reo guidebook by jeff bochsler & lara logue

The ins and outs of successfully purchasing REO properties.

REO Guidebook By Jeff Bochsler and Lara Logue

NMLS #770636 and DRE #01843564

REO GUIDEBOOK BY JEFF BOCHSLER AND LARA LOGUE 2

Tell your friends about this book and visit us online at:

http://jeffbochsler.com/ and http://www.laralogue.com/

And if you enjoy financial tips and real estate news, feel free to follow Jeff

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@JeffBochsler1

Please consider the environment when printing. Every time a full copy of

this e-book is printed, a tree in the Amazon is felled. There are some

quizzes and worksheets that we do suggest printing though. You can find

those on pages: 5-6, 13-14, 25, 30-31, and 33.

© Copyright 2013. Jeff Bochsler and Lara Logue. All rights reserved. No

part of this publication may be reproduced, stored in a retrieval system, or

transmitted in any form or by any means, electronic, mechanical,

photocopying, recording, or otherwise, for commercial reasons without the

express written consent of the authors.

All photos in this e-book have been taken from the internet under the

creative commons licenses. If you have exclusive use of any of the images,

please contact [email protected].

Legal Disclaimer:

All of the advice in this e-book is meant as a general guide. You should

always assess the veracity of any third-party advice that might have far-

reaching implications (be it legal, real estate, personal, tax or otherwise)

with your trusted professional of choice.

© 2013 Medallion Mortgage Company, LLC is licensed by the Department of Corporations under the California Residential Mortgage

Lending Act. This is not a commitment to lend. Loan approval is subject to qualification. Medallion Mortgage Company, LLC does not

guarantee that each applicant will receive a loan. Medallion Mortgage Company, LLC California License #413-1093, NMLS# 311724


Table of Contents About the Authors 4

The Psychological Perspective 5

Common REO Misconceptions 8

The Importance of Preparation 9

Pre-Offer Foundation 13

“Know the Lingo” 16

Important Tips – MACRO 17

Important Tips – MICRO 20

REO Buyer Commitment 23

Get Pre-Approved 24

Pre-Approval Checklist 25

Determine a Fair Price 26

Make Your Offer Shine 27

The Final Stretch 29

Do Your Due Diligence 30

Frequently Asked Questions 32

Addendum: Pre-Approval Checklist Worksheet 33


Jeff Bochsler Lara Logue

Jeff Bochsler is a Home Loan Officer for

Medallion Mortgage Company.

Nine years into the home lending business Jeff has built a broad knowledge of the lending industry. He has successfully helped clients purchase numerous REO properties. He is an advocate for his clients and referral partners. Practicing high levels of communication, he knows what it takes to get a loan through the system in an efficient and limited stress manner. Forever fine-tuning the process, his team works hard to ensure obtaining a home loan doesn’t feel like your second job. If you are looking for deeper financial knowledge,

he has plenty of personalized tools to get you

prepared and educated.

If you are in need of competitive rates and quick,

on-time closings, he and his team stand ready to

help.

Jeff graduated with a B.S. Degree in Economics

from Santa Clara University.

Lara Logue offers exceptional real estate services

in the Santa Barbara area.

With her MBA from Loyola Marymount University, Lara appreciates the importance of real estate - primary residence or investment opportunity - as a portion of one's investment portfolio. After working in finance for five years, Lara joined her husband, Travis, in the business development of his law firm. Logue Law specializes in real estate transactions and litigation. Lara's exposure to the real estate industry and appreciation for the endless opportunities real estate offers led her to her current role at Sotheby's International Realty®. As a real estate agent, Lara is enthusiastic to

form a partnership with each client in order to

realize their goals, whether they are a Buyer or

Seller. Imperative to one's success as a real

estate investor is Lara's knowledge of the market,

strong marketing ability and impeccable work

ethic. Lara has been personally involved with

numerous REO transactions and is one of the

highest rated REO Agents in Santa Barbara

County.

About the Authors


To help you prepare mentally for what an REO purchase entails we’ve composed

two interactive steps for you to work through. This is not meant to judge or scare

you, rather to provide insight and caution where necessary.

Use the information gathered, about yourself and the REO process, as your guide. As you begin this discovery, the most important item to define is: “What motivates your purchase?” How you answer this question will help you determine which route is best to take when purchasing a property. Let’s start by having you rank the following reasons as to why you’re looking to buy

this future home / condo. Use the scale of 1 to 5, with 1 being the most important and 5 being of least importance or applicability. __. Not to miss out on increasing home prices, forever left renting. __. To make money off of the appreciation. __. To have stability for my family. __. To have a place I can fix up and make my own. __. To rent out and earn solid cash-flow over time. Now that you have prioritized your goals, take the following quiz to determine if you are courageous enough to get involved in an REO transaction.

The “Are You Courageous Enough?” Quiz 1. How would you classify your personal home-

ownership and home-buying experience?

a. Expert

b. Proficient

c. Competent

d. Amateur

e. Novice (First-Timer) 2. How would you rate yourself in handling

rejection?

a. Excellent

b. Good

c. Okay

d. Poor

e. Terrible

The Psychological Perspective


3. How would you rate yourself in dealing with stressful situations?

a. Excellent

b. Good

c. Okay

d. Poor

e. Terrible

4. Would you ever consider purchasing a used car “as is” with no warranty?

a. yes, will again

b. yes, always an option

c. no, but would consider

d. no

e. N/A, I lease my car 5. How would you rate your tolerance of risk / the unknown?

a. Excellent

b. Good

c. Okay

d. Poor

e. Terrible

Now, count up your “Are You Courageous Enough?” score:

a = 5

b = 4

c = 3

d = 2

e = 1

Your Score Total = ___________

See what your score signifies on the next page!


What your score means:

21-25: Congratulations! It is highly likely that you have the stomach for an REO purchase transaction. Find an experienced REO Agent and Home Loan Officer (should you need a loan) and you will be on your way. 16-20: Good for you! It sounds like you are a good candidate for an REO purchase. With a little guidance from an experienced REO Agent and Home Loan Officer, you will be in great shape to purchase an REO property. 11-15: You’re not quite there. But the good news is you aren’t far off. Take some extra time to go through this REO Guidebook and work with an experienced REO Agent and a helpful Home Loan Officer. You have it in you, but it will take some work. 0-10: Maybe move on… It looks like there might be more suitable property types than an REO property for you. It would be recommended you consider options other than an REO, where you can meet the Seller and negotiate with them as necessary. But continue reading to see if you might be a better candidate with some more information about the REO process and fewer unknowns.


1. You will get something for nothing. 2. This is just like a normal purchase/sale transaction. 3. The Seller cares. 4. Cash is king. 5. All Agents know how to deal with REO purchases. 6. All REO properties are below market value. Each one is a great deal.

Common REO Misconceptions


Are you actively looking for real estate, and realize you are coming across a few well-priced Bank-owned properties (otherwise known as REOs)? Have you made a few fruitless attempts to purchase these properties and wonder why you weren’t successful? Preparation is key and a few necessary steps, outlined below, will keep you from wasting your time in the future.

Step One: Create your Home-Purchasing Team

� You will need an experienced and aggressive Real Estate Agent. Please do not confuse experience with age and aggressive with bad attitude. The Agent should have been involved in REO transactions previously and may have a direct connection with a Bank or two. The Agent should also be well respected in the community, otherwise they may be unable to obtain critical information when multiple offers arise.

� You will need an experienced and diligent Home Loan Officer. Ask them if they have provided financing for REO deals previously. Ask them how frequently they are able to finance a deal without delays -- Closing escrow on time is

vitally important. The Seller may be responsible for delays but you will never want to be the source of any issues. Many Banks build in daily fines for Buyers that cannot perform per the purchase

The Importance of Preparation


contract. Make sure your Home Loan Officer is able to avoid putting you in the hot seat! Help him/her out. Expect to do your part, as well. Set your expectations and willingly provide your Home Loan Officer every ounce of information they ask for as soon as possible to see what you pre-qualify for in the banking world. Do not trust a mortgage calculator on the Internet to tell you what you are able to afford. Obtain a pre-approval letter from your chosen Home Loan Officer. Note: offers are NOT accepted on REO deals without one. Often times you will need to obtain a second pre-approval letter direct from the Seller as well in order to be considered. If you are on the cusp of affordability, talk to your lender. Perhaps it is smart to spend time paying down debt and saving additional down payment funds before you start making offers. Being out bid by $1,000.00 hurts. A little preparation could have put your name on the purchase contract instead of someone else’s.

� You will need a supportive Employer. If you don’t work for yourself, you may want to start saving some time off and sick leave. Honest communication with your Employer is key, as time is limited. Inform your Employer what you are up to, as the Banks expect quick turnaround on contracts and other miscellaneous paperwork. Inspections will take place during the work day as well, so you can plan on being unavailable and asking for some time off. Short notices are common during REO transactions and 30-day escrow periods are typical. This often means spending time during your work day to compile items. You will have to make sure you don’t lose your only source of income in the process when you hurry out of the office with no more than a day’s notice. Your Real Estate Agent is used to working nights and weekends, but are you?

� You will need a ready and available Licensed Home Inspector. Your Real Estate Agent will have some great suggestions. If you plan on seeking the advice of a friend of the family or a cousin that is a contractor, be sure they are close by and ready to help at a moment’s notice. Once an offer is accepted on an REO


transaction the “due diligence period” is a very short amount of time, this is your only opportunity prior to close of escrow to check every nook and cranny of the home. There is A LOT to be done, and Uncle Vinny in New York probably won’t be your best option for a second opinion, unless he doesn’t mind taking time off and paying for a red-eye flight. As mentioned above, if you have written a competitive offer (continue reading the REO Guidebook for further details...), it’s likely you will have no more than seven to ten working days to make sure you know nearly everything about the property inside and out. A preliminary inspection may also lead to additional inspections by trained professionals to give you estimates regarding work that may be necessary in the near future. Your Agent will be there to help you coordinate the electrician and the plumber, but you should be present as well to hear about all issues first-hand. All this doesn’t even include your lender and the escrow/title company needing documents signed, dropped off, scanned, and mailed or faxed. Nor the actual loan signing that occurs near the end of escrow and is most often scheduled only a few hours before your signing. In summation, time out of the office and flexibility will be demanded of you. Building a solid team and being upfront with your employer will limit many of your stresses.

Step Two: Learn the Market Know the values of homes being sold. Spend your Sundays and free time going to open houses, then asking your Agent for a breakdown of the final sales prices. Knowledge is power. The listing price can be somewhat meaningful, but the only relevant number is what someone was actually willing to pay for the property. Pay careful attention to REO deals in particular. Are they selling at a significant discount to regular sales? (Oftentimes

they aren’t.) Are they selling for more than list price? (Depending on lack of inventory -

the answer is YES.) Have there been multiple offers? (Again - YES.)

Step Three: Get Serious! Don’t waste your time, or the efforts and knowledge of your team. Commit to the process and to the adventure! Be honest with everyone around you. When purchasing a home, all parties involved will know more about your personal tastes, pet-peeves of your significant other, priorities, and spending habits than you could ever imagine. Share your maximum threshold with your Agent. Don’t hide what you are willing to afford, hoping they will negotiate better with misleading information. Likewise, don’t pretend you are comfortable paying more than you are willing to spend, only to back out of the deal once reality hits. TRUST is key. Revisit the section “Create Your Home-Purchasing Team”, and remind yourself how important it is to put together a great group of professionals dedicated to working diligently on your behalf.


Recap of the Importance of Preparation 1. Align yourself with an experienced and competent Real Estate Agent with a good reputation in town that will go to bat for you. 2. Align yourself with an experienced Home Loan Officer that is detailed, is backed by an underwriting team that can meet deadlines, and is ready and willing to guide you through the complicated loan process. 3. Get a strong pre-approval letter from your Home Loan Officer. 4. Communicate with your Employer regarding your home ownership goals and potential upcoming deadlines. Save up some vacation days. 5. Find a Home Inspector that is available, unbiased, and ready to work hard for you. 6. Educate yourself about the market, current trends, what homes are selling for, the REO tendencies, and whether multiple offers are to be expected. 7. Don’t waste your or anyone else’s time unless you are ready to commit wholeheartedly to the journey. 8. Be honest with your team. Trust is key. Build it. Maintain it. 9. Be flexible. Be prepared for your schedule to get shifted around throughout escrow. 10. Work diligently to get documents back to the requesting party within 24 hours of receipt. Quick turnaround is vital. You can relax once escrow closes.

Become the Owner of a property that is within your price range and

in-line with your taste and lifestyle. Congratulations!


DO YOUR RESEARCH, PRETTY PLEASE! It is time for the very important basics. A little bit of harmless ignorance has led to the intertwining of terms that are, in fact, very different. It did not matter to you before but it will now. Do not depend on everyone else to clue you in. A little bit of reading will make things crystal clear, and will make you sound even smarter than you already are! Don’t worry. We have kept it simple. But first, it is time for another quiz.

The “What do you already know?” Quiz 1. Pair up the names with their definitions. (3 points) __ Foreclosure a. A home being sold by the Bank. __ Short Sale b. A home being sold by a Home-Owner that is underwater on their property. __ REO c. The process of a Bank taking ownership of a

property a Home-Owner defaulted on.

2. When making an offer on an REO home, a pre-approval letter is not required

with financed transactions. (1 point) True________ False _________ 3. REO properties held by Bank X will often require you to speak with one of the

Bank’s loan officers. Is it required that you ultimately use this loan officer to

complete your home loan? (1 point) Yes _________ No ___________ 4. Is it a good decision to make offers on properties you have not even seen because

you have lost out on other properties? (1 point) Yes _________ No ____________

Pre-Offer Foundation The Necessary Nitty-Gritty


5. Is it your job to do research on the housing market and to know what you can

comfortably afford? (1 point) Yes _________ No ____________ 6. Which of the below resources is not a good item to use to determine realistic home

values? (1 point)

a. CMA - Comparable Market Analysis

b. Your neighbor’s stated home value three years ago.

c. Active listings (homes currently on the market attempting to sell)

d. Pending home sales (properties in escrow)

7. What action below will not help you get your offer accepted? (1 point)

a. Treat the listing agent with kindness and respect.

b. Being well organized with supporting offer documents including proof of funds and pre-approval letter.

c. Demand the purchase moves quickly and revolves around your schedule.

d. Act quickly to all requests no matter how ridiculous they may appear. 8. What are the important things to remember when buying an REO? (1 point)

a. Patience is a virtue.

b. Be Prepared.

c. Be Diligent.

d. All of the Above


Answers

1. Foreclosure = c; Short Sale = b; REO = a

2. False 3. No

4. No

5. Yes

6. b

7. c

8. d

Your Score Total =_______/10

Your knowledge is growing!

If you scored better than 80%, still read the material below once through. Perhaps there are details you are missing. Under 80%? Be sure to read it through a couple times, then prepare questions for your Home-Purchasing Team to help clarify any concepts you find confusing. There are no stupid questions in the REO world.


A Foreclosure is the process where the lender/bank takes possession of the property.

This is the result of the owner of the property not making loan payments on the property.

Multiple payments missed in a row will trigger the lender/bank to begin the foreclosure

proceedings. These proceedings time frames vary widely by lender/bank, county, and

state. Once complete and the property is in the name of the lender/bank, the lender/bank

will attempt to sell the foreclosed property on the court house steps. Any prospective

purchase will enter themselves into the auction and must be prepared to pay for the

property the day of the auction. There is no escrow period to line up financing. All must

be ready that day with cashier’s check in hand. The winning bid will get the property

“As Is” - if there are outstanding liens, the winner gets them. If no one bids the bank’s

asking price, then the property goes to bank/lender and becomes an REO.

A Short Sale is still owned by the individual but needs lender/bank approval to sell it

for less than is owned. The house the seller owns is “under water”. They owe on their

mortgage more than what the home is worth. For this reason, when they receive an offer

to buy the home, they have to present this offer to the mortgage company and ask for

permission. The mortgage company then determines whether they will agree to a

discounted payoff of the loan. Sometimes there are two or three lenders involved as the

property has two or three liens on the property. In these cases, the seller has to get

permission from all of them to payoff these loans at lower amounts than originally

agreed. The buyer needs to be prepared to be very patient as the short-sale acceptance can often

take months. Should you wish to learn more about Short Sales, look out for the Short

Sale workbook coming in the future.

An REO (Real Estate Owned) is a property owned by a lender/bank as a result of a

foreclosure. The property has gone through the foreclosure proceedings, the original

owner has lost ownership, and the property has been listed on the courthouse steps in the

form of a Trustee Sale. The property becomes an REO if the Trustee Sale is unsuccessful.

The lender/bank then proceeds to try and sell the property through a trusted real estate

agent. First they may have to carry out an eviction and clean up the property. They will

pay the HOA dues current and negotiate with the IRS for removal of any tax liens. The

time between the unsuccessful courthouse step offering and the day the property goes

onto the market (placed in the Multiple Listing Service, MLS) can vary widely. The bank

is now the seller and the pace of the transaction will be set by them.

“Know the Lingo”


In this section you will learn about 12 big picture items of an REO transaction and why each piece is critical to the process. Enjoy the 30,000 foot view.

1. Understand the REO Process

REO Offers must be approved by several officials or investors. It is important to set your expectations regarding documentation, approvals and time frames. Be patiently persistent and ready to run when called upon to do so. There will be plenty of

“hurry up and wait.”

2. Pre-Approval Letter

This can’t be stressed enough. If you notice certain Banks flooding the REO market, a pre-approval not only gives Buyers an estimate of how much they can afford, it also, in most instances, makes them eligible to submit an offer. REO Banks will often require you to get pre-approved with one of their loan officers. This doesn’t mean you have to use that Home Loan Officer. They just want their loan officers to get a shot at the deal. They also want to know the loan has a very good chance at going through. They trust their Loan Officers, so a stamp of approval from one of their team members gives the bank better certainty they won’t be placing this property back on the market days after a prospective borrowers falls out of escrow. Again, this doesn’t require you use their Home Loan Officer. You have no

obligation to do so. The stamp of approval helps in your offer getting accepted, but who you use after that holds no weight over how the bank treats you once the offer is accepted. Choose the Home Loan Officer you feel most comfortable with.

Important Tips - MACRO


3. Know Where to Look for REO Properties

Contact an REO Agent for local listings. They get a heads up about properties coming down the pipe months before they even hit the market.

4. Know What the Timelines are and Why they are Important

Buyer must meet timeline established by the purchase contract. Listing Agents must be notified immediately if any delays occur and why the timelines cannot be met. If closing is delayed after the original close date, a full written explanation is required and a per diem fee may be allocated. Worst case, if the delays stems from the Buyer, the deposit may need to be released to the seller, the Bank.

5. Insist on a Professional Home Inspection

Budget for thorough inspections as REO properties are typically sold AS IS, and a professional inspection will give Buyers all the information they need to determine what the property is worth and how much work it will need in the near future. With

many REO’s, you can expect to see some surprises or bigger issues.

Remember, you aren’t buying a new car. You are buying a used lease. The previous owner more than likely let many things go in the house; either because of their finances, knowing they would be foreclosing (why sink extra money into it?), or they were angry with the bank and actually caused damage to the property.


6. Make a Reasonable Bid

The Bank has a duty to its investors to sell at the best price possible, so list prices are set at fair market value. In order to be successful, Buyers should submit their best

offer FIRST.

7. Have a Title Search Done

Some liens on title may not be uncovered until the closing process begins. The title/escrow company can help with this. Have your agent guide you through getting the preliminary title report. Address any issues with the seller upfront. Clearing liens should be handled by the Seller as part of the approval process.

8. Work With the Seller’s Agent

The Seller’s Agent works directly with the Bank. Check in frequently, follow the Agent’s advice, respond quickly to documentation requests, and communicate any changes promptly in order to avoid any unnecessary delays.

9. Banks Don’t Want to Hold onto These Properties

The Banks want these properties off their books. For many reasons they have bottlenecks in the process of foreclosing on properties. By the time it hits the market, it may have been two years since they’ve received payment on the property. For this reason, they are looking for the best opportunity to get the highest value with the most guaranteed closing.

A buyer that can show they are willing to pay a fair price and close on time or sooner, with little headaches, means a lot to the Bank. The last thing they want is a Buyer that falls out of escrow because they get scared or can’t pull the financing together. For this reason, they favor those that are ready to go with their cash or have a near certain likelihood of obtaining a loan.

10. REO Listing Agent’s Record

What have the REO Listing Agent’s homes been selling for in comparison to their initial offer price? See if there is a trend. See if they tend to price low and ultimately sell high or price high and eventually sell low.

11. Know the Real Interest in Property

If the property is getting 20 interested buyers compared to 1 or 2, this changes your strategy for winning the bid. Have a good chat with your Agent and the Listing Agent.

12. Why isn’t the REO Listing Agent Calling Me Back?

Sadly, this isn’t uncommon, as many REO agents are inundated with properties. There is no valid excuse for it though. Be persistent. This should get better as the number of REO properties begin to fall.


While the last section offered you the bird’s eye view of the REO transactions, this section is focused on the granular. Take note of these 13 tips and you’ll be sure to limit your stress and increase your chances of a successful REO transaction.

1. Silent Release of Contingencies

When dealing with the bank as the seller, contingencies will be released without

your knowing if you don’t stay on top of your dates and communicate. This is unlike an individual seller, when communication between all parties happens the days leading up to the contingencies to ensure they are properly released. The Bank uses the date noted on the contract. Whether they hear anything or not from you, they will be released unless an official document is prepared and agreed upon stating otherwise.

2. Only Health & Safety Repairs/Items will be Considered for Approval Banks understand present day loans require the property to be up to health and safety standards. For this reason, they are often amenable to supporting repairs connected to these standards. Anything that falls outside of the health and safety lines will be much more difficult, if not impossible, to get approved for fixes.

3. Cost/Benefit Analysis for Repairs vs. Credit Given that the Banks are often more stringent about the repairs and credits they are willing to grant you, the Buyer, it is important to weigh out the costs and benefits of seeking them out. If you are seeking to get an offer accepted, it might be one of the quickest ways to lose out on the deal. If you are seeking these repairs and/or credits during escrow, asking may heavily delay the escrow period as the Bank representative typically takes many days to respond. If they need to seek approval from a manager, this could further delay response times. Discuss the pros and cons

with your Agent thoroughly before you decide to ask for extra actions taken.

Important Tips - MICRO


4. HUD Sign-off Takes 5 Business Days, so Sign at Least a Week Before The Banks require that they review and sign-off the HUD. The HUD is the document with the breakdown of all the fees and payouts of the transaction. Being that this typically takes 5 days, and they can’t sign off the HUD until the loan documents are prepared, you will want to make sure your Home Loan Officer has scheduled your loan signing at least a week before you are to close the transaction. Otherwise, you can expect delays.

5. Make Sure Your Agent is Diligent and Aggressive This has been noted previously, but it is worth noting again. Detail, diligence, and a

good dose of persistence are all important in moving your deal through the process smoothly and effectively.

6. Bank Sets the Pace of the Transaction. Delays Do Occur. While you are required to meet all of the dates set forth in the contract, the Bank is the one with the stronger arm in changing these dates through delays. Be prepared

to be flexible. Delays do occur. You may need to tell your home mover that they are to wait a couple days.

7. Set Short Inspection Periods. Your offer will look stronger to the bank if you can set a shorter inspection period. To ensure you don’t lose out on information and/or feel rushed, review the initial inspection report run by the Seller’s Agent, if available. Then, once your offer is accepted, jump immediately into getting your own inspection completed. Call an

inspector when you know your offer is on the verge of acceptance to ensure availability and prompt turn-around times.

8. Owner’s Title Insurance Most often Buyers prefer to work with whichever title and escrow company the Seller, or Bank in this instance, recommends. If you have a strong preference, the Bank will be amendable, so long as you pay for the Owner’s Title Insurance. Note, the Bank would typically pay for the Owner’s Title Insurance.

9. Do Not Try to Change “Vesting” Half-Way Through Be consistent and make your offer as you would like to purchase it. Banks really don’t like seeing the offer come from “John Doe” then later have it switched, once the offer accepted, to “James Doe”. This throws up many red flags to them and could even kill your deal. Be detailed upfront. Use your official name, the name under which you will hold the property and obtain loan financing.

10. Buyer Cannot Complete Any Repairs Prior to Closing Because the property is still owned by the bank during the escrow period, the Bank will not take on the liability of you going into the property and making updates or changes. If there is something agreed to be fixed, then the Bank is going to send

in their own preferred contractors.


11. Be Cautious About Future Repairs Most Buyers, and even home owners, under estimate the cost of future repairs. Be sure to ask the hard questions upfront so you can begin properly budgeting for the roof repairs, plumbing, landscaping, etc… Your pocketbook will be grateful you did.

12. Permits and Zoning Some properties may have zoning violations. You will want to discover this early on as to determine whether they will be an issue in the loan process. The lender wants to ensure that the home you are buying does not have any looming liabilities that could heavily depreciate the collateral (the house) their loan is tied to, or shock your financial situation in such a way that inhibits you from paying your mortgage on time.

Know these hurdles early on and communicate them to your Home Loan Officer. They are your teammate and can be your guide.

A city official learning of zoning issues after you purchase the property could

require the fixes be carried out, costing you thousands of dollars that you don’t

have.

13. Condos and HOAs Home Owners’ Associations, often known as HOA’s, can create hurdles for you when buying a condo. Whether you are getting a loan to buy the property or pay all cash, it is important to understand the state of affairs with the HOA. It is important to know if there is a lawsuit outstanding that could cost all of the home owners a large chunk of money in the future, financial troubles that will lead to the depreciation of amenities, or even limited owner occupied to rental ratios.

All can lead to higher costs for you in the future, headaches, or the property

losing value. It is important to take these risks into consideration when deciding whether this condo is right for you.


An REO purchase is a unique transaction. You are taking on more risk than a traditional transaction and have less freedom. Mentally prepare for what is ahead. This is in no way legally binding, but we recommend making a commitment now to yourself and your team.

Mantras – Write Your Initials Next to Each Mantra

1. I will expect the unexpected. _____ _____ 2. I understand there will be a lot of hurry up & wait. _____ _____ 3. My patience is key. _____ _____ 4. Nothing in life is fair. _____ _____ 5. I will enter at my own risk. _____ _____ 6. The Bank/Lender (property owner) is responsible for next to nothing. _____

_____ 7. I will build a team that is able to work nights and weekends. _____ _____ 8. I can expect AS IS. _____ _____ 9. Timing will be everything. _____ _____

10. The early bird gets the worm. If appropriate, I will be early. _____ _____ 11. I will write a fair, attractive offer, which I believe I’m capable of fulfilling. ____

_____

Action Steps I Can Take to Write an Attractive Offer:

1. I can limit my time periods if my Agent, Home Loan Officer, and I feel them obtainable. ___ ____

2. I can ask for as little seller costs as possible. _____ ____

I Will Prepare Myself By:

1. Visiting a Well Qualified Home Loan Officer. _____ _____ 2. Building a strong Real Estate Team. _____ _____ 3. Locking down my down payment funds as soon as possible. _____ _____ 4. Organizing my path as best as I’m able. _____ _____ 5. Knowing my maximum loan amounts for the purchase price. _____ _____ 6. Knowing time periods and being sure my Home Loan Officer can act quickly.

_____ _____ 7. Obtaining pre-approval letter. _____ _____ 8. Communicating with my home purchase team throughout. _____ _____

REO Buyer Commitment


We repeat – Get Pre-Approved!!! If you notice certain Banks are flooding the REO market with their properties, you should contact the Bank’s local lender and get pre-approved with them as well. A pre-approval letter not only gives you an estimate of how much you can afford, it also makes you eligible to submit an offer. Most Banks require you to get pre-approved “in house” with one of their Loan Officers. This does not mean you have to use them. This does allow the Bank’s loan officers to get a shot at the deal. They also want to know the loan has a very good chance at going through. They trust their loan officers, so a stamp of approval from them gives the bank better certainty they won’t be placing this property back on the market. If you already have a pre-approval letter with your chosen lender it is that much easier for you to expeditiously obtain the same from the Seller, as the hard work has already been done. Most importantly, jumping through the pre-approval hoops of a particular REO Bank does not mean you are unable to work with your chosen Home Loan Officer. You can still use them.

Get Pre-Approved


Below are important documents needed for most all loans. Being detailed about this list, and submitting them in a timely fashion will dramatically increase your chances of receiving quick response times and a well-grounded pre-approval from your lender. We’ve also included an easy-to-use worksheet to help you keep track.

� Tax Returns - Last 2 years of your federal tax returns (Personal, Business, K1s). ALL PAGES

� W2s - Last 2 Years. ALL W2s that went into composing the personal federal tax returns.

� Paystubs - 30 Days. If you get paid a paycheck, you will need to supply one month’s worth of paychecks.

� Bank/Asset Statements - 2 Months of consecutive statements or most recently quarterly statement for all liquid assets claimed on your loan application. These might include: Checking, Savings, Money Market, CD, Stocks, Bonds, IRAs, Life Insurance Policies and 401K accounts.

� Insurance Information - If you own other properties, you will be required to show the insurance policies on these other properties to confirm their annual premium.

� Mortgage Statements - If you own other properties, you will be required to show the latest mortgage statement for these properties including 2nd lien HELOCs.

� Identification - A copy of your driver’s license and/or social security card is

required by the Patriot Act. If you are a non-citizen, you will need to provide your green card or visa.

� Pension or Social Security Documents – Award Letter and/or proof that

income will continue for at least the next three years.

� Divorce Decree - If you have been divorced or legally separated, you will need to provide a copy of your final decree or agreement. This is to verify child support, alimony, property ownership, other obligations, etc...

� Bankruptcy Papers - If you have filed within the last 7 years, you will need to provide your full bankruptcy papers, discharge, and a letter of explanation for the bankruptcy and why it is unlikely to happen again.

Pre-Approval Checklist


Know the market so you can bid aggressively and with confidence!!!

Your first offer should be your best offer.

Determine real comparables by doing the following: Comparables. Get a Comparative Market Analysis from your Real Estate Agent. Look up the last three months of sold listings. Use homes within very close proximity, square footage, number of beds, baths, amenities and condition.

Pending Sales. Have your Agent contact listing agents of pending sales to get an idea of where sales in the very near future will end up. Active Listings. Other Buyers will use these to formulate what they think is a realistic price. They are your competition. Active listings in a falling market are usually lower than those comparables that have already sold.

Determining a Fair Price


Offer Ready? You’ve found your dream home, and so have ten other buyers. Worried? Don’t be. Discouraged? Perhaps. But don’t despair. You will win some and lose some, but following these next tips will help you submit your offer confidently and with no regrets. It’s time to kiss some Bank bootay with a few important Seller-friendly offer details. 1. Be nice to the Listing Agent.

Are you amazed by the lack of consideration adults show sometimes? You can be successful with kind persistence. Some Listing Agents are inundated with offers and use this as an excuse to not return phone calls or emails in a timely fashion. Do not let that stand in your way. Kill them with kindness. If you have found your dream home and think you have a competitive offer, mild stalking is acceptable. This all reminds us of the importance of having the right members on your team (refer back to “The Importance of Preparation” on pages 5 through 8). 2. Write a “CLEAN” Offer.

Time to define “CLEAN”. Depending on the market and the listing, the most competitive offer has the following characteristics (beyond the highest purchase price):

• limited to no requested repairs

• minimal due diligence periods

• all supporting documents verifying funds to complete the purchase 3. Understand the REO Process.

REO Offers must be approved by several officials or investors. It is important to set your expectations regarding documentation, approvals and time frames. Be patiently persistent and ready to run when called upon to do so. It is time to hurry up and wait.

Making Your Offer Shine Time to Take Action


4. What are the Details in Making an Offer for an REO?

Offers may be held for review immediately after the listing is made public in order to ensure the property has significant exposure to all potential buyers. If there are multiple offers, all buyers must sign and return the multiple offer acknowledgment, without exception. Your AGENT should ask:

• Are there any inspections or reports? (Rarely – often times no.)

• What work has the bank agreed to? (Usually none – not even pest.)

• How long does it take the bank to accept an offer? (5 business days)

• How does the Agent deliver the offer? (Via the listing agent)

• Should I include a cover letter with my offer? (If you are offering a low ball, you might want to really explain the reasoning behind your price, pointing out all the issues.)

• How do I find out the lender’s cost basis?


TITLE AND ESCROW

Owner’s Title Insurance If the Buyer selects the Escrow company, payment of customary closing fees is often at the Bank’s discretion. The Bank may require the Escrow company to provide proof that the closing agent maintains the minimum required liability and/or bond insurance to participate in the closing. If the Bank rejects the Closing Agent, the Buyer will be allowed to select a new Escrow company. In situations when the payment of closing fees is not negotiated in the purchase contract or the buyer requests a change to the closing agent, the bank’s Asset Manager must approve the change and approve to pay the fees via an addendum to the contract.

Earnest Money Deposit Write in terms remitting deposit to “Seller’s Choice” or “To Be Determined” instead of a specific closing company name or such terms may also be executed via an Addendum.

Closing & Escrow Tips A non-negotiable Purchase Addendum must be signed by Buyer. Once the contract is accepted, the Seller typically notifies the Listing Agent with the preferred escrow company contact. Follow-up with assigned closing company to make sure the executed contract and Buyer’s earnest money deposit are received. Notify Listing Agent when loan approval is received and closing date is set.

The Final Stretch


INSPECTION CHECKLIST:

Be prepared upfront, before going into the inspection, with what questions you have for the inspector. Below we offer you a list of items to review and check while walking the property. There are always more details than we include here, as every property is unique. This is why we’ve also include extra room for you to fill in your own details and questions. Your goal is to use this time to complete your due diligence. Use the information gained to determine how much risk is involved in releasing the inspection contingency and if any further negotiations are needed before inking this section of the contract. We want you to feel empowered when you do so. This checklist and list of questions will help limit the chance of big surprises down the road. Start with the property disclosures. Ask for these from the seller. Write down any questions connected to the notes therein. This should get your wheels turning for other questions and things to look out for. Often a property inspection has already been done. See about going through this as well.

PROPERTY DISCLOSURE QUESTIONS: 1. ______________________________________________________________________ 2. ______________________________________________________________________ 3. ______________________________________________________________________ 4. ______________________________________________________________________ On inspection day, carve out X number of hours (ask your Agent) to go through the home, ask questions, and take notes. Most often your agent will be by your side. They have been through numerous inspections. Lean on them for advice and clarifications. They can guide you as to whether a fuss is needed to be made about issues or not. Don’t feel any need to rush it. This is your chance to look under the hood and get an unbiased perspective as to the current state of affairs and possible future maintenance costs.

Do Your Due Diligence


COMMON INSPECTION TOPICS:

Issue Description

Water Pressure:

Heat / Cooling System:

Lighting / Electrical:

Roof:

Basement:

Crawlspace:

Termite Damage:

BRAINSTORM AFTER INSPECTION:

Sit down with anyone with whom you’re buying the property, along with your agent. Share your notes. List out possible resolutions to any issues that came up or potential future issues. Determine if any official requests are to be made of the seller. Lastly, note any items that may be important to share with your lender.

Notes:

Possible Resolutions:

Official Requests to

Make of Seller:

Notes to Share With

Bank/Lender:


1. Are REOs Always a Deal? Are They Sold at a Discount?

No. The Bank is looking to get fair market value just like a standard home owner would. The initial price tag can be lower for a number of reasons, including huge problems that will cost a lot of money to resolve. It could also be the Listing Agent looking to create a bidding frenzy, stirring up multiple offers. With anything, you need to have a good idea of fair market value for the property on which you are making an offer. (refer

back to “Determining a Fair Price” and “Making Your Offer Shine” on pages 25

and 26)

2. Do I Need All Cash to Buy an REO?

No. You can get financing to purchase the property. Often times, you will hear the deals go to those that pay all cash. This can be true, as they are the ones offering the lowest risk to the bank/lender selling the property. An all-cash buyer doesn’t have a lender to answer to about whether the property or their finances fit the bill. All they answer to is themselves. They have the cash ready to go. This risk is much lower in most instances for the Bank selling the property, thus, they are at times willing to take a lower offer price in trade for the lower risk. This only serves as greater reason to have all your ducks in line if you are to make a bid on a property. Know what you can and cannot do, and what you will and will not do. A strong Real Estate Agent and Home Loan Officer will help you in the preparation. (refer

back to “The Importance of Preparation” on pages 8 through 11)

3. Are All REOs in Terrible Condition?

No, they aren’t. But it is very important that you do a thorough inspection to make sure that you are getting what you are paying for. Every property is different, and many REOs are in great condition. Building a strong team will help you stay away from the more disastrous REOs and find one that fits your temperament.

Frequently Asked Questions


Below is a checklist of all the important documents needed for almost all loans. Being detailed about this list, and submitting them in a timely fashion will dramatically increase your chances of receiving quick response times and a well-grounded pre-approval from your lender. Use this worksheet to help you organize and stay on top of your documentation needs. Be sure to include all pages of each statement.

Document Need to Obtain Compiled Sent to Lender

Tax Returns

W2s

Paystubs

Bank/Asset Statements

Divorce Decree

Bankruptcy Papers

Insurance Information

Mortgage Statements

Identification

Pre-Approval Checklist Worksheet

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