Things to Know When Buying an REO Foreclosure

During the last month or so, there has been a marked increase of REO foreclosed homes (aka Real Estate Owned or REO) released for sale to Century 21 M&M Realtors in Northern California.

Ed Gookin, REO Foreclosure Realtor for Century 21 M&M Oakdale

Ed Gookin, Oakdale Office email-egookin

Ed Gookin, Realtor for Century 21 M&M in Oakdale states, “In the last three to four weeks we have seen five new REO listings, prior to that we were seeing ONE new listing about every six weeks.”

Buying an REO foreclosed home is a little different from buying a home with equity. In fact, if you are interested in buying an REO foreclosed property you need to be prepared;

  • First, and foremost, find a Realtor who specializes in foreclosures,
  • Get a pre-approval letter from a Lender before presenting an offer to the bank,
  • It is helpful to know the comparable home prices in your chosen neighborhood,
  • A foreclosed home is usually sold ‘as is’, and many times it is up to the buyer to pay for repairs.
  • Be aware that there may be county liens or utility liens attached to the property that sometimes pop-up after the new owner takes possession.

Buying an REO Foreclosure“Buyer beware” says Ed Gookin, “if you are buying an REO foreclosure without the assistance of a Realtor – county and utility liens may show after you take possession of the home. That is why it is important to work with a Realtor who specializes in the sale foreclosed homes.”

On the upside, the reduced price you pay for when buying an REO foreclosed home may make it worth the headache. And, most bank-owned homes are vacant, which speeds up the process of taking possession.

Consider the following approaches to buying an REO foreclosed home;

Public Auction – When buyers pay cash at the public auction they buy the home in its ‘as is’ condition. Oftentimes there are liens such as taxes, delinquent HOA dues or superior loans, and those types of encumbrances stay with the home. For this reason it is important for the buyer to either engage the services of a Realtor, or pay a title company to do a preliminary search prior to bidding.

Private Auction – Auction houses generally advertise in newspapers and online, and might even travel around the country holding auctions at hotels. A private auction house often will let a buyer inspect their REO foreclosures prior to bidding and let the buyer obtain financing, even bring a real estate agent to represent them.

Buy from Bank – Banks contact Realtors, who in turn post the listing on mls and either sell the property themselves or share the sale with a buyers agent.  Banks are often willing to give a price break to the buyer/investor that buys more than one home in a bulk purchase.

Buy a HUD home – Many times a Realtor will work directly with HUD to list their available REO foreclosures. These homes, acquired by the Department of Housing and Urban Development, are the result of a foreclosure on an FHA-insured mortgage.

Buying an REO foreclosure involves homework, patience and often a good measure of luck, so be prepared for a few unexpected hiccups; you may find the property requires extensive repairs, may need new appliances, and in fact, you may have to evict the occupants before you can take possession.

So, if you are considering buying an REO foreclosure, contact a Century 21 M&M branch office first, ask customer service for the names of agents that specialize in this type of transaction. With a professional Realtor at your side, you have a lot better chance at finding and buying your dream home.


Short Sales vs Foreclosures for Distressed Homeowners

Short Sales vs Foreclosures

Short Sales vs Foreclosures

Northern California Century 21 M&M Real Estate Agents are asked everyday – ‘I can’t afford my home, should I sell it by short sale, or wait for the bank to foreclose?’

So, in an attempt to answer this question, what follows is –  ‘just the facts’.

A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed. Courtesy of

The benefits of a selling a home through short sale are:

  • Your home sale will be handled like any other home sale.
  • Retain some dignity knowing that you didn’t lose your home to foreclosure
  • No mortgage payments to make unless you choose to make them
  • If your credit report does not reflect a 60-day+ late pay, under Fannie Mae guidelines you will be able to buy another home immediately.
  • Loan applications don’t ask questions about a short sale

The drawbacks of a short sale are:

  • Waiting for the bank to respond to an offer is frustrating
  • The bank will examine your personal records; tax returns, bank statements, assets and liabilities in addition to asking for a hardship letter from you.
  • Accommodating potential buyers will mean keeping your home in ‘ready to show’ condition for weeks or months, putting up with traffic through your home.
  • There is no assurance the bank will accept a short sale offer
  • The derogatory credit will remain on your credit report for 7 years
  • Good credit behavior can supplant bad credit after two years even though the derogatory credit will remain for seven years.

A foreclosure is the legal process by which an owner’s right to a property is terminated, usually due to default. Typically involves a forced sale of the property at public auction, with the proceeds being applied to the mortgage debt. Courtesy of

The advantages of losing a home through foreclosure are:

  • No mortgage payments to make throughout the process
  • The home is still yours until the foreclosure is final
  • No strangers are traipsing through your home
  • Banks sometimes give cash for keys after the public sale

The drawbacks to foreclosures are:

  • The right of home ownership is striped away, former homeowners have to rent a residence
  • Memories are made in a home, losing it can shatter future dreams
  • The bank may post a Notice of Public Sale on your front door.
  • Loan applications require that you answer the question – “Have you ever had a property foreclosed upon or given a deed-in-lieu thereof in the past 7 years.” If you lie, you may be subject to investigation by the FBI for mortgage fraud.

Distressed Homeowners and Credit ScoresFair Isaac Corp (FICO) released a report that says credit scores are affected about the same, whether a seller does a short sale or a foreclosure. Average points lost on a FICO score are as follows:

  • 30 days late: 40-110 points
  • 90 days late: 70-135 points
  • Foreclosure, short sale or deed-in-lieu: 85-160 points
  • Bankruptcy: 130-240 points

So you see, the points can add up pretty fast…add the 30-60 days late pay-points to the foreclosure short sale or deed in lieu of foreclosure and your credit score can easily take a 200-300 point hit. This means that a seller’s FICO score was 680 before foreclosure, it could dip as low as 380.

So there doesn’t seem to be any credit score advantage for a delinquent borrower with regard to a short sale vs foreclosure, at least what is reflected in your FICO score. However, most experts agree that there is a much quicker credit recovery when the home is sold through short sale vs foreclosure.

NOTE: Century 21 M&M Real Estate advises delinquent homeowners to seek legal and tax advice before making the decision of a short sale vs foreclosure.

Commercial Real Estate in Northern California is Gaining Strength

Ernie Ochoa, Century 21 M&M Merced Office (209)386-1140 email-eochoa

Ernie Ochoa, Merced Office (209)386-1140 begin_of_the_skype_highlighting (209)386-1140 end_of_the_skype_highlighting email-eochoa

Century 21 M&M Realtors are seeing an increase in commercial real estate activity in Northern California. Ernie Ochoa, Realtor for Century 21 M&M in Merced says this is because rents are low. He is seeing an increase of Mom and Pop type businesses looking for commercial real estate space to lease.

David Lal, Century 21 M&M Hercules Office (510)306-5558

David Lal Hercules Office (510)306-5558

David Lal, Realtor for Century 21 M&M in Berkeley and Hercules says that he is seeing ‘first time investors’ looking for entry level commercial properties. According to David the “C” rated properties are actually showing some appreciation.

“Strip malls are still taking a beating, but office space and warehouses are ramping up, in part due to the fact that affordability is at its greatest,” says David. “Square footage for both commercial real estate sales and commercial real estate leasing has stabilized and in some cases, the cost per square foot is creeping up – especially in San Jose where internet technology companies are thriving.”

According to Ernie Ochoa, “Commercial Leasing is up, we are definitely seeing an increase in activity, but Commercial real estate sales just aren’t happening over here in the Central Valley.”

Sara Shipman Century 21 M&M Oakdale Office (209)844-1702

Sara Shipman Oakdale Office (209)844-1702

Sarah Shipman, Realtor for Century 21 M&M in Oakdale agrees with Ernie Ochoa, “Locally we are anywhere from 24 – 48 months behind the Bay Area in commercial real estate recovery. I have definitely seen an increase in phone calls from small business owners looking for properties to lease, but not much movement on the sales side.”

A new report from the Mortgage Bankers Association (MBA) shows that nation-wide commercial mortgages performed better than other types of loans last year. At the end of 2010, the 30+ day delinquency rate for commercial mortgages reached 5.33%, compared to 6.48% rate for all loans.

In fact, last year marked a turn around for commercial real estate in the United States. The national transaction volume totaled $120 billion in 2010, as opposed to the $54.6 transaction volume experienced in 2009. It appears that corporate tenants, particularly in large population areas, took advantage of the lower rents, especially during the last three quarters of 2010.

Century 21 M&M Commercial Realtors agree that the market environment over the next 24 months presents a favorable time to acquire commercial properties at discounted prices. During the recovery phase of this recession investors, purchasing commercial properties at significantly lower prices, should see a return on investment that exceeds historic averages.

Mortgage Interest Deductions – Eliminated or Not?

Larry A. Matos, Century 21 M & M Real Estate President

Larry A. Matos, Century 21 M & M Real Estate President/Broker

Lately, REALTORS®  have been getting a lot of questions asked about mortgage interest deductions – will they be eliminated? Larry Matos, President and Broker for CENTURY 21 M&M says, “If the mortgage interest deductions were to be eliminated, there wouldn’t be an incentive for people to buy a home. In this economy, with as many lobbyists  in Washington fighting against this proposal – it will not happen”.

The ‘mortgage interest deduction’ is the cornerstone of the United States housing policy; If you own a home, you get a tax deduction on your mortgage interest. This makes owning a home more attractive, and supporters believe helps stabilize neighborhoods.

But the mortgage interest deduction could end up on the chopping block as the government tries to balance the budget and deal with the country’s deficit. Some people argue that the policy should be changed because it doesn’t really encourage home ownership, and, the policy isn’t giving enough of a tax break to lower-income families.

According to the Wall Street Journal, “Deficit Plan Wins Backers” dated December 2, 2010, “Obama administration officials said they would harvest many of the [White House Deficit] commission’s ideas as the president assembles a budget plan for 2012. They pointed to cuts in defense spending, limiting tax deductions [including the mortgage interest deduction] and a broad overhaul of Social Security as areas to pursue”.

Despite all of the talk, it will be difficult to revamp a tax deduction that has been around for almost a century. According to Guy Cecala, publisher of Inside Mortgage Finance, “REALTORS, homebuilders, everybody who has a vested interest in preserving this [mortgage interest deduction], have a very strong voice on Capitol Hill. They’ve done a pretty good job of keeping everybody’s hands off…”

Larry Matos, President and Broker for CENTURY 21 M&M states, “The mortgage interest deduction is probably most helpful to people who have purchased their homes recently, due to the fact that a large portion of each monthly payment goes toward paying the interest. As the loan matures, the interest portion decreases and the principal portion increases. We cannot afford for that benefit to go away.”

For those earning between $40K and $75K per year save only about $523 and for those earning over $250K the savings averages about $5,459. Some consumer groups are recommending a yearly tax credit of up to $5,000 to moderate and low income families, instead of the ‘mortgage interest deductions‘.

However, the Obama administration’s proposed 2012 budget would lower the value of the mortgage interest deduction for families with household incomes of more than $250K. But it should be noted that similar deduction eliminations have been proposed in the two previous budgets to no effect.

NOTE: As with any questions of this nature, CENTURY 21 M&M Real Estate Agents refer clients to their tax attorney or accountant for the answers.