations per month once the program is operating at full capacity. This seems like a reasonable figure given to date the program manager has received more than 650 requests. Plus, with Nevada’s high foreclosure rate, mediation only makes sense for anyone wanting at least a chance to stay in their home.

If my state is an indicator, mediation may be all it was cracked up to be when it was being proposed as a viable solution.

Investors Still Out In The Cold

By the way, investors are still excluded from the mediation process. My best guess is that will change as the program proves its mettle. And, to me, investors should be included as well. In far too many instances, it is investors who step in to save the day.

In my area, it is the investors who have raised the sales figures quite handsomely. A real estate agent friend mentioned this morning his sales are investor only at this point in time. Not by choice, by default. Wes is quite active and doesn’t miss an opportunity to show a property. He walks around with his eyes wide open.

According to Wes, Mom and Pop are still conspicuously absent from the buyer side of the equation. His best guess is it will be that way through the end of the year given the layoffs that are happening in our county. He says that the investors are willing to buy because they are getting properties at severe discounts and renting them at below market rates.

Mind you the rental rates my be low but they are high enough to give the investor a return of investment in a very short time. One quick example comes to mind. A person bought a home for $60,000 and is receiving $800 a month in rent. At $9600 per year, the Return happens in a little over 6 years.

Factor in the tax benefits and this becomes an immediately (in most cases) profitable venture. If by some chance real estate does a magic turn around, this person’s return on investment could shoot to the moon.

Realize I’m speaking only about this neck of the woods and what one real estate practitioner is seeing as he trudges through his day. It may be different in your area. Real estate could be a booming business.

By the way, the investors are buying foreclosed properties. That wasn’t too difficult to discern but I thought I’d mention it anyway.

I guess if mediation turns into a raging success, we could see that spike upwards in real estate prices. At least that is my 2¢.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Foreclosure Mediation

One of the best ways to get your feet wet if you are a beginning investor or wholesaler is to get out and start networking with other like-minded individuals in your market.

When I was first getting started in my wholesaling career, I was a networking Ninja.  My first year I made it my mission to get out and meet as many players in my market as I possibly could, and to introduce myself and let everyone know who I was and what I was trying to do.  Some weeks I was going to real estate investor meetings five days out of seven.   I was there like clockwork, handing out my business cards and getting to know who the movers and shakers were.

Even though I was scared to death at first, I forced myself to get out of my comfort zone and start plugging myself into the investor pipeline.  I took somewhat of a  “fake it ’til you make it” approach, and even though I didn’t really have a lot of experience under my belt, I decided that I was going to jump in and rub elbows with the big boys anyway.   I read in a book somewhere that you become who you hang around, and so I made the decision that I was going to start hanging around like-minded, successful individuals.

Looking back, I am very thankful that I forced myself to take action.  Many of those investors who I met when I was just starting out are still friends and colleagues of mine who I am now doing business with as a result.

If you’re a new investor and still sitting on the fence, I’d like to encourage you to take a step (even if it’s a small one) out of your comfort zone, and get on out there and start networking.

Find out when the next REIA meeting is in your neck of the woods and make it a goal to attend and make contact with a few investors.  I know that it is intimidating at first, but once you decide to take that first step, I promise you that the next one will be much easier.

This Article is Copyright © 2004-2009 BiggerPockets, Inc. All Rights Reserved.

Network Your Way to Real Estate Success!