Foreclosures on MLS

Just a question on foreclosure properties that are being listed on MLS.

Since it’s a foreclosure, it’s free and clear of any debt correct? The bank owns it and want to dump it (so I guess this is an REO property). In other words, a foreclosure that was sold in May at $172,500 but is now listed in August at $275K, which is at the low end of the comps in the neighborhood - that difference of $102.5K represents pure profit to the bank, right?

The agent I talked about in my previous post mentioned this property as well when I said I had access to cash buyers.

Just need clarification. Thanks!

Howdy Immy:

A bank foreclosure (REO) is free and clear of any debt as they were owed money and now they own it. Banks usually bid what they are owed on a property and it is often more than the property is worth especially in a down market and especially to a wholesale or rehab buyer. The ones with great equity are usually gobbled up by investors in the preforeclosure stage but not always. It has been my experience here in Austin that banks are not dumping the REO’s but are holding steady on the prices and pricing them at retail if they are in good condition.

The one you are suggesting sounds like a good deal and I am surprised it is still available. What is the condition?

Banks very rarely make a profit on a foreclosure and more often lose money unless HUD or VA insured the loan and then the govt is the loser.

Be careful, though, as IRS liens and property tax liens usually supercede any other liens - including bank liens. Years ago, my in-laws were going to purchase a foreclosure in Round Rock, TX, and got near closing when the title company uncovered a $17k IRS lien on the property.

So if the IRS/govt liens are discovered after the contract is signed and the title insurance is purchased, how would that affect me or an investor as the purchaser?

Is that situation one that would not allow a clear title to convey so the deal is dead? And I’d get my earnest $ back, hopefully? Or can I renegogiate the price - for example using the previous response here with the $17K lien - downward $17K, then I could pay the lien and still get the property?

I’m sorry if I ask redudant questions but sometimes the lingo here is hard for me to master!!

You hve to know more details than what you’ve posted here for us to know if the 102.5k is “profit” for the lender. You say they got it for $172,500 but that only represents the number that they had to bid in order to get the property. What was the outstanding mortgage? What have they spent in legal fees, property preservation, etc.

I kept getting calls on my last REO listing because the list price was “higher than what the bank bought it for at sheriff’s sale”. What they didn’t know was that the outstanding mortgage was more than list price.

OK - as a newbie I need your advice on what to ask? I’m going to be following up with the realtor on the TH property so I’m going to ask about this one as well. What would he know/what should I ask him? All I know at this point from checking my tax records was that the last recorded transfer was for $172,500. IT’s a 1088 sf living space on a 20,473 SF land area. Built in 1955. It went on the market 2 weeks ago. Ditech comps are placing value between 270Kk and 393K.

I used another website and found that only 1 other property has sold in this area in the last 6 months - and that was for over $700K - wasn’t comparable in sq.ft/lot size/age, etc.

So I looked further - and found one that sold 6/28/04 for $238K. . . 1516 sq. ft. of living space with a 14,375 sq. ft. lot. . . . AND found that one sold on 12/30/04 for $242K that was 1,022 sf of living space with a 35,632 sq ft. lot. . .

Everything I’ve read here in this forum says not to do title search if you’re going to assign the contract, so I wasn’t going to bother. Am I wrong? What should I ask the realtor? The house is vacant. HELP ???

Howdy Immy:

I always suggest do the title work if you are getting it under contract to wholesale. Why would you not. You have to know if the seller has good title. Lawyers do mess up foreclosures all the time and liens are over looked etc. Birddogs do not usually get title work but not wholesalers. Ever you told you that was just wrong. It speeds up the closing if nothing else and title companies are usually the trustee for the earnest money as well. ORDER THE TITLE WORK ASAP. It is also free if the title company anticipates a closing and an insurance policy.

Also it matters not what the bank has in the deal. Who cares if they win or lose or break even. All you want to do is work backwards from what you can sell it for and the costs to repair and other costs and include your fee and come up with the highest offer you can afford to make and take off a few grand for haggling fun. I love to haggle, that is the best part of doing deals.

Ted is absolutely, positively, 100% correct - ALWAYS start the title work once the contract is signed. Searching title isn’t too difficult, and can usually be done yourself, but if you are new or there is a lot of quity in the deal or you uncover some “iffy” things yourself, always get the title company to do the work.

Since the house is listed and you are going to have to go through an agent, why not find your own agent and ask him/her the questions. The listing agent works for the seller and works to protect the seller’s best interests. I would find an agent with REO experience or at least one that was very knowledgable about the area. They should be able to do a good CMA for you to give you a better idea of what the market value is.

I agree that from your point of view, it doesn’t matter what the bank has in the property, however I assumed you were asking so that you could get a good idea of what the bank might take as far as your offer. In my experience, lenders get an appraisal and several BPOs before they set the list price of their REO properties. It has also been my experience that most of the time (there are exceptions) the lenders are unwilling to take an offer that is a lot less than list within the first 30 days. Of course everything depends on your local market conditions.

Good luck.

Two words: Title Insurance

By the time a bank has a house listed on the MLS most likely they are willing to wait for their price or something close to it (unless it’s a wreck then the price will steadily go down until they find a willing buyer). They’ve also let their listing agent know what they won’t accept.

Doing a title search yourself is very risky – especially if you are a novice. Go with an expert and get title insurance. This isn’t an area you want to mess with, at all.

I purchase on the courthouse steps – at least once a month I come across mortgages being foreclosed upon and the owner has NO CLUE their home is about to be legally taken from them.

Purchasing from a bank who has listed on the MLS you are relatively safe – TITLE INSURANCE. The insurance you purchase at closing is for THEM, make sure you request insurance for yourself.

Good luck.

Thanks for the great advice. I don’t want to work with an agent right now as all I have talked to could be great for me, but want exclusivity arrangements and there is language in their paperwork that precludes me talking to FBSOs without them as well. In other words, I don’t think I could talk to ANYONE without using them and I’m not ready for that right now.
That being said, yes I was asking to kinda flush out what the bank might take. This property is completely empty - no appliances, and needs alot of cosmetic work on the outside. Hasn’t had a lead test done yet (built in 1955) but I do know it has had a termite inspection and passed it.
I believe this is a VA property (and goodness knows if that throws more into the mix, being a newbie I don’t know).

I would be interesting in assigning my contract if I could get it under one myself. Now that I have preapproval, the selling agent will finally let me see it, which is what I want to do for my next step.

Thanks to all for the advice, please keep it coming. I am going to find a title company that will pull title for free in exchange for the title policy/insurance and closing, since I don’t want to spend anything I don’t have to out of pocket. GREAT IDEA!

Last item - what is a BPO - checked the abbreviations to the left but couldn’t find it.

Broker Price Opinion. It is basically a CMA done by a broker to determine what they think the house is worth. It is the quick and dirty way to get a fair market value without all the formalities an appraiser must do.

You may have trouble doing that. Not that it can’t be done, but when you buy an REO property you have to sign the lender’s addendums and they usually say that the contract can’t be assigned. The reason the lender makes you get pre-approved before you can make an offer is that they don’t want to waste their time with a buyer that can’t close the deal. They aren’t going to let you assign it to someone because they don’t know that the new person is financially able to close.

Again, that’s doesn’t mean that you can’t get around it, but if you try and the bank doesn’t allow it, you should have a plan B.