We have not seen the bottom of this foreclosure market yet.  This is especially true in the winter season and an uncertain political climate.  While there is a bright note that the FHA has once again waived the Anti-Flipping rule to allow people to rehab homes and sell them quickly there are other gloomy stats.

CoreLogic’s Home Price Index shows a 4th straight month of housing price declines for November.  Prices fell 1.4% from October and are down 4.3% year over year.  Most of this decline is being driven by dropping prices on distressed properties (foreclosures and short sales), but if you remove them from the equation, retail homes still fell 0.6% in November.  Year over year, retail prices are up only slightly (which is actually decent news).

On the foreclosure front, serious delinquencies (mortgages that are more than 90 days past due or actually in foreclosure), declined to 9.3% in December.  This is down from a high of 10.4% in December 2009.  Foreclosures have stayed steady at 5.5% for 3 quarters ending June 2011.

In my opinion, we are seeing the market trying to figure out what to do.  I am not sure there are any other homes that can go into foreclosure in masse.  While we will see a steady stream, I think the flood is over.

The Minnesota Supreme court overturned a lower court ruling this week that could hurt the many cities that are now requiring rental inspections.  The case involves a Red Wing city ordinance that requires that all rental properties have on-site inspections performed by the city.  Any landlord that was unwilling to allow the inspection was issued an adminstrative warrant (like a fine).

According to the Court’s decision, the law as overreaching.  It could be used to violate residential privacy rights and “could become the tool of choice for governments to enter people’e homes”.  The supreme court remanded the case to the court of appeals for further deliberation.

The lawsuit was brought by the Institute for Justice.  Here is the all the details.

The Minnesota Real Estate Team strongly believes in the importance of offering informative buying and selling seminars for those interested in real estate here in the Twin Cities area. As a result of this belief, the team has consistently offered these free seminars over the past six years on a monthly basis.

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I found these very interesting housing articles recently published.

BofA developing foreclosure rental programs to deal with distressed properties-BOA, Fannie and Freddie are trying to figure out how to move some of these non-performing mortgages or worse these REO properties that they own.  Banks have an estimated $50 billion worth of REOs on the books right now.  The thought is that banks may rent the house back to the people that lost it to foreclosure.  They would do a short sale on them to an investor and rent it back to the previously owner.  Interesting, but I think some of these people need to downsize and move out.  Plus the emotional attachment to the house has to be severed.  As a landlord, you can’t have someone remodeling their bathroom because they still regard this house as theirs.

Residential Housing Ready to Awaken-As we have seen over the last 5 years, you get 50% of the “experts” saying we are in a recovery and 50% of the other “experts” saying we have time to go.  This article suggests that some of the important pieces are falling into place for a 2012 slow, but steady recovery.

How Can Renters Solve the Housing Crisis-This article perfectly articulates what my customers have been seeing over the last 5 years.  The market is going to recover, put your money in rental properties, and you will see a gain.  The mindset of people has shifted.  It is OK to be a renter and not a homeowner.

I wrote a post about how to write a low ball offer on bank owned foreclosure properties in September 2010.  You can review that low ball REO post here.  I think that all of my original thoughts remain.  Surprisingly though, I get many questions about this process.  One example is that there are 74 comments on that post!  Lots of people are still confused by how much they can offer on a foreclosure.  Let’s review.

Many of my customers and people that comment on the above post want to talk about tax assessed value, previous mortgage amount, how much work it needs, etc.   The number one driving force that allows you to make lower than list offers on REO properties and get them accepted is….(wait for it)…..time on market.  Nothing else typically matters!  Here is why:

• Yes, the property is a pile of junk, needs 47 windows, a new furnace and a new kitchen.  If the bank did the process correctly, the listing agent they hired should have accounted for the current condition and priced the home accordingly.  Unfortunately, just like anything in life, some listing agents are better at their job than others.  Some listing agents think that if they give the bank a higher resale number up front, they may get lucky and get the listing (often they are correct).  You can argue all you want that this home is not worth $200k because it needs this and that.  In the end, that argument is falling on deaf ears.
• Tax assessed value is absolutely worthless in this market.  Repeat.  Tax assessed value is absolutely worthless in this market.  It serves no value for determining anything any longer.  These values were set by the tax assessor 1-2 years ago.  Many municipalities will not reduce the market value dramatically because they lose too much tax revenue.  Plus, with the wild swings in prices in the last 2-3 years, you need to compare this house to the others currently on the market, not data from 2 years ago.
• I have yet to see where the previous mortgage amount is at all relevant on what the bank sets the listing price at.  If this was the case, there would have been zero $30,000 house like we see by the truckload in North Minneapolis.  In fact, I wrote a story about a how the bank had a $189k mortgage on a house that my customer bought for $12k.

In the past 12 months, I have been showing and selling many more HUD properties.  I would estimate that 1 in 10 are HUD listings up from 1 in 100 just 2 years ago.  The process is much different than buying a typical REO and you need an experienced agent that can help you navigate through the differences in the process.

I thought I would try to outline some of the unique aspects of the HUD home buying process.  HUD (which is the Department of Housing and Urban Development) has foreclosed homes all around the United States.

What is a HUD Home?
Many of these houses were originally purchased with an FHA mortgage which is insured by the Federal government via mortgage insurance. When the bank forecloses on the property, the bank files a claim on the insurance for the amount of the mortgage due. HUD pays the bank and then takes ownership of the home.  This is very much like if you totalled your car:  your bank gets the money owed on the car and the insurance company gets the car and you are done.

How much do HUD homes cost?
While HUD homes are supposed to be priced at market values minus any repairs needed, I have found that they are often priced 5-10% below the other REOs on the market. They can be a great value, despite the repairs needed.

Will HUD make the repairs?
HUD homes are sold as-is, but I have seen HUD install new furnaces or repair the plumbing so that these homes can be sold to owner occupants using FHA financing. This work is usually done prior to the home coming on the market. The new owner is responsible for all repairs and improvements that are not done at time of showing.

Where can I find a HUD home?
All HUD properties are listed on the MLS using a Minnesota real estate broker. Other than a mention in the agent remarks, they are not noted any differently. Additionally, all HUD properties around the US can be found at HudHomeStore.com. This is a great place to see as much information about the property as available.

To see a HUD home, you need to work with a HUD-approved real estate agent (like me!) in that area. We can get you access to the home. HUD does NOT work with any buyers directly.

How do I make an offer on a HUD property?
Your HUD-approved real estate agent will submit your offer for you. It is all done electronically on the HUD website. There are initially no documents to sign or fill out. Each home will have different bidding periods such as: first 10-30 days for owner occupants, non-profits, and government agencies only. After that all bidders are accepted.

Bids submitted on-line are all compiled up till midnight of the previous day. At that time, all those are reviewed and countered or accepted before any new offers are reviewed the next day. Thankfully, you should know within 1 business day if you offer is accepted or countered.

If your offer is accepted, your experienced agent will need to insure that they fill out all the documents correctly and submit them within 48 hours of your offer will be rejected. This can be a frustrating process to make sure all signatures are original ink and all documents are filled out correctly and included.

Closing a HUD home
Closing are done by the HUD designated title company. The closing always scheduled exactly 45 days after the acceptance. It doesn’t matter if you are paying cash and could close tomorrow, HUD waits 45 days. Additionally, HUD does not allow any changes to the offer after submission, so no name changes, no buyer adds or removals, and no change of cash vs financed offers.

Will HUD finance the home?
No. You will need to bring in your own financing. As mentioned above, many HUD homes have been repairs so that they can get FHA financing, make sure to confirm this prior to submitting your offer (your agent should help you).

Can I do an inspection?
Yes, but the process is vague. I recommend you do your inspection prior to offer. Investors will forfeit any earnest money and owner occupants will get only 50% of it back for cancelling because of inspection results.

Are there any special programs with HUD homes?
If the homes are not sold within six months, HUD will sell them for $1 each to approved nonprofit organizations and government agencies. The homes must then be used create housing for families in need or to benefit neighborhoods. HUD also offers special home purchase programs for teachers and full time law enforcement officers.

Buying a HUD home for either investment or your personal home can be a great value, but you need to work with a qualified agent to hold your hand through the process. Give me a call and we can discuss!