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Foreclosures may be a Bad Deal

2007-08-24T13:53:32.64-04:00

Here we go again! The feeding frenzy around foreclosures is heating up to a fever pitch. There’s a general belief that if you buy a foreclosure property, it’s a good deal. Be Careful! It may be the worst thing you could do. Generally, a property goes into foreclosure because the owner was “upside down” in the property. That is, they owed more than the property was worth in the open market, considering the loan amount and the costs of getting the property sold. So, they let it go to back to the lender.

Foreclosures often occur in a soft market that can follow the rapid appreciation the nation experienced from 2002 to early 2006, and then the market hit the skids. Rates went up, and the steam went out of the speculation market, and those who bought at the top are caught holding the bag. Many of these are lenders who did just about anything to book a loan during this period. They want out of those properties, but not at any price. Their goal is to recapture as much of their investment as possible.

Before you buy a foreclosure, you need to research what’s going on in the area, not just the value of the property you’re considering. If foreclosure activity is up, flipping is up and the trend is volatile, you could be buying trouble if you don’t do your research. So, analyze everything you can about that local market. Check out the history of the property. Has it been recently foreclosed? If so, there could be underlying problems with a property that has been cosmetically repaired. The old adages “look before you leap” and “if it sounds to good to be true, it probably is too good to be true” come immediately to mind. So, watch your step and do your homework.

HomeSmart Blog:

2007-08-24T13:52:23.812-04:00

Look out for Fraud in real estate. The FBI place mortgage fraud at somewhere between $986 Million and $4.2 Billion for 2006. Gee, is there a lender out there who’s not telling the truth? How do you get to that big a range? Let’s be reasonable and split the difference. That number equals $2.593 billion dollars lost per year by lenders relating to some type of mortgage fraud. Two years ago, they (a mortgage lender association) admitted to losses just over a billion. Any way you slice it $2.593 Billion is a whopping number! Somewhere along the way, some consumer has lost money in the deal.

If you weren’t a victim of the specific fraud scheme, you may own stock in the lending company. If you don’t own stock, you’re probably paying higher interest rates because of those losses (that lenders don’t entirely admit). If none of the above items affected you, you may live in such a neighborhood where prices have gone down (lowering your equity) causing you to lose money. In any of those cases, fraud brings down values.

Do your research! Get an instant value estimate or check out a fraud detection report, or both.

Real Estate Fraud Can Happen To YOU by Steve Morgan

2006-11-03T08:39:38.712-04:00

Simply put, real estate fraud is defined as a material misrepresentation of fact intended to induce you into the transaction and let me tell you, that inducement can really hurt. You could lose all those hard earned dollars if you’re not paying attention so get with it and PAY ATTENTION.

For instance, if someone sends you an e-mail saying that you recently won the international lottery (I just received one) for $1.5 million and all you have to do is send your bank account information so they can make a direct deposit would you do it? Obviously, if you do, you’re an idiot (no, I didn’t respond) but there are other things going on in the real estate world that are equally as ruinous.

It doesn’t happen to everyone BUT it does happen to someone every damn day. If you aren’t aware of some of the pitfalls you could be one of the idiots (there’s that word again) that gets

B U R N E D.

If you want to throw your money away, throw it my way. I still have a kid in college and I’d much rather have the money go for books, food, tuition, beer and other staples instead of the crooks that would like to spend it on only one of the previous four items (guess which one)………….

There are many types of real estate fraud and to be honest, you really don’t have to be an idiot to be taken in by the unscrupulous. If you’re an uninformed consumer, then yep, you can be “had”. Market price alone can hurt you real bad. Check this dialogue out –

Michael:

So, Phyllis, I hear you are in the market to buy a house.

Phyllis:

Where did you hear that?

Michael:

Ok, never mind, but listen – I know this great way you can buy my house, plus we can make a little money doing it.

Phyllis:

But I don’t want your house Michael…

DWIGHT ENTERS IN A HURRY, CUTTING HER OFF.

Dwight: (to Michael)

Okay, so operation “Appraiser” is in effect – code blue, code BLUE, but we have to hurry

Michael:

Great, this is excellent. What is code Blue?

Dwight: (ignoring him)

QUESTION: Are we still splitting the profits 47-47-6?

HE GLARES AT PHYLLIS.

Dwight: (continued)

Never mind, she is in the room.

Phyllis:

Profits? What is he talking about, Michael?

Michael:

Okay, so you need a house and I need to sell mine. So, even though my house is worth $200,000 – BARELY – you are going to offer me $300,000 and Dwight will help make it happen.

Phyllis:

Why would I do that?

Michael:

Don’t worry about it, it will all make sense later…and you’ll make some big bucks

Phyllis:

But I don’t want your house, Michael…

Dwight: (irritated)

SILENCE!! LISTEN to what he is saying!!! You will offer Michael $300,000; I, a licensed appraiser for eleven years says that the property is worth $300,000; you get a loan for $300,000 from the bank, because they trust licensed appraisers…

Michael:

Then I get $100,000, 50% more from the bank than I should…

Dwight:

Which we split 47-47-6…

Michael:

Plus, your new house – my old house, looks like it was really expensive, and then it makes your neighborhood look expensive. Which is not that good for future buyers, I guess…

Dwight:

Who cares?!?! 50% more money!!

Phyllis:

But that’s unethical.

Michael:

But we are making money – Cold. Hard. Cash. It’s pretty hard to say no, right?

Phyllis:

But I don’t want your house, Michael.

So…if you don’t watch the Office – please, please change your ways.

Alright – not every buyer would be as clueless as Phyllis – usually, the appraiser, buyer and seller are all in it together to make a profit off of the bank – and then they can split town. Also, as Michael discovered, the future buyers like YOU will get hurt by paying too much in this artificially inflated neighborhood. Then you have to sit and wait around until your house is finally worth the price you paid for it (this could take years, if ever) - only then can you start to make money on your major investment.

Where do you come in? If you buy a property in this artificially inflated neighborhood, thinking that you are getting a good deal, you aren’t. When everything blows up and the “house of cards” falls, the fraudulently transacted properties go into foreclosure, you have a property and a neighborhood that is overvalued and it’s going to take a while (sometimes a long while) for the property to reach the price that you paid for it.

If this happens to you, you’ve been had and it happens all the time.

www.homesmartreports.com can save you from a lot of aggravation and the loss of big bucks and I can prove it to you – simply post an address and the estimated value of the property and I’ll do the rest. Let me show you what a data analysis of your property can show and if there are any risks present, we’ll flag them for you……………..Be smart.

Lenders Growing Less Jittery About Collateral'--discussion of RealtyTimes article by Mike Ela

2006-08-31T10:02:07.181-04:00

To read the article, click here.

The essence of Collateral Risk Measure (CRM) is that it helps everyone understand the potential downside of real estate investment. Lenders use this type of tool on nearly every loan in their portfolio because they want to understand their exposure if the loan goes bad. That is, they want to know how much money they will lose if the property goes into foreclosure. So, they review area foreclosure activity, property flipping events, appreciation/depreciation trends, property history and other factors that can influence the value of a property and that gives them insight as to their risk potential.

Likewise, buyers and sellers need to understand their exposure to risk. Afterall, you are the ones making a big investment. For decades, real estate professionals have harped on price, and price alone, to determine a property's value. However, if the market is trending down, if there is foreclosure activity in the area and if market flipping is prevalent, just looking at price won't tell you the whole story. If you're a seller, this information will help in pricing your home. When you work with a real estate professional, it will give you another point of reference. If you're a buyer, this type of report will help understand the type of market you are in, a soft, normal or a heated market and how quickly (or slowly) you should act during a negotiation to arrive at a successful conclusion.

Buying property is a VERY BIG DEAL. Do your research and look beyond sales comparables to help you understand value. Be informed, as the proper tools are available.

Real estate flipping starts slipping'--discussion of Press Democrat article by Steve Morgan

2006-08-31T09:44:44.712-04:00

To read the article, click here. You may be required to register first.

The term property flipping often has a very negative connotation connected to it because of the opportunistic image some property flippers have acquired over the years. It is true that much of the real estate and mortgage fraud that occurs is the result of fraud rings that use multiple people (straw buyers, appraisers, real estate agents etc.) to falsely inflate home prices, sell (flip) the property to a "friend", cash-out refi's are taken at a very high loan-to-value (LTV) ratio and eventually, the buyer walks away with the proceeds and the property goes into foreclosure.

There are bad apples in any business but let's be clear - flipping properties for a profit is as American as apple pie and the World Series and VERY legitimate. Regular people and investors alike serve a very useful purpose in the real estate commerce process. They help create a more fluid real estate market, make investments in improvements (got to keep the contractors happy!) and take a very big risk when they set the price to sell the property. If they don't get their price, they can lose money and a lot of money at times. If it was risk-free, everyone would be doing it.

The fact that property flipping (selling a property within a 6 month period of its purchase) has sunk to very low historic levels is further evidence that there is nervousness in the real estate market and the "quick buck" opportunity is not as prevalent as it has been over the last several years. There is still money to be made but people need to work a little bit harder to uncover those money-making opportunites. Paying close attention to the market trends, risks and nearby sales prices in the immediate area are critical to making a well founded decision.

Reliability of AVM's by Need advice in Sacramento

2006-06-15T10:03:50.993-04:00

What is an AVM?

Reliability of AVM's

How are reliable are AVM's? Several Real Estate agents I know say appraisers more accurately determine the value of a home than does an AVM.

AVM defined by admin

2006-06-13T10:05:38.712-04:00

What is an AVM?

AVM defined

Automated Valuation Modeling (AVM) is a term given to home price estimation and utilizes statistical or mathematical applications to assess the value of real estate in moments; single-family residences and condominiums are the subjects of these high-speed estimates. At present, there are some fifteen models, and perhaps a few more, that exist in the United States. Most of these applications have been in the market for a minimum of seven years and some, for as many as twenty years. They have been used by the mortgage lending industry as a means to understand values so that lenders can 1) save some of the costs related to appraisal and 2) manage the risk of all of the loans that they originate or sell into the investor market. In other words they want to manage their risk and use automated information tools to help them streamline their process.

In conducting their tests, lenders most often use a sample of their own "closed loan" portfolio and also a sampling of closed sale transactions from publicly recorded data. What better way to validate the accuracy and the "hit rate" of the models? Accuracy relates to how far the AVM estimate is from the actual transaction amount. It would extremely rare that a model would predict the exact price of the prior sale since it analyzes so much information to make its estimate. The variance in the actual sale price or appraised price and the AVM result is measured on each property. Hit-rate is a measure of how many times the model is able to come up with a value estimate. There are a few major factors that determine hit rate.