Buying A Foreclosed Home

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I used a bridge loan to buy a property I no longer want. What can I do to sell it? Q: Planning for retirement, I recently purchased a small townhome utilizing a bridge loan from the equity in my present home. I closed on the townhouse, but in the past month my situation has changed, and I would like to sell the townhouse rather quickly. Is there a time period that I have to wait before putting the townhouse up for sale? Does the fact that I purchased it using a bridge loan have any impact on reselling it immediately? A:The purpose of a bridge loan is to provide temporary financing using the equity in one home to help finance or completely finance the purchase of a replacement property.When the first property is sold, the bridge loan is repaid in full at closing. Your situation is reversed.You’re keeping the first house and selling the second.This is not a big deal as long as the bridge loan is repaid in full. But, if the second property cannot be sold for enough to repay the bridge loan, or if it languishes on the market, then you will want to repay the bridge loan as quickly as possible to avoid high interest costs – either with savings or by getting a home-equity loan on the first property.

Q: When we purchased our house, I was told by my broker that my credit was average. I’m now in a bad situation, and it’s going to get worse. We need a loan modification. My wife and I are both working, and we do not want to lose our home. We have two kids and feel helpless. I have read very detailed descriptions regarding how our lender conducts business, and it appears that they are not working with anyone except to foreclose on homes. I am very worried and need some helpful information.

A: There’s nothing wrong with “average” credit – that’s simply what most of us have. Not every lender is willing to make loan modifications; however, in some cases even if they wanted to modify a loan servicers cannot help because the investors who own such mortgages have rules that prevent or prohibit modifications.Thus it’s possible that the problem is not with your lender. Whatever the reason, you need to refinance. From See ASK OUR BROKER, Page 2

The ABCs of Buying A Foreclosed Home These properties are gaining popular as they flood the market. Here’s what you should know before buying BY CHARLES SCUTT CTW Features

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humb through the business or real-estate sections of your local newspaper daily and you’re bound to see the words “foreclosed” or “foreclosure” peppered throughout the articles, advertisements and classifieds – and for good reason. Slow home sales, soaring mortgagedefault rates and other negative market conditions resulted in a staggering number of foreclosures

in 2007.What’s more, millions of adjustable-rate mortgages will reset to higher rates in the coming months, leading to more foreclosures in 2008. But while these numbers reflect the current challenges facing the cloudy residential realestate market, they also represent a silver lining of opportunity for savvy home shoppers, who can capitalize on outstanding bargains, provided they know where to look and how to buy a foreclosed or lender-owned home.

“Real-estate auctions of foreclosed homes have become increasingly popular among consumers over the past 18 months,” says Dave Webb, principal of Hudson & Marshall auction firm, Dallas, who adds that it’s not unusual for some homes to sell for 20 percent below their market value at many of the auctions his firm holds.“They realize they can buy a great property at significant price reductions in today’s buyer’s market.” According to Webb, a foreclo-

sure typically starts when a homeowner fails to make a mortgage payment for three months or more, after which time the lender sends a default notice to the owner, which can take 30 days to seven months, depending on the lender.The default notice is published in a general-circulation newspaper. “At this point, some buyers will offer to buy the mortgage from the owner,” says Webb.“If

See FORECLOSURE Page 2

Eggs … Ham … Mortgages? Home loans are the latest thing to go green. And yes, you might like one BY DAVID SILVA CTW Features

FOR DENVER RESIDENT Maria Ellingson, the quaint Victorian home she and her husband purchased in 2000 was almost per-

fect. The three-bedroom, 1,450square-foot home was beautiful, roomy and ideally located. But when the first winter chill arrived that year, Ellingson realized her new dwelling had a flaw, and a big one. Built in 1895, the home was an energy monster. “It was unbelievably cold in the winter,” Ellingson,says.“There was no insulation in the attic, no wall insulation, no insulation in

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the basement.The heating system was from the 1970s, the fireplace had leaks around it, and there were large gaps around the plumbing.” But fortunately for the Ellingsons, Maria wasn’t your typical homeowner.A professional in the field of environmental advocacy, she knew of a way to pay for all the needed efficiency improvements, recoup those costs over time and significantly

increase the resale value of the home: an energy-efficient mortgage. Soon, she and her husband were passing the Denver winters in their perfectly heated and insulated dream house, while saving more than $60 a month on their energy bills compared to their next-door neighbor – whose home had been designed by the

See GREEN Page 2

GREEN The new color of loans CONTINUED FROM PAGE 1 same builder. Often referred to as “green mortgages,” energy-efficient mortgages help buyers purchase ecofriendly homes or make their existing homes more energy-efficient by taking into account the money they’ll save on energy costs.The anticipated savings are added to the “income” column of a loan applicant’s debt-to-income ratio, which is used to help calculate a mortgage. Participants can borrow up to 15 percent of the value of their home to make the required improvements.The money is kept in an escrow account and released only after the owner proves the energy upgrades were made. “As a concept, it certainly makes sense,” says Lowell Ungar, director of policy for the Alliance to Save Energy, a Washington, D.C. coalition of business, government and environmental agencies that

FORECLOSURES Getting the facts straight CONTINUED FROM PAGE 1

this doesn’t happen, the property is eventually auctioned off by the county sheriff,” although each state has its own foreclosure laws and procedures. These auctions start with a minimum bid that covers the loan balance, accrued interest, associated foreclosure process costs and legal fees. Contrary to popular belief, the majority of foreclosure auctions don’t even generate a single bid.This is because what is owed to the bank is typically always greater than the property’s total worth. So the lender essentially becomes the successful bidder, reclaims the home’s title and is forced to sell it for what the market can bear.A home repossessed by the lender that did not sell successfully at a foreclosure auction is called a real-estate-owned or bank-owned property.The lender either tries to sell the home through a listing agent or a large real estate auction house. “Local and national newspapers are great places to look for foreclosed properties and auctions of foreclosed homes,” says Webb.“Potential buyers can also get on the mailing lists of established property-auction firms and receive information monthly on auctions happening across the country.” Payman Emamian, principal

works to promote energy conservation.“Energy-efficient mortgages save money, and … make it easier for homeowners to pay back their mortgages. Instead of having to take out a second mortgage to make energy improvements, the energy savings from an energy-efficient mortgage should be more than sufficient.” Green mortgages were born out of the 1979 energy crisis, which resulted in a federal push for lending agencies to promote energy efficiency. But despite having energy-efficient mortgages available to them in one form or another for nearly 30 years, few borrowers – and, more importantly, few lenders aside from government and government-sponsored agencies like the Federal Housing Authority and Fannie Mae – have used them. Brian Ng, finance manager for the EPA’s Energy Star Homes program, cites several reasons for this. One reason is that until 2003 lenders had to underwrite each energy-efficient mortgage individually – a laborious process that generated mountains of paperwork.Another reason is that, under federal rules governing the

program, such loans can only be made on a home with a qualifying Home Energy Rating Systems, or HERS, report. “HERS reports are conducted by home-energy raters independent of the Energy Star program,” Ng says. Energy Star is a U.S. program that promotes energy-efficient products, including homes. “These are basically third-party auditors who go to homes and run diagnostic tests to determine the home’s energy efficiency.” In other words, borrowers – whether trying to prove that their new homes are energy efficient or trying to improve efficiency in their existing homes – have to bring in a third-party auditor. Home-energy raters typically charge anywhere from $100 to $400 for the all-important HERS report. For many people, the additional costs and paperwork required for a green mortgage can seem more of a hassle than it’s worth. That’s unfortunate, says homeowner Ellingson, who found her visit from a home-energy rater an illuminating experience. “More than anything,” she says, “it was helpful to talk to the ener-

gy rater. He pointed out things I never knew were there, such as the holes in our fireplace through which you could see outside. I probably wouldn’t have thought to stick my head in the fireplace to see that.” The general public may finally be ready to embrace the benefits of energy-efficient mortgages, as evidenced by recent data from the National Association of Home Builders, which predicted a 10percent increase in the greenhomes market by 2010. Energy Star’s Ng says his office has noted a marked rise in inquiries about the program. “The increase is mainly coming from the lenders themselves,” he says.“I’m assuming the lenders are interested because they’re getting some interest from the customers themselves.With stuff in the news about oil hitting $100 a barrel and climate change coming into the consciousness of the average homeowner, people are thinking about what they can do to reduce their energy bills in the winter and summer, and how they can help the environment.”

and founder of Premier Realty, Los Angeles, says that banks you have relationships with are another prime source for locating REO properties. Jason R. Hanson of Primo Coach in Oakton,Va., says the best way to find deals on foreclosed and REO homes is through a Realtor “who can locate all of the bank-owned properties and sift through all the junk properties to find you a deal.” The most direct source for locating foreclosed properties is the county tax records posted at your nearest county courthouse, says Nicole Persley, broker/owner at Homage Real Estate of Florida, Boca Raton.A mortgage balance and a “lis pendens” ( “thing pending”) notice are posted on homes in foreclosure.This is public record once a it has been recorded in the court system, she says. The trick to getting a good deal on a home in foreclosure is to contact the owner immediately after this file is recorded but before the papers are served, Persley says. “You can actually get to the property owner before it is an official foreclosure.This way, there is time to negotiate and to purchase from the owner and not the bank,” says Persley.“Usually there is a very short window of time for processing, so if a savvy buyer had the time to devote to researching the clerk of the court filings, they could intercept a foreclosure by presenting a legitimate offer in writing with a deposit to the property owner. The owner could then submit the

sales contract to the bank or lender and possibly stop the foreclosure lawsuit from moving forward.This saves the bank legal fees, so they are happy to negotiate if there is a willing and able buyer with an executed contract for sale.” Anyone can attend a foreclosure auction, says Hanson, who recommends looking in the “legal notices” section of your newspaper. Public auctions generally are held on the steps of a courthouse or in a designated room in a government building or city hall. “It’s important for a potential buyer to due his due diligence and inspect the property carefully before buying it,”Webb says. Research should include contacting a Realtor to glean any information they may have on the property, calling title companies to ascertain if there are any liens on the home, and possibly speaking with the lender about the history of maintenance on the property, Emamian says. Before attending a foreclosure auction, be aware of several vitally important things, says Edward Kaminsky, president of Premiere Estates Auction Company, Manhattan Beach, Calif.“You must pay cash the day of the auction. You are often buying the property while its present residents are still living in the home.You are buying it without title insurance, and you are responsible for all senior liens against the property, including but not limited to deeds of trust, tax liens, mechanic liens, et cetera.” If you are planning to pur-

chase a foreclosed home through a county sheriff’s auction,“be sure to research the title on the property carefully and know if there are any liens against it and back taxes owed,”Webb says. By contrast, at auctions typically held by a large auction firm, sellers provide insurable titles on all properties with no back taxes or liens to worry about – although all properties are still usually sold “as is.”A cash or certified check down payment of a certain percentage (usually 5-10 percent) of the total selling price is required after winning the bid. Contracts are typically closed within 30 days of the auction, so buyers need to have their financing in order, says Webb. Buyers of foreclosed properties should also understand that they “forego all rights that a traditional buyer has, including the option to withdraw an offer if contingencies aren’t met,” Emamian says.“When buying a foreclosure, understand that there are no second chances.” For these reasons,“make sure you see the inside of the property and get an inspection on it before purchasing,” Hanson says.“Know the amount of repairs and the most you are willing to pay. Rookie investors often bid on properties they have never seen, which is why many more fortunes have been lose in real estate than won.” Lastly, before jumping in the foreclosure property pool,“attend several auctions for observational purposes,” says Emamian.“By observing how these profession-

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Ask Our Broker CONTINUED FROM PAGE 1

your perspective, it would be easiest to work with your current lender, but if that’s not possible then you need to look elsewhere. Make a point of paying all bills on time and in full to maintain your credit standing -- and start talking to other lenders. In particular, ask about the FHASecure program, a loan specifically designed to bail out ARM borrowers with toxic loans. Community housing groups may be able to help you find a lender if you cannot locate one on your own.

Q: I purchased a property early this year. Due to deteriorating health and economic reasons and an impending divorce, what do I do with the house? The mortgage and title are in my name since my spouse – who has filed for bankruptcy – signed a quitclaim deed. My income is based on operating the business owned by my husband before marriage.

A: Your situation involves a divorce, a bankruptcy, failing health and potentially the loss of your income, but the real issue here involves finding the choices that are best for you. Do you want the house? Would you be better off with cash from a sale? Is your divorce in any way “amicable,” meaning that both parties will work toward a common good and the least possible damage? What role will bankruptcy and divorce courts play in a final disposition of the property? With a bankruptcy looming there may be creditor claims that impact your options. For specifics, you’ll need to speak with an attorney to determine what’s possible. Q: We get e-mails promoting programs that will allow buyers to purchase a home in 10 days regardless of credit or employment and with no money down. How do such programs work?

A: Who says they work? And who says buying a home in 10 days is a good idea? There are places in the U.S. where jobs are being lost and the population is declining.You can surely buy in such areas with steep discounts, but then what? If you’re not moving in, how do you rent at a good rate when thousands of empty units are available? How do you sell at a profit when the local economy is depressed and stalled? How much cash will you need each month to repair and hold the property? Always remember, unsolicited investment advice received by e-mail is worth the paper on which it’s written. © CTW Features Need real estate advice? Peter G. Miller, author of “The Common-Sense Mortgage,” would love to hear from you. Send your questions to [email protected]. Due to the volume received, not all letters may be answered.

als work the auction, buyers can learn what to expect when they are ready to bid for the first time.” Also,“try not to get into an emotional bidding contest at the auction, or you may very well find yourself paying more than

you had planned,” Emamian says. “And remember that sometimes if something seems too good to be true, it probably is.”

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