Foreclosures, short sales and REOs could get you a great deal ... or they could be a disaster. Understand the risks involved before you make a move.

If you are in the market to buy a home, expect to see distressed sales: foreclosures, short sales and Real Estate Owned sales (REOs). Many buyers associate distressed sales with “deals,” causing their eyes to light up. More risk-averse buyers hear “distressed” and steer clear.

All distressed sales aren’t created equal, and each type should be approached differently. Before you set out in search of your next home, know the differences between them and what exactly they mean.

Short sales

Short sales are listings where the current market value of the home is lower than what the homeowner owes to the bank. The homeowner is the seller, and they have a good deal of control over the home sale.

It’s important to know that the seller’s short sale position could be no fault of their own. A job transfer, divorce or growing family could mean a move is necessary, but unfortunately their home’s value took a hit since they purchased the property.

The risk

Although they have control over the sale, the seller needs the bank’s permission to take less than what is owed. This is where short sales get complicated.

Banks can be slow in responding. So a buyer may make an offer, and the seller accepts and even signs a contract, but it could take months for the bank to respond. And it could do so with conditions like asking the seller to bring money to the table, or countering on price.

It’s this uncertainty of timing that scares some buyers off, because most want to be in their new home by a certain time. Additionally, some buyers get emotionally attached to a home, only to be let down if the bank rejects their offer, or the seller and the bank can’t come to terms.

The upside

If time is on your side and you can refrain from getting too attached to a home, you could get a good deal — sometimes up to 10 percent below market value. The longer the process goes on, the better the price, because the market, in some cases, is improving as the bank works through its processes.

Also, short sale sellers tend to price their listings below market value because they know that many buyers won’t want to wait around or deal with the uncertainty of the bank’s decision. So, the price suffers, and the patient buyer wins.

Foreclosure sales

Buying a home through a foreclosure sale should be reserved for only the savviest of real estate investors. Here’s how it works: If a homeowner doesn’t make their mortgage payments over time, the bank initiates foreclosure proceedings. After providing enough notice to the homeowner, the bank will sell the home to the highest bidder on the courthouse steps, auction style. If the loan amount is much lower than the market value of the home, you can expect to see bidders there. If the mortgage amount is more than the market value and nobody purchases the home, the bank is forced to take the home back and become the new owner.

The risk

There is no going back to the bank for credits or asking for a refund if there are problems. And bidders must show up with cashier’s checks in hand, because foreclosure sales are cash-only sales.

Also, since these homes are not listed for sale on the open market, chances are most bidders won’t ever have the opportunity to step inside to inspect the property. Foreclosures are sold absolutely “as is.”

Finally, there could be additional liens on the title, tenants in place, or any number of red flags, all of which make the purchase riskier because they become the problem of the new owner.

The upside

Generally, foreclosure sales will trade for at least 25 percent below the market value, and sometimes more, simply because most home buyers can’t show up with cash, won’t buy a home as is, and don’t have the experience or knowledge to take on such risk. Typical foreclosure buyers will take on the risk and do what is necessary to make the home marketable for sale or rent.

Real estate owned (REO) sales

If nobody shows up to purchase a home at the foreclosure sale, the bank takes it back, and the property becomes “Real Estate Owned” or REO.

Banks don’t want to be in the business of owning real estate. So, once they take the property back, they want to get it listed and sold as quickly as possible. You will likely see bank-owned homes for sale through online listings and your agent, just like other listings or sellers, except that they will be marked as REO and the seller isn’t a person.

The risk

Like foreclosure sales, there are few to no disclosures, and the home is sold as is. With an REO, you can actually go inside the home, look around and see it for yourself. They may even have open houses. You can have the property inspected and learn as much as you can. But since there isn’t a homeowner there to disclose what they know, it is still a bit of a risk.

The upside

REOs are generally listed at 15 to 20 percent below market value. (Of course, this varies by region and bank.) And REOs often need improvements, both cosmetic and structural, so an REO sale likely has the added value of a fixer upper. An REO could be listed at even 30 percent below the true potential value of the home, cleaned up and habitable.

It is important to understand that few banks are negotiable on price today. They know that the real estate market has improved, and will hold out for top dollar. Also, it is all a numbers game to the bank, so don’t expect letters to the “seller” to get you anywhere.

If you are entering the market for the first time, plan on seeing distressed sales in your search. Have a talk early on with your agent about the type of risk associated, and whether or not you would be a good candidate for one.

Don’t assume that all distressed sales are nightmares — or that they have “deal” written all over them. Each opportunity should be highly scrutinized, and you should always have a qualified real estate agent on your side.

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Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

About the author

Brendon DeSimone

Brendon DeSimone is the author of Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling. A 15-year veteran of the residential real estate industry and a nationally recognized real estate expert, Brendon has completed hundreds of transactions totaling more than $250M. His expert advice is often sought out by reporters and journalists in both local and national press. Brendon is a regularly featured guest on major television networks and programs including CNBC, FOX News, Bloomberg, Good Morning America, ABC’s 20/20 and HGTV. Brendon is the manager of the Bedford and Pound Ridge offices of Houlihan Lawrence, the leading real estate brokerage north of New York City.

Watch out for these common pitfalls, which could cause you to miss out on a great rate or even lose your deposit.

One of the hardest parts of getting a mortgage is interpreting advice from all the parties involved: mortgage lender, real estate agent, insurer, attorney or escrow officer, tax adviser, financial adviser, plus your family, friends and colleagues. Since your mortgage lender is involved in all parts of a financed home purchase, an ace lender can be your best guide.

Here are the five common mistakes that can cause hiccups in your mortgage process. Ask your mortgage lender to help you steer clear of them.

1. Excluding details of your financial profile

A good mortgage lender will begin by reviewing your basic personal and contact information, employment and residence history, income, assets and debts.

Simple, right? Only if you answer every question, whether it’s in person or on a form. If you don’t provide absolutely every detail about your financial profile, it can throw off the entire loan process.

2. Not providing every single piece of documentation

Next your lender will ask for detailed documentation for your entire profile, including:

  • 30 days of pay stubs
  • Two years of tax returns and W-2s
  • Year-to-date business financial statements if you’re self-employed
  • Two months of statements for all asset accounts
  • Explanations and paper trails of all deposits (and often withdrawals) above $1,000
  • A home insurance quote with adequate coverage
  • Full financials on any other homes or businesses you own

If one single page of any piece of documentation is missing, you’ll be asked to provide it. If your income is commissioned or variable in any way, you must authorize your lender to verify income directly with current and past employers.

The lender will also run your credit, which can reveal employers, addresses, debts and other credit inquiries that you didn’t disclose. If new information comes to light, you’ll be required to explain and document all of it.

3. Confusing approval with pre-approval

Misinterpreting approval status kills deals and can take years off your life. So remember this and live long in your new home: get your loan approved by an underwriter before you write any offer to buy a home.

Getting a mortgage “pre-approved” means you’ve talked to a lender (#1 above), or you may have even provided some documents (#2 above) and been told your profile looks good — but make no mistake, this isn’t a loan approval.

Be sure you ask to get “underwriting approved” and obtain a formal loan commitment in writing. Anything short of this means your profile has been evaluated, but your actual loan approval doesn’t officially begin until your loan agent submits your file to an underwriter.

4. Not sharing home offer details with the lender

The purchase contract — or offer you write on a home — dictates critical transaction timing milestones like how many days you have to secure loan approval and how many days you have to close.

Your real estate agent will take the lead here, but make sure your lender and agent are in sync, because the lender must provide these critical milestone dates that your agent writes into the contract.

If you miss either of these dates in your contract, you risk losing your initial deposit on the home. The only way your lender can provide accurate timelines is if they’ve executed all the steps above properly.

5. Being unrealistic or uninformed about rates

When a seller accepts your offer, you’re in contract to buy your home and ready to lock a rate for your mortgage. You can’t lock before you’re in contract because a rate lock runs with a borrower and a property.

This means you’re subject to rate market movement until you’re in contract, and rates change throughout each day as bond markets trade. Rates are priced based on how long they’re locked, so a shorter lock (such as 15 or 30 days) has a lower rate than a longer lock (60 days, for example).

To avoid rate surprises, ask your lender to quote rate locks based on your closing timeline. And don’t forget that if you’re cutting it close on qualifying and rates rise, the resulting cost increase can kill your loan approval. Ensure your lender is accounting for the possibility of higher rates so your loan approval remains valid if rates rise while you’re home shopping.

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About the author

Julian Hebron

Julian Hebron is a mortgage banking executive and consultant based in San Francisco. He’s the founder of influential consumer finance and housing blog The Basis Point, and his work is regularly cited by CNBC, The Wall Street Journal, and other mainstream media. Follow him on Twitter: @thebasispoint
 
 

It's hard to get excited about your new home when you're slogging through packing up your old place. These tips will speed you through it.

By Manuella Irwin

As moving day approaches, the idea of packing all your household belongings can be daunting. It’s one thing when you a have a few hours to pack a suitcase for a trip, but moving from one home to another takes packing to a whole new level.

When you’re ready to get started, some careful thought and a creative approach can help save you both time and money.

Begin with basics

Planning the packing of your home will ensure that you waste no time in the process, and achieve maximum results with minimum resources and effort. Make a schedule based on the time left until your move, so you don’t end up packing everything on moving day.

This is the time to prove yourself as a strategic thinker. Divide your household items into groups based on the room they’re located in, material they’re made of and frequency of use.

Start with the items you use rarely, and don’t mix items from different rooms, or items of different types, such as liquids with clothes. And when it comes to packing very high-priced items, don’t try to save money on your move by cutting out professional movers. It may be worth it to have some help.

Packing is a natural time to discard or donate items you no longer need — but be sure to keep a balance between emotion and logic as you make your choices. This principle may be hard to follow, but do your best to adhere to it. During your household purge, get rid of anything you won’t use anymore.

As you pack, create an open-first box with vital items you’ll need in hand as soon as you arrive at your new home, such as a first-aid kit, basic toiletries, towels, a change of clothes, a tool kit and a flashlight.

Think outside the (moving) box

Don’t spend time and money on buying packing supplies until you take stock of what you already have. Your home is full of free packing materials, such as clothing, bed linens, pillows, laundry bins and suitcases. There are many unconventional ways to use these items:

  • Enlist linens, towels and socks to protect glassware inside boxes.
  • Wrap dishes in T-shirts, or insert Styrofoam plates in between yours.
  • Pack books inside suitcases to make them easier to carry.
  • Wrap shoes in shower caps and stack them in a medium-size box.

It’s in the bag

The secret weapons for painless packing are probably right under your kitchen sink. Garbage bags, plastic wrap and sandwich bags have a multitude of uses.

  • Use cling wrap to keep necklaces and bracelets from tangling. Lay a few pieces of jewelry on a length of plastic wrap and fold the wrap over. Press around your items to keep them separate.
  • Don’t pull clothes off the hangers — instead, make a hole in the bottom of a garbage bag, and put the hooks of several hanging pieces through the hole. Pull the bag down over the clothes, and cinch the drawstring at the bottom tight. Voilà! Unpacking will take only minutes.
  • Cover shampoos and other liquids with plastic wrap before putting the top on.
  • Leave light items in dresser or desk drawers, and stretch plastic wrap firmly over the drawer.
  • Store all screws and bolts in securely closed sandwich bags.
  • Put pillows and blankets in garbage bags and seal them. When you load the truck, use them as padding between furniture or breakable items.

Electronic engineering

Make wiring diagrams for hooking up your entertainment system and computer, so you can connect them easily in your new place. Labeling cords and taking pictures of the setup will help, too.

Organize cords and cables by wrapping each one and stuffing it inside an empty toilet paper roll.

If possible, pack all electronic devices in their original box with enough cushion, and no empty spaces within the box.

Easy reading

Don’t underestimate the importance of labeling. You probably don’t have an army of helpers standing by to help you unpack and organize all your goods, so labels are essential to finding items fast.

Be sure that all boxes containing breakable items are clearly marked as fragile.

Packing can be a tedious and time-consuming task, but if you approach it cleverly, the results may surprise you.

Related:

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

About the author

Moving.Tips

Moving.Tips is a resource center that provides a complete solution for people on the move. From the pre-move tips, through the packing and moving day advice, to the post-move helpful information, it has it all. Moreover, budgeting your move and finding a mover can be child's play when you have an ally like Moving.Tips.
 
 

Think you lender is out of the picture once your mortgage is approved? Wrong. Keep them close as you prepare to make a purchase offer.

Of the many things that can trip you up when buying a home with mortgage financing, writing offers is one of the most common.

When you’re finally writing a home purchase offer (also called a purchase contract) after a long home search process, it’s easy to forget about your lender in the excitement. However, your lender must be involved because of these five ways purchase contracts impact the lending process.

1. The purchase offer must match loan documents

Names in the “buyer” section of your offer must match the names on the loan application exactly. This small but critical detail can delay or kill a deal.

For example, if your significant other is out of town when you’re writing the offer, your real estate agent may advise you to write it solely under your name. But if your loan application has both names, the lender will require you to add that missing person and have everyone, including the seller, re-sign the contract.

Or worse, if you use an entity like a trust or a business as the buyer, you’ll be forced to change the contract to human buyers that match the loan application. Mortgage loans must be made to humans, and you can transfer to entities post-close if that’s your goal.

2. The lender must approve home inspections you request

Your offer contract will ask you to select which home inspections you want. Appraisal inspections are required by lenders. Optional inspections include contractor, structural, engineering and pest.

Not all lenders will ask to review and approve every optional inspection report, but they study contracts and other property documentation (like listings on Zillow and local MLS sites) to look for red flags that may cause them to request a certain inspection report.

For example, if a public listing noted that a seller had already obtained a pest report and it contained $5,000 worth of repairs, the lender will require that pest report for review, and they’ll also require that the repairs are completed prior to approving and closing your loan, which can create timing issues. Mapping this out with your real estate agent and lender before you submit your offer enables you to execute the rest of the process with ease.

3. The lender must be able to perform on your closing timeline

Your purchase contract must state how fast you can close. In low-inventory markets where sellers have the upper hand, buyers who can close fast get the most attention.

You need your lender’s input on closing timing. They’ll tell you how long it will take to appraise the property, review title history, approve the condo project (if applicable), and finish approving you, if they haven’t already. All you have to do is tell your real estate agent to get the timing from your lender.

4. The lender must be able to perform on your due diligence timeline

Another critical point in contract timing is requesting how many days you need for each stage of due diligence, like completing your appraisal, securing your financing, approving seller disclosures, and completing inspections.

These “contingencies” protect you by enabling you to break the contract until you’ve released them. Just like with the closing timeline, sellers respond well to speed, so make sure your real estate agent is discussing timing of each contingency with your lender before you write and present the contract.

5. The lender must approve credits you ask for

Often real estate agents will advise buyers to seek a credit from the seller at closing in lieu of reducing a purchase price. A seller credit enables buyers to negotiate better terms for themselves while also conserving cash because the credit will be used to offset closing costs.

You can ask for credits in the beginning, but often they’re requested after an inspection reveals a minor property issue such as scuffed walls or damaged window screens.

In these cases, your lender will require a contract addendum (signed by the buyer and seller) to show the credits, which the lender must approve before having the appraiser amend the appraisal report to reflect the credit. These tasks can take two to six days for a lender to process, so you must keep the lender in the loop on all credits from the seller, real estate agents, or any other third parties.

Related:

About the author

Julian Hebron

Julian Hebron is a mortgage banking executive and consultant based in San Francisco. He’s the founder of influential consumer finance and housing blog The Basis Point, and his work is regularly cited by CNBC, The Wall Street Journal, and other mainstream media. Follow him on Twitter: @thebasispoint

All you need to know about coping with every renter’s worst nightmare.

By Stephanie Reid, Avvo attorney and NakedLaw contributor

There it is: the dreaded eviction notice, taped not-so-subtly across the front door of your home. Getting an eviction notice may seem like the end of the world at first, but renters do have tenant rights that can help resolve the issue or change the landlord’s decision.

Unfortunately, not every eviction is avoidable: Landlords have rights, too, and obligations to uphold the value of the property and the safety of all other tenants.

Here’s a look at what’s legal and what’s not when it comes to the eviction process.

Lawful reasons for eviction

When you first moved in, you (hopefully) signed a lease agreement with the landlord. At a minimum, the lease should contain the payment terms and effective lease dates. Most likely, it also contains a broad list of prohibited acts that could lead to an eviction, such as:

  • Failure to pay rent on time
  • Criminal activity or drug use
  • Assaulting or threatening other residents
  • Damage to the unit or common areas
  • Failure to abide by property guidelines or restrictions
  • Subletting without written permission
  • Having a pet
  • Exceeding the number of approved tenants
  • Smoking in the unit

Your agreement may also include opportunities to correct the problems if they come up.

Unlawful reasons for eviction

Your landlord cannot evict you just because he “feels like it.” Your lease is a binding legal document, and it’s only legal to evict you if you have broken the terms of the agreement.

Discrimination is forbidden in the housing industry, and the Fair Housing Act strictly forbids any housing decision based on race, color, national origin, religion, sex, disability or the presence of children. If you believe that discrimination has anything to do with why you’re being evicted, you should report the landlord to your state’s housing department immediately.

A landlord also cannot evict a tenant, or refuse to rent to them in the first place, based on a tenant’s disability or reliance upon a service animal — even if the property has a no-pets policy. A landlord must agree to make reasonable accommodations for the renter, including a wheelchair accessible housing unit or common areas designed to accommodate disabilities.

Proper eviction procedures

  • Time. Sticking a note on your door saying “Get Out” does not count as legal eviction protocol. Proper notice must be given, usually 30 or 60 days before the eviction date. In some states, a three-day eviction notice may be allowed if the tenant has committed an egregious act, such as assault or domestic violence, or failed to pay rent.
  • Details. An eviction notice does not always have to state the reason for the eviction, but some cities may require this. The eviction notice must properly identify the tenant, the unit in question, the contact person responsible for the unit — usually the landlord — and that person’s address. If the eviction has to do with non-payment of rent, the notice must include a valid address where rent may be sent.
  • Process. Under the U.S. Constitution, you’re entitled to due process of the law if you lose a fundamental right, including public or private housing. Telling a tenant verbally, giving the message to a mutual friend, or assuming he knows it’s time to leave will not cut it under the law. The tenant must be served the notice in person, sent the notice in the mail, or presented with the notice on the front door of the unit.

How to keep your home

It’s not impossible to remedy the problem or appeal an illegal eviction. In most cases, there is a way to fix the issue and avoid losing your housing.

  • Pay your rent. If the eviction is based on unpaid rent, the landlord must give you an opportunity to pay the entire outstanding balance on or before the final eviction date, which should be clearly stated in the eviction notice.
  • Fix or pay for damage. If the eviction is based on damage to the property, many jurisdictions allow the tenant to immediately repair or pay for the damage.
  • Appeal an illegal eviction. For residents of private housing units, an appeal is probably not available, but you may be able to pursue civil legal action if the landlord doesn’t follow your state’s proper eviction procedures. If you live in public housing, it might be possible to appeal an eviction, particularly if you think you’re being evicted illegally. In many states, pro bono fair housing lawyers are available to help renters defend against unlawful evictions and remain in their homes. Visit the U.S. Department of Housing website to see a directory of your state’s housing authority and resources.
  • Talk to a lawyer. If you have questions about your situation, you can consult a landlord/tenant lawyer for free in Avvo’s legal Q&A forum, where most questions are answered by a lawyer within 12 hours. If you would prefer immediate and confidential advice, you can use the $39 fixed-fee Avvo Advisor service to speak to a lawyer on the phone, right away.

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About the author

Avvo

Avvo helps people find and connect with the right lawyer through industry leading content, tools and services. A free Q&A forum with more than 9 million questions and answers, along with on-demand legal services that provide professional counsel for a fixed cost, make legal faster and easier.