1. © Copyright 2008 Cathy Baumbusch Buying a Foreclosure/HUD/Short Sale Home Cathy Baumbusch Instructor

2. Foreclosures/HUD/Short Sales Session One Welcome Objectives of thisCourse Introduction – How Did We Get Here? Foreclosures What is a Foreclosure? The buying process – 3 Ways Financing HUD and Other Government-owned homes

3. Foreclosures/HUD/Short Sales Session Two Short Sales What is a Short Sale? What Sellers qualify for a Short Sale? The Short Sale “Package” Buying a Short Sale

4. Foreclosures/HUD/Short Sales Objectives of this Course Understand what causes foreclosure Types of foreclosure sales How to buy at a trustee sale How to buy a bank-owned foreclosure How to buy a HUD or other government- owned foreclosure

5. Foreclosures/HUD/Short Sales Objectives of this Course (cont’d) Understand what is a short sale How to buy a short sale home Tax implications of a short sale How a short sale affects a seller’s credit

6. Foreclosures/HUD/Short Sales How Did We Get Here? Mid-1990s to 2005 Rapid increase in home prices Supply in abundance Low interest rates Generous lending rules - ARMs Secondary market Investor demand for mortgage securities

7. Foreclosures/HUD/Short Sales Foreclosures What is a Foreclosure? Seller stops making payments Home will have to be sold Where to find foreclosure listings Newspaper – Trustee sales WebBanks Real Estate Brokerages

8. Foreclosures/HUD/Short Sales Foreclosures 3 Types Pre-foreclosure Trustee sale Bank- or REO-owned

9. Foreclosures/HUD/Short Sales ForeclosuresPre-foreclosure Borrower has stopped making payments Often Seller is “upside down” Foreclosure is imminent

10. Foreclosures/HUD/Short Sales Foreclosures Trustee sale Borrower has stopped making payments Bank has taken action Property is advertised for Sale Sold on “courthouse steps”

11. Foreclosures/HUD/Short Sales Foreclosures - Things to know about trustee sales Home is sold As-Is Deposit in certified funds is required Balance due in 14-15 days Must close within 30 days Homes may be in bad shape Broker is not needed

12. Foreclosures/HUD/Short Sales ForeclosuresBank-owned REO – “Real Estate Owned (by lender)” Can also be owned by government agency such as FHA (HUD homes) or VA These homes are listed with brokerages and/or auction houses

13. Foreclosures/HUD/Short Sales Foreclosures (cont’d) Buying a bank-owned property Finding a property Making the offer Response time Counteroffers

14. Foreclosures/HUD/Short Sales Foreclosures – Things to know Negotiations done verbally Bank addendums – can be lengthy and favor lender Financing aspects of foreclosures Closing costs Termite and other inspections Homes sold As-Is Home Warranties Multiple offers

15. Foreclosures/HUD/Short Sales ForeclosuresAuctions Brokerages have not been able to sell homes Homes put in auction pool Homes sold along with hundreds of others Certified funds deposit required Closing timelines Homes sold As-Is Buyers premiums average 5%

16. Foreclosures/HUD/Short Sales ForeclosuresAuctions www.hudsonandmarshall.com www.ushomeauction.com www.williamsauction.com www.nicholsauction.com I am not affiliated with any of these companies, nor do I endorse any of them. This is for educational purposes only.

17. Buying a Foreclosure

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19. Foreclosures/HUD/Short Sales HUD Homes What is a HUD home? Owned by FHA Borrowers defaulted on FHA-secured loan www.hud.govwww.hud.gov, click on HUD homes, Virginia www.hud.govOR http://www.tenmanagement.com/listings/state.do?code=VA HUD homes are also in the MLS.

20. Foreclosures/HUD/Short Sales HUD Homes Search Properties for sale by City Search Properties for sale by City Price Reduced Properties for sale Price Reduced Properties for sale Handyman Specials. (New!) Handyman Specials. (New!) Search Properties for sale by County Search Properties for sale by County Search Properties for sale by Zip, Case # Search Properties for sale by Zip, Case # Get all Properties for sale in a sortable list Get all Properties for sale in a sortable list Advanced Search Advanced Search

21. Foreclosures/HUD/Short Sales HUD Homes Types of HUD Sales Good Neighbor Next Door Dollar Homes Public sales

22. Foreclosures/HUD/Short Sales HUD Homes Bid Results Bid Statistics Help for Buyers Find a Broker How to Buy a HUD Home

23. Foreclosures/HUD/Short Sales HUD Homes How to Buy a HUD Home http://www.hmbireo.com/index.phphttp://www.hmbireo.com/index.php, click on Buyer Information, >>BUYER PROCESS >BUYER PROCESS<< http://www.hmbireo.com/index.php

24. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process Anyone can buy a HUD home Owner-occupant have priority first 10 days Homes are sold at market value Homes are sold As-Is Deadlines are strict

25. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process Making an Officer Must use a registered HUD broker Electronic bidding Initial listing period Friday mornings Owner-occupants first 10 days

26. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process General public bidding after first 10 days Contract must be submitted within 48 hours of notice of offer acceptance Contract MUST be correct Closing must occur within 45 days

27. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process – Things to Know (cont’d) HUD may pay some closing and sales commission costs up to 5% commission up to 3% closing costs May use your own settlement agent or HUD agent If you use HUD’s settlement agent, HUD will pay their fees

28. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process – Things to Know (cont’d) Downpayment and other costs Downpayment and other costs Owner Occupants Only: 3% Minimum Down payment for FHA financed properties. Maximum mortgage amount 97% of the appraised value or sales price whichever is lower. Owner Occupants Only: 3% Minimum Down payment for FHA financed properties. Maximum mortgage amount 97% of the appraised value or sales price whichever is lower. Investors: 1 unit: 25% Minimum Down payment, for FHA financed properties; 2 to 4 units: 15% Minimum Down payment, for FHA financed properties. Investors: 1 unit: 25% Minimum Down payment, for FHA financed properties; 2 to 4 units: 15% Minimum Down payment, for FHA financed properties.

29. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process – Things to Know (cont’d) Required Earnest Money Amount: Required Earnest Money Amount: $1,000 for offers greater than $50,000; (not to exceed $2000) $1,000 for offers greater than $50,000; (not to exceed $2000) $500 for offers $50,000 or less, $500 for offers $50,000 or less, 50% of the Listing Price for Vacant Lots 50% of the Listing Price for Vacant Lots Other Costs HUD generally will pay outstanding taxes and/or utilities HUD generally will pay outstanding taxes and/or utilities

30. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process What happens if you can’t close? For owner-occup. 100% deposit returned if: Death or serious illness Loss of job Unable to obtain financing FHA loan – 100% Non-FHA loan – 100% If Non-FHA loan and borrower was pre-approved – 50% of deposit returned

31. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process What happens if you can’t close? (cont’d) Forfeit 100% of your deposit if: No documentation is submitted. Documentation fails to provide an acceptable cause for the buyer's failure to close. Documentation fails to provide an acceptable cause for the buyer's failure to close. Documentation is not received by HMBI no later than close of business on the tenth (10th) day following cancellation of the contract.

32. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process What happens if you can’t close? (cont’d) You can file a Request for Extension Fees associated (15 day periods) < $25,000 - $10 per day $25,001 – 50,000 - $15 per day $50,000+ - $25 per day No fee for owner-occup. for initial period if documentation shows reasonable effort

33. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process Listing codes IN - Insured: All properties listed as "INSURED" are eligible for FHA financing. These properties are eligible for insurance under Section 203(b) of the National Housing Act. An interest rate will be charged on the loan and is negotiable between the purchaser and lender. The mortgage may include some mortgage insurance payments. The originating lender is responsible for making final determination whether a property meets Minimum Property Standards and, consequently, is eligible for FHA insurance. IN - Insured: All properties listed as "INSURED" are eligible for FHA financing. These properties are eligible for insurance under Section 203(b) of the National Housing Act. An interest rate will be charged on the loan and is negotiable between the purchaser and lender. The mortgage may include some mortgage insurance payments. The originating lender is responsible for making final determination whether a property meets Minimum Property Standards and, consequently, is eligible for FHA insurance.

34. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process Listing codes IE - Insured with Escrow Repairs: Properties listed as "Insurable with Repair Escrow" are eligible for an FHA 203(b) insured loan. The lender making the new FHA 203(b) loan establishes an escrow for the amount of the repairs which includes a 10% contingency, not to exceed $5,500. The identified repairs are required to meet FHA's "minimum property standard" (MPS) and the total repair costs should be equal to or less than $5,000. If a 203(b) FHA insured loan is used for financing, the repair escrow must be used for the needed work specified in the listing. Repairs must be accomplished within 90 days of closing and be monitored by an FHA lender. The lender will inspect work as it is completed on the house and distribute the repair monies as appropriate within ninety (90) days of closing. The costs of repairs are included in the loan amount and repaid by the borrower as part of the monthly payment. Any funds in the escrow account not used for the repairs will be applied to reduce the unpaid principal balance of the loan. The escrow does not apply if the buyer is not utilizing FHA loan financing. IE - Insured with Escrow Repairs: Properties listed as "Insurable with Repair Escrow" are eligible for an FHA 203(b) insured loan. The lender making the new FHA 203(b) loan establishes an escrow for the amount of the repairs which includes a 10% contingency, not to exceed $5,500. The identified repairs are required to meet FHA's "minimum property standard" (MPS) and the total repair costs should be equal to or less than $5,000. If a 203(b) FHA insured loan is used for financing, the repair escrow must be used for the needed work specified in the listing. Repairs must be accomplished within 90 days of closing and be monitored by an FHA lender. The lender will inspect work as it is completed on the house and distribute the repair monies as appropriate within ninety (90) days of closing. The costs of repairs are included in the loan amount and repaid by the borrower as part of the monthly payment. Any funds in the escrow account not used for the repairs will be applied to reduce the unpaid principal balance of the loan. The escrow does not apply if the buyer is not utilizing FHA loan financing.

35. Foreclosures/HUD/Short Sales HUD Homes – Buyer Process Listing codes UI - Uninsured: Properties listed as "UNINSURED" means that certain repairs and or improvements are required to be eligible for an FHA 203(k) mortgage. The required repairs on most of these properties exceed $5000.00. Purchasers of these properties have the option to purchase "as-is" with cash or conventional financing. These properties maybe eligible for a FHA 203(k) mortgage if the required repairs and or the improvements are completed in accordance with FHA guidelines. Ask a FHA lender for more details. UI - Uninsured: Properties listed as "UNINSURED" means that certain repairs and or improvements are required to be eligible for an FHA 203(k) mortgage. The required repairs on most of these properties exceed $5000.00. Purchasers of these properties have the option to purchase "as-is" with cash or conventional financing. These properties maybe eligible for a FHA 203(k) mortgage if the required repairs and or the improvements are completed in accordance with FHA guidelines. Ask a FHA lender for more details.

36. Session Two

37. Foreclosures/HUD/Short Sales Other Government-owned homes From the Department of Veterans Affairs From the Department of Veterans Affairs VA homes are homes acquired by the VA due to foreclosure action on VA-secured loans. VA homes are homes acquired by the VA due to foreclosure action on VA-secured loans. Where they are listed: www.reotrans.com and the MLS. Where they are listed: www.reotrans.com and the MLS.www.reotrans.com You do not have to be a veteran to purchase a VA home. You do not have to be a veteran to purchase a VA home. VA financing is available for some properties VA financing is available for some properties Making an offer on VA property is no different than any other home purchase, except that response times may be a little longer than traditional owner sale. Making an offer on VA property is no different than any other home purchase, except that response times may be a little longer than traditional owner sale.

38. Foreclosures/HUD/Short Sales Other Government-owned homes From Federal Deposit Insurance Corporation From Federal Deposit Insurance Corporation FDIC properties are acquired by the FDIC as receivers of failed banking institutions. FDIC properties are acquired by the FDIC as receivers of failed banking institutions. Seller financing may be available. Seller financing may be available. Offers are considered using net funds received after deducting brokerage commissions and sale expenses, and payment terms considered in light of the applicant's credit worthiness and ability to perform. Offers are considered using net funds received after deducting brokerage commissions and sale expenses, and payment terms considered in light of the applicant's credit worthiness and ability to perform.

39. Foreclosures/HUD/Short Sales Other Government-owned homes From Internal Revenue Service - http://www.treas.gov/auctions/irs/cat_Real7.htm From Internal Revenue Service - http://www.treas.gov/auctions/irs/cat_Real7.htm http://www.treas.gov/auctions/irs/cat_Real7.htm Under authority of Internal Revenue Code 6331, the property described here has been seized for nonpayment of internal revenue taxes. Under authority of Internal Revenue Code 6331, the property described here has been seized for nonpayment of internal revenue taxes. All properties are sold by public auction. All properties are sold by public auction. All payments must be by cash, certified check, cashier's or treasurer's check or by a United States postal, bank, express, or telegraph money orde All payments must be by cash, certified check, cashier's or treasurer's check or by a United States postal, bank, express, or telegraph money orde There is no buyer’s premium at these sales. There is no buyer’s premium at these sales. Previous owners and other interested parties have the right to redeem the property within 180 days of the sale. Previous owners and other interested parties have the right to redeem the property within 180 days of the sale. Bid winner is then paid the purchase price plus 20%. Bid winner is then paid the purchase price plus 20%. Subject to encumbrances. Liens filed prior to the IRS Tax Lien remain with the property. Liens filed after the IRS Tax Lien go away once deed is issued. Subject to encumbrances. Liens filed prior to the IRS Tax Lien remain with the property. Liens filed after the IRS Tax Lien go away once deed is issued.

40. Foreclosures/HUD/Short Sales Other Government-owned homes From Customs - http://www.treas.gov/auctions/treasury/rp/ From Customs - http://www.treas.gov/auctions/treasury/rp/http://www.treas.gov/auctions/treasury/rp/ Auctions of seized Real Property (real estate) for sale throughout the United States and Puerto Rico and includes homes, commercial buildings, vacant land, and multi-family residences. Auctions of seized Real Property (real estate) for sale throughout the United States and Puerto Rico and includes homes, commercial buildings, vacant land, and multi-family residences. These properties have been seized through IRS-Criminal Investigation, Immigration and Customs Enforcement, and the U.S. Secret Service. All proceeds from the sale of property are deposited in the U.S. Treasury Asset Forfeiture Fund. These properties have been seized through IRS-Criminal Investigation, Immigration and Customs Enforcement, and the U.S. Secret Service. All proceeds from the sale of property are deposited in the U.S. Treasury Asset Forfeiture Fund. Sale participants must register to bid during the specified registration time for the sale. Photo ID and the cashier's check deposit to register. Sale participants must register to bid during the specified registration time for the sale. Photo ID and the cashier's check deposit to register. Property is sold through open, progressive voice bidding. Property is sold through open, progressive voice bidding.

41. Foreclosures/HUD/Short Sales Other Government-owned homes From Customs – (cont’d) From Customs – (cont’d) All property is sold "as is." All property is sold "as is." You do not need a broker to participate. You do not need a broker to participate. Typically, auctions are held "on-site" at the property location. Typically, auctions are held "on-site" at the property location. If you cannot attend the auction, you may submit a written bid by sending contact information or a completed written bid form, If you cannot attend the auction, you may submit a written bid by sending contact information or a completed written bid form, Closing is usually required within 30 calendar days of sale or sooner. Closing is usually required within 30 calendar days of sale or sooner. These are cash sales. You do not pay a buyer's premium. These are cash sales. You do not pay a buyer's premium.

42. Foreclosures/HUD/Short Sales Other Government-owned homes From the U.S. Marshals Service - http://www.usmarshals.gov/assets/sales.htm From the U.S. Marshals Service - http://www.usmarshals.gov/assets/sales.htm http://www.usmarshals.gov/assets/sales.htm The Marshals Service administers the Department of Justice's Asset Forfeiture Program by managing and disposing of properties seized and forfeited by federal law enforcement agencies and U.S. attorneys nationwide. The program has become a key part of the federal government's efforts to combat major criminal activities. The Marshals Service administers the Department of Justice's Asset Forfeiture Program by managing and disposing of properties seized and forfeited by federal law enforcement agencies and U.S. attorneys nationwide. The program has become a key part of the federal government's efforts to combat major criminal activities.

43. Foreclosures/HUD/Short Sales Other Government-owned homes Fannie Mae – HomePath http://www.fanniemae.com/homepath/index.jhtml Fannie Mae – HomePath http://www.fanniemae.com/homepath/index.jhtml http://www.fanniemae.com/homepath/index.jhtml Up to 100% Financing-With No Mortgage Insurance!* Up to 100% Financing-With No Mortgage Insurance!* Make sure you get the best possible home financing for your property! This program offers fixed rate mortgages with up to 100% financing and no mortgage insurance. No appraisal necessary on select properties. Make sure you get the best possible home financing for your property! This program offers fixed rate mortgages with up to 100% financing and no mortgage insurance. No appraisal necessary on select properties. Qualifications include: Qualifications include: One-unit, owner-occupied primary residences only One-unit, owner-occupied primary residences only Minimum credit score-700 Minimum credit score-700 First mortgages only-does not apply to second mortgages First mortgages only-does not apply to second mortgages Full documentation required Full documentation required

44. Foreclosures/HUD/Short Sales Other Government-owned homes Freddie Mac – HomeSteps http://www.homesteps.com/hm01_1findahome.htm Freddie Mac – HomeSteps http://www.homesteps.com/hm01_1findahome.htm http://www.homesteps.com/hm01_1findahome.htm Promotions: $400 coupon towards closing costs Promotions: $400 coupon towards closing costs Auctions Auctions Hudson and Marshall Hudson and Marshall RealtyBid.com RealtyBid.com

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46. Foreclosures/HUD/Short Sales Short Sales What is a Short Sale? What Sellers qualify for a Short Sale? The Short Sale “Package” Buying a Short Sale

49. Foreclosures/HUD/Short Sales Short Sales What is a Short Sale? What Sellers qualify for a Short Sale? The Short Sale “Package” Buying a Short Sale