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A bank or mortgage company forecloses on a property. After a few months of legal hassles, the lender finally gets clear title to the property and hires a local real estate agent. Of course, the lender, at this point, wants to try and recover almost all of the money lent on the property.

6 months or a year go by and this period is full of price reductions and repairs to the property. The property may have been vandalized, lived in by squatters, had new carpet and paint, even had new landscaping. The problem is usually that the lender refuses to set the price where it should be so the property, although shown many times, continues to sit on the market.

There is a hidden time limit for this lender. Does anyone know how long it is? How long can the lender keep a non-performing asset on its’ books? How long can the property be an REO? We aren’t talking about government foreclosures here (FHA and VA loans), the government can keep them forever. We are talking about bank or lender owned foreclosures.

I have a done a little research and it appears that the time limit that a private lender can keep an REO on its’ books is 2 years plus or minus a little.

The questions is… What happens to the house or property AFTER the statutory time period has expired and the lender is forced to “get rid of the property at any price”?

Unfortunately, researching this topic has produced very little in the way of usable results. However, I did happen upon a few references to something called The REO Black Hole List. Apparently there really is a place that lenders can “dump” their old REO inventory as a last measure. And, they dump them at dirt cheap prices – usually for thess than lot value.

My research has found that there appears to be a handful of asset managers, companies that buy these old REO properties in bulk, that lenders turn to when they absolutely must liquidate the non-performing assets. These asset managing companies turn around and sell, in bulk, to a “secret” list of private, seasoned investors who actually purchase 50 to 100 to 400 houses at a time.

And guess what? These investors are able to purchase these homes, on average, for $2350 to $5000 per house! I kid you not. I actually spoke to an investor who bought around 182 houses direct from Fannie Mae for $400,000. You do the math. That is under $2500 per house.

The thing about this kind of setup is that the investor must buy all of the homes in a package – whether they are vacant lots, burnouts, or condemned. AND – they are not in one location but spread out all over the country. That’s why the average price per home is so cheap…to spread the risk. But, these homes have all been in an MLS system somewhere – they were all REO properties at one time – so there is a way to find the market value pretty easily: Call a local agent!

AND since the investor may live in Maine or south Florida, he or she will also call a local agent to list these properties. They usually pay a high commission because the price will be low and because they have very little invested in the house. Does anyone have any experience with these types of investors? Or – if you know a local investor, would they be interested in this kind of “bulk buying”?

One other little tidbit I found out: a lot of the packages that these asset managers sell consist of only 10 or 20 homes. Think about that. You could buy 10 homes for $30,000 or $40,000. While some of them may not be the jewels you would want, several of them will always be great fix and flip homes that will sell for as much as you paid for the entire package.

Again, little information can be found on this “underground network” and the only place I could get any information was at this REO site. I know it exists. If you know how to get on this list or how to get in touch with the investors that participate, please post it! If you are in Ohio and I am in Alabama, we are not competing against each other!


Lenders Now Hampered by Mortgage Insurance Companies

(Birmingham, AL) The most recent fallout from the mortgage crisis that began last summer is now rearing it’s ugly head in the form of Fannie Mae approved loans that cannot get insured by Mortgage Insurance companies.

Mortgage insurance companies, spurred on by recent recommendations in congress, are tightening their credit standards for providing insurance. Without mortgage insurance, borrowers are forced to provide a down payment equal to 20% of the purchase price of a home – something very few home buyers can afford to do. Just this past week, mortgage insurance companies raised their credit score requirement to 620, effectively cutting out 50% of home buyers from the home buying market. The move came unnanounced and without any notice to lenders or to Fannie Mae.

In fact, lenders are still approving loans that meet Fannie Mae guidelines for purchase in the secondary market, but then find, just before closing, that there is no mortgage insurance available to insure the loan. Without insurance on money loaned that is over 80% of the value of the property, the loan is declined. Buyers that have a “loan approval” from a lender should immediately ask their lender if the lender can get their loan insured. Otherwise, homebuyers could spend hundreds and even thousands in the days leading up to the closing only to find, at the last minute, that loan insurance is not available to them.

This move by the Mortgage Insurance companies will only add fuel to the fire that is the current US Housing market. By effectively eliminating more home buyers from the market, at a time when the housing market needs more buyers, not fewer, the mortgage insurance companies have put another nail in the coffin of the housing market. The resulting effect on the market will be an even bigger drop in home prices. The immediate impact of this new policy will be felt quickly in the market, not over time as has been the case with loan defaults, adjusting loan interest rates, and foreclosures.

Be forewarned: if you are a seller, drop your price now before the market itself forces an even larger price reduction. If you are a home buyer, your credit score must be above 620 or you cannot get a loan.


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Open Houses in Birmingham!

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Weichert, Realtors – Access Realty has just launched www.8YellowBalloons.com

Tune in to 8yellowballoons.com every week to see where the open houses are going to happen. You would drive around looking but it’s a lot easier with a map.

You can also custom design your own Open House Home Tour!


How to Sell Your Home when Prices are Falling

I guess it’s now official. The real estate bubble has burst. When the inventory figures for homes show they are going up nationwide AND it’s in the national media, you can be sure that it’s already been happening for a few months now. The NY Times and Jouranl and just about every other news outlet decided today that it was a story – so I guess it’s official.

Those of us in the real estate business have known it for the last 3 months and we could have told you so. We have sales figures and “time on market” statistics that can back up our claims. We have been telling successful sellers what’s happening and how to price their homes accordingly. Now – 3 months later, the media is catching on.

The story is that the supply of homes on the market is rising and the number of buyers isn’t. What that means to you is that your home will sit on the market longer without selling. In fact, two of the articles I’ve read state simply that it would take over 6 months to sell all the homes currently for sale. What they leave out is that more homes come on the market every day, further increasing the glut.

As the number of homes on the market increases, it takes further price reductions to get some of those homes to sell quicker, which, in turn, lowers the reflected market price of all homes. Sellers will wait and wait and then lower their price – too late. What they don’t realize is that they are chasing the market down.

The market price of their home goes down and then they lower their price just above the market price and wait. While they wait, the market price goes down further, putting them farther and farther away from the market value, until they lower the price again.

So, as a seller, what should you do right now?

Simple, lower your price to a point that is BELOW the current market value. Ask your agent to take some time and do a good market analysis to get a feel for what your home is worth right now. Then, price it below that number. If you do this, you will have hungry and willing buyers lining up to make offers on your home… but only for a short time in a falling market. If you wait too long, and the market coninues to drop, then you will be priced above the market again and have to reassess the situation.

The smart thing to do is price your home low and let the market come to you, rather than chasing the market down. One strategy results in buyers, the other results in foreclosures. But you have to decide which strategy to persue.

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