According to some estimates, about 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some experts argue it could take up to three years for all these homes to go through the foreclosure process, hit the market and be purchased by new owners.  This new bubble of foreclosed properties will increase the inventory of properties on the market (which is already too high), pushing down prices and lengthening time on market for homes to sell.  This will reverse the trend we have seen in the last 90 days, of falling REO inventory and increasing prices (at least in REO properties).

One example is that JP Morgan Chase hit its top month of foreclosures in the middle of 2008 and their numbers have been steadily falling.  Unfortunately, the bank is estimating that it could again beat that previous record by the fourth quarter of 2010.  Data released by RealtyTrac shows that banks are now slower to take properties back through foreclosure despite the fact that more and more homeowner are falling behind in their payments.  This new wave of foreclosures are less the result of ARM mortgages adjusting and over leveraged properties. They are the result of job losses or changes in income.

Maybe a wave 3?  I hope not, but there is an estimated 11 million US homeowners that now owe more on their mortgage than their home is worth.  Many of them will decide that keeping that home is not worth it and will become delinquent.  Hopefully some of these will opt to sell their home via a short sale instead of letting it go into foreclosure.  By the end of 2012, 39 percent to 50 percent of home purchases in Phoenix will still be foreclosed properties, J.P. Morgan Chase has estimated. Wow!

According to the National Association of Realtors, the inventory of bank owned or bank mediated (short sales) properties declined from 49 percent of the inventory of homes sold in March 2009 to 38 percent of the inventory in January 2010.  Additionally, the inventory is down to just a 7.8 month supply from a high of 11 months in July 2008.  A stable market is around 4 months; we still have some time to go.

For about 60 days now, I have been incredibly frustrated.  Every day I show properties or put in offers on properties only to find out that they were sold yesterday.  I had a property this week that had been on the market only a couple hours.  My customer saw it and we put in an offer immediately.  Although only 5 hours old, when we submitted our offer, they already had 6 offers in front of ours!

Absorption rate is at 4.5 months …total swing from 11.5 months a year ago…inventory is stable but will slowly increase with the foreclosure moratoriums being lifted… Hang tight – but let your buyers know that with absorption rates under 6 months, you can’t be picky and must act quick

Now it just seems to be a running joke amongst my group.  We need to book 5 times as many showings to just get enough to see.  If you want a house, bring your pen cause we are writing offers on the spot if you like it.

I happened to be exchanging an email with a senior REO agent today about a property (that again was sold), in my frustration, I asked him: ”What is up with the multiple offers and properties gone in less than 1 week? Is this going to get easier (for me) anytime in the near future?”  Here is his response:

Absorption rate is at 4.5 months …total swing from 11.5 months a year ago…inventory is stable but will slowly increase with the foreclosure moratoriums being lifted… Hang tight – but let your buyers know that with absorption rates under 6 months, you can’t be picky and must act quick -

Although I understand his answer, it doesn’t make me feel instantly better.  I guess it further confirms the “Foreclosure Wave 2” theory.

Whenever my customers purchase a foreclosed property, the selling bank requires us to use the title company that they chose.  Keep in mind that it is actually the buyer’s choice on who to use for title work, but the REO bank will always strong-arm the buyer via bank addendum’s to use their chosen title company.  I must have been to 15 different title companies in 2008 for all the REO houses that I sold!  Unfortunately, I have found that probably 90% of those title companies are terrible at what they do.  They are slow to respond to requests, they miss items on the HUD, and they have miserable customer service.

Finally, ALTA (American Land Title Association) has launched a lawsuit against HUD, banks and asset managers who are requiring buyers to use a particular title/closing company. In a letter to the Federal Housing commissioner, the American Land Title Association accused HUD of violating RESPA because it is directing title and closing services involving HUD-owned properties. According to ALTA, many other lenders also have assumed this practice on their bank owned real estate. For clarity, I have copied for your reference Section 9 of RESPA that deals with this practice.

The Real Estate Settlement Procedures Act (RESPA) is a consumer protection statute, first passed in 1974. The purposes of RESPA are

1. to help consumers become better shoppers for settlement services and
2. to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services.

Section 9: Seller required title insurance
Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.
Please see the website below for further information:  http://www.hud.gov/offices/hsg/sfh/res/respamor.cfm#HE2

When the weather turns cold, my customers inevitably ask, “Do investment property sales slow down in the winter”? There are several ways to answer that question:

Yes-I have noticed that many real estate investors will slow down there buying during the winter, just like traditional home buyers. These investors are either taking time off for the holidays or are simply absorbing what they bought during the warmer months.

No-Especially in this heavily foreclosure market, banks do not care what time of year it is. When the end of the redemption period is over, they simply put the house on the market. They are less concerned with market timing and seasonality.

What does this mean for you as the real estate investor?
With less competition, but steady inventory, winter is the best time to buy investment properties. You can usually get better deals (especially as banks want to clear their books prior to year end). You are less likely to be in multiple offer situations.

So what are you waiting for? Give us a call and see what you are missing.

In the spirit of the upcoming election, I thought it would be fitting to spin a little political terms and political history into this week’s Carnival.  (Don’t worry, I am not going to start a long diatribe on why I am voting one way or another.  I don’t want to be the first (I think), Carnival host censored by the Carnival Admin!~)

The United States Presidential Line of Succession was first passed into law in 1792 naming the Senate Majority Leader and then the Speaker of the House as in line after the Vice President to take office.  In 1885, the President’s Cabinet was added in place of the Majority Leader and Speaker, but, in 1947, the Speaker and the Majority Leader were added back in above the cabinet.  The only other changes were to remove the Postmaster General, in 1971, from being in the succession and add the Secretary of Homeland Security to the bottom of the list in 2006.

Despite there being many, many topics discussed in this election, between Joe the Plumber and arguing about how many houses McCain owns and what Obama paid for his mansion in Chicago, this election has been lately centered around the economy with the housing crisis in the spotlight.  Seemed only fitting that the top political office awards go to those posts about that topic.

The Presidential Award goes to The Digertati Life.  As SVB (Silicon Valley Blogger) states, we often disconnect the foreclosed home (that we are excited to get a good deal on) from the family that once lived there and lost everything.  The video is especially eye opening about Foreclosure Alley’s Personal Stories of Financial Loss: The Aftermath of Foreclosure.

Toby Boyce at Saide’s Take on Delaware takes home the Vice Presidential Award for explaining the recent market collapse associated with Mortgage Backed Securities.  He puts on his Bubba Gump hat to simplify the explanation and gets Forrest’s Take on Mortgage Backed Securities.

Even after all the doom and gloom you hear on television these days about the housing market, it was amazing to have Amy Bohutinsky at the Zillow blog tell us that 32% of the people they surveyed still believed their house when up in value over the last 12 months!  Amy gets the Speaker of the House Award as she explains Strangely, “Not My House” Sentiment Continues, Albeit a Smaller Group.

The Senate Majority Leader Award goes to The Mortgage Reports Blog that explains How Cutting The Fed Funds Rate Helps The U.S. Economy.  While many people believe cutting the Fed Rate helps the economy, Dan cautions that we could be overheating it.

After that big dose of reality and the stress of watching the political coverage you need to get a laugh now and then.  Two posts gave me a smile and are worth honorable mentions.

• Purva Brown at Sacremento Real Estate Girl gave me a fright when she perfectly described a customer that I am working with right now in her post titled: Who? Me? A Monster?
• Over at Mike’s  Corner, Mike  Price talks about How To Be A Clueless Twit and Social Media Failure and how as Real Estate agents, we need to remember that Blogging and Social Media is not an immediate return.

It’s late at night as I finish up this week’s carnival post.  I suppose I am just in training for another long night of watching returns on Tuesday.

Remember:  Get out and Vote!

As I have said before, I have sold many, many REO properties in the last 12 months. Every single one of these deals requires that my customers sign a bank addendum once the offer is accepted. It is the bank’s way to get all their legal language into the transaction to protect themselves. (If you think about it, a bank is selling foreclosed properties in probably all 50 states; it would be impossible for them to be fluent in each state’s real estate laws and customs)-this addendum helps them normalize all their REO transactions.

Last week, I was reviewing a bank addendum on a North Minneapolis property that my customer had just purchased.  While most of these addendum read like they were written by the same attorney (despite being from different banks), I came across the following clause (sorry for the poor quality):

The clause prohibits you from buying the property with Rehab Financing, selling it within 3 months, transferring it to another party within 3 months, or refinancing it within 3 months.  Wow.  Many of my customers are using rehab financing to buy the property, rehab it, and then refinance into a permanent loan at 75% LTV.  This clause prevents that.

Never seeing this type of clause before, I quickly called the listing agent.  She informed me that this is standard language on all Fannie Mae Foreclosure properties.  I was stunned.  I was amazed that after all the REO properties I had sold, I had never seen this before.  The listing agent also informed me that we can’t remove or change the clause.  If my customers didn’t like it, they would have to simply cancel the purchase agreement and find another property.

I guess the moral of the story is to read all the docs in an REO transaction, even if they look the same as the other 50 that you have seen!

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.