Tools, guides, resources, and data for real estate professionals and investors working direct with lenders

By Peter G. Miller

Have you ever looked at the paperwork you get when

financing or refinancing a home?

Really. No kidding. Have you ever read the stuff people want you to

sign?

There are a lot of scraps thrown our way at closing, and I have yet

to meet anyone who has either read all of the documentation or totally

understood what it meant — me included.

However, there is one piece of paperwork I very much understand and

you should too: My loan officer doesn’t work for me. He’s not my agent

and he’s not required to get the best possible rates and terms for me.

For proof, let’s turn to some of the paperwork I received from a

recent loan:

“This fee disclosure represents the entire agreement between the

parties hereto and no waiver or modification, or any other addition to

the terms hereto shall be deemed effective unless evidenced by a written

instrument signed by all parties hereto. It is further agreed that this

disclosure shall be construed as creating no more than a contractual

agreement between the parties hereto and not any type of agency

relationship, fiduciary responsibility or other trust relationship or

responsibility.”

The oddity of this situation is overwhelming: A real estate broker or

attorney must place your interests first while a car salesman,

telemarketer or loan officer has no such obligation.

You can see the conflict.

Where do borrowers get mortgage information? From loan officers.

Borrowers are absolutely dependent on loan officers to scout the

marketplace for the best possible deals given the borrowers’ financial

profile.

How do loan officers and lenders maximize incomes? Just like car

salesmen and telemarketers, by selling products which produce the

highest commissions and the largest revenues.

It doesn’t have to be this way. For example, since 2001 North Carolina law has required mortgage brokers to “make

reasonable efforts, with lenders with whom the broker regularly does

business to secure a loan that is reasonably advantageous to the

borrower considering all the circumstances, including the rates,

charges, and repayment terms of the loan and the loan options for which

the borrower qualifies with such lenders.”

The problem with the North Carolina law is that it does not apply to

any federally regulated lender. However, under the proposed Borrower’s

Protection Act (S 1299), legislation introduced by New York Senator

Charles Schumer, every mortgage loan officer across the country would

have a “fiduciary relationship with the consumer.” In other words, the

job of the lender would be to get the borrower the best possible loan.

Instead of supporting such legislation, the mortgage lending industry

wants a different approach: According to John Robbins, Chairman of the

Mortgage Bankers Association, his group supports the “national, uniform regulation of

mortgage brokers including a national database of approved brokers. A

clear, fair national regulatory standard for mortgage brokers is an

essential step to establishing much better mortgage lending protections

for borrowers.”

Such standards, says Robbins, “must be national in scope to enhance

competition in all markets for all borrowers, especially nonprime.”

The catch is that if there are uniform national standards then state

laws such as those in North Carolina would become useless. Under the

concept of preemption, when federal and state rules conflict the federal

rules take precedence.

And what national standards do lenders oppose?

As one example, Robbins says his group is “concerned with language

regarding the prohibition against lenders and brokers steering borrowers

into loans or loan terms that are not ‘reasonably advantageous to the

consumer, in light of all the circumstances.’ While MBA opposes steering

and favors informed consumer choice, this type of standard would force

loan originators to determine whether a loan is suitable for a borrower.

MBA has carefully studied the issue of the potential effects that the

imposition of a variety of approaches to suitability would have on the

mortgage market. MBA has concluded that imposition of such a standard

would not provide benefits that would outweigh the costs to consumers,

lenders and other market participants.”

How, exactly, would consumer costs increase if lenders were required

to place borrower interests first? Would not loan expenses go down if

lenders were obligated to present the best possible options to client

borrowers? If loan costs were reduced, would not mortgage delinquencies

and foreclosure levels decline? Aren’t such results good for lenders and

investors?

Robbins says his group “does not believe that a disclosure of

function and fees is warranted for mortgage lenders. Unlike a broker

whose role may be uncertain — agent or loan provider — a lender’s role

is clear. A lender underwrites, approves and funds the loan. The lender

does not hold himself out as an agent of the borrower. While a lender

must serve its customers fairly, and the industry has done much to

assure high professional standards, a lender owes a duty to its

shareholders and investors. A borrower knows a lender offers its own

products and does not offer to shop for borrowers.”

Borrowers know such things? How many mortgage ads explain that a

lender is not selling the best possible loan to a borrower?

“Regulation limits competition,” explains Jim Saccacio, Chairman and

CEO at

>RealtyTrac, the nation’s largest foreclosure resource. “When we

regulate doctors, lawyers or barbers, we’re saying that not everyone can

open a clinic, law office or barber shop. In exchange for limiting

competition and therefore raising the income of licensed professionals,

as a society we expect those who are licensed to meet certain standards

of education and responsibility.

“If we’re going to have uniform regulation nationwide that limits

mortgage competition, then the public should get something in return,”

Saccacio explained. “That ‘something’ should be the expectation that my

lender will take every reasonable step to get me the best possible loan

and that I will know all the fees, charges and commissions involved.

That’s no more than someone buying a shirt in a department store would

expect — and no less than borrowers should accept.”
_____________________

Peter G. Miller is the author of the Common-Sense Mortgage and is

syndicated in more than 100 newspapers.

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By Rick Sharga, Vice President of Marketing for RealtyTrac

Whether it’s the first time or the tenth, buying a home can be both an exhilarating and overwhelming experience. As with any major purchase, there’s a significant amount of pressure to make the right decisions about such matters as where and what to buy, and ultimately how much to spend. How can you make sure you get the best deal possible on a property that suits your needs, or find exactly the right property to fit your budget and your lifestyle? Increasingly, many homebuyers are doing this by secure the representation of a Buyer’s Agent.

Most people hire a real estate agent to sell their home, but overlook the importance of having an agent when buying a property. While in some cases it’s possible to negotiate your purchase through the seller’s representative, make no mistake: these seller’s representatives are charged with making the sale and negotiating the best deal for their clients — the sellers! With that in mind, it’s best to secure your own representation as a buyer, in order to minimize potential conflicts, and make sure your interests are represented.

In the more complex foreclosures market, a Buyer’s Agent can be even more valuable. The agent can help you negotiate with the owner before a property comes on the market and can also act as a buffer during the negotiating process to make sure you’ve completed all the necessary steps before closing. Done right, it’s like having your own personal tour guide to help you find your way through the foreclosure buying process.

For buyers looking to uncover substantial bargains in real estate, the foreclosures market does offer a treasure trove of opportunities. Foreclosure properties are some of the best opportunities in real estate today with savings of 10-30 percent below market value. Some properties offer savings of up to 50 percent or more! But like any investment offering a high return, there are sometimes higher risks involved in buying a foreclosure than in buying more traditional real estate. One of the ways to maximize the value while minimizing the risk is to work with Buyers Agents who specialize in this market, with specific experience navigating the twists and turns that come with purchasing a foreclosure.

“If you’re in the market for a foreclosure property, you should really take some time to look for an agent with actual foreclosure transaction experience,” explains James J. Saccacio, chief executive officer at RealtyTrac, the leading online foreclosure marketplace. “The nuances of this market make it a different animal from conventional real estate, so buyers owe it to themselves to secure a seasoned agent who’s familiar with the foreclosures process, and has knowledge of local, regional and state laws.”

RealtyTrac’s National Agent Network connects prospective buyers of foreclosure properties with local agents who specialize in foreclosures. Homebuyers can go to www.realtytrac.com to identify and research potential home purchases, as well as to find all the tools and professional resources they need to help them close the deal.

Of course, it’s also important to consider the agent’s knowledge of the area where you wish to purchase property, their ability to close a deal, and their access to other professionals such as attorneys, lenders, and title companies. It’s often a good idea to interview two or three agents to ask about their credentials and to test out chemistry, just as you would when selecting any valued business partner. Ask for references from previous buyers to see what people who have been in your shoes have to say about the agent’s credentials and demeanor. Ultimately, your agent should make you feel confident that they know how to steer you correctly through the foreclosure buying process.

Here are some questions to ask a prospective buyer’s agent if you’re buying a foreclosure:

• Are you a licensed, full-time an agent?
• Are most of your clientele buyers or sellers?
• How long have you worked with foreclosure real estate?
• How many clients are you working with presently?
• Do you have former clients I can contact as references?
• How will you help me contact owners in default?
• Are you familiar with the foreclosure laws in this area?
• How much commission will I pay as a buyer?

Once you’ve selected an agent, you’ll need to set up some ground rules for how you want to work together, such as times you are available to view homes, expectations regarding the agent previewing properties on your behalf, and courtesies expected by both parties.

Keep in mind that even the most intuitive agents are not mind readers. You need to make your preferences, priorities and spending limits clear up front, so neither party wastes valuable time looking at properties that don’t meet your needs.

Finally a word about etiquette: While you don’t necessarily have to commit to working exclusively with a single agent (unless you’ve signed an exclusive agreement with them), it’s most proper to ultimately extend your loyalty to an agent who spends a significant amount of effort helping you find a property. Remember, real estate agents work on commission, so the time they spend working on your behalf amounts to nothing if you don’t ultimately make a purchase through them. If for some reason, you find that your needs are not being met by a particular agent, it’s best to set the record straight early in the process, either to correct the problem or to retain alternate representation.

Working with a Buyers Agent can often result in a net savings on property purchases—whether traditional resale homes or foreclosure properties, and can also help inexperienced home buyers from making costly mistakes in negotiations, contract terms and property research.

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Search Foreclosures FREE For 7-Days!

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RealtyTrac, Inc., the leading online marketplace for foreclosure properties, provides all the resources that home seekers, investors and realtors need to locate, evaluate and buy properties at below market value. Founded in 1996, RealtyTrac sets a new standard for online real estate services by offering the largest database of pre-foreclosure and foreclosure properties, with more than 650,000 properties across the country, comprehensive property data, productivity tools and extensive professional resources. RealtyTrac hosts close to 2 million unique visitors monthly, and is the exclusive foreclosure data provider to AOL, Home Gain, MSN House and Home, The Wall Street Journal Real Estate Journal and Yahoo! Real Estate.

Buying a Foreclosure Property Below Market Value: Five Tips from the Pros

House hunting can be a very daunting experience, especially in today’s real estate market. Both investors and home buyers have been priced out of the market by escalating costs, and good real estate deals are increasingly difficult to find.

But there are bargains out there, for people who know where to look.

“For people willing to do some homework, the foreclosure market offers some of the best opportunities in real estate today,” explains James J. Saccacio, chief executive officer at RealtyTrac, the leading online foreclosure marketplace.

Web-based services such as RealtyTrac give consumers access to foreclosure and pre-foreclosure information that was previously available only to professional real estate brokers and investors. Today, homebuyers can use these services to assist them identify and research potential home purchases, as well as the tools and professional resources they need to help them close the deal.

With interest rates ticking up and ARMs adjusting upward, experts predict an increase in the number of foreclosure properties on the market. RealtyTrac, which provides all the foreclosure data for both MSN House and Home and Yahoo! Real Estate, has already compiled a list of over 550,000 foreclosure properties across the country.

“Foreclosure properties can be a terrific investment, or give home buyers a much more affordable option than traditional properties,” notes Saccacio. “But they’re not a way to get rich quick, and a foreclosure purchase needs to be approached in an educated, intelligent manner.”

Saccacio offers five tips to help you close a deal on a foreclosure property:

1. Learn about the different types of foreclosure properties, and the foreclosure process.

There are three basic types of foreclosure properties, representing different stages in the foreclosure process: notice-of-default (NOD) and notice of trustee sale (NTS), which are both pre-foreclosure properties; and real-estate-owned (REO), a foreclosure property which has been re-purchased by the bank.

For most consumers, buying a pre-foreclosure property from a private homeowner is the best option. It’s important that both the buyer and the seller see the situation as a win-win situation, in order to ensure a smooth process. In this case, the seller is able to get out from under a mortgage without destroying their credit rating, the lender is saved the time and expense of foreclosing on the property, and the buyer gets a below-market price on a home.

Foreclosure auction sales are typically the domain of the professional investor. These properties are formally in default, and sold to the highest bidder at an auction. Buyers are required to be physically present at the auction, and must pay 100% of the sale price in cash, on the spot. Though foreclosure auctions can offer significant savings, they are not for the feint of heart or the uninformed. Unless the buyer is already familiar with a particular property, there is usually little time to examine it. And the buyer will be competing against professional investors—and sometimes even the lender—at the auction.

Once the lender officially reclaims a home, it becomes a real-estate-owned property (REO). While REO properties typically offer more time for evaluation and a more standard bank-managed transaction, their prices are usually very close to full retail market value.

CHART: Stages of the foreclosure process
Stage
Positive
Negative

Pre-foreclosure:

Notice-of-Default,

Notice-of-Trustee Sale
- Highest potential savings

- Potential win/win scenario benefits all parties

- Chance to evaluate property
- Buyer / Seller negotiations can be difficult\

- Time pressure to complete transaction before auction

Foreclosure:

Auction sale
- High potential savings

- Immediate property ownership
- 100% of the sale price required in cash

- No time to evaluate property

- Competing with professionals

Foreclosure:

Real Estate Owned (REO)
- Affords significant time to evaluate property

- Traditional bank financing

- Lender often rehabs property
- Lowest potential savings

2. Secure financing early

It’s important for a buyer to be pre-qualified before engaging in discussions with a seller. This ensures that the buyer is in a financial position to purchase the property, and is in the strongest possible position to negotiate. It’s best to work with a lender who understands the foreclosure process, and can guide the buyer through certain steps, such as ensuring that a property is FHA-compliant. Another reason to consider pre-qualification is that not all lenders finance foreclosure properties. Having approved financing in-hand makes negotiations with both the seller and the lender easier, and may even make it possible for the buyer to simply cure the default and take over the existing loan to reduce loan processing fees.

3. Engage a real estate agent as a “buyer’s representative”

Most people hire a real estate agent to sell their home. These “seller’s representatives” are charged with making the sale and negotiating the best deal for their clients. “Buyer’s representatives” have the home buyer’s interests at heart, and are charged with finding the right property and negotiating the best price for their clients. Picking the right real estate agent will make a buyer’s life much easier. There are agents who specialize in the foreclosure market, with specific experience in REO properties. Look for an agent with foreclosure transaction experience, as well as knowledge of local, regional and state laws. But it’s also important to consider the agent’s knowledge of the area; their ability to close a deal; and their access to other professionals (attorneys, lenders, mortgage and title professionals) to ensure that the buyer is in good hands.

4. Do your homework

Stocks offer higher potential returns for investors than traditional savings programs, but are also riskier. Similarly, purchasing foreclosure properties is somewhat more risky than buying traditional real estate properties, but offer much higher potential savings. With the right examination and due diligence, buyers can significantly reduce the risks. It makes sense to give any property under consideration a thorough examination. Here are eight steps for doing a professional-level exam.
CHART: Examination process steps

· Identify desirable neighborhoods – Identify specific neighborhoods where you’d like to live or own a home. This will limit your search to a manageable size for you and your real estate agent, and give your a sense of relative property values.

· Cast a wide net – There are a number of Web-based services that can put hundreds of thousands of foreclosure properties at your fingertips. Since the best savings are often found in pre-foreclosure properties, it’s important to check the percentage of pre-foreclosure (vs. REO) properties in any database before subscribing.

· Determine the property value –Look at the original purchase price, and recent comparable property sales to determine the current value of the property.

· Find out the amount in default and the remaining loan balance – In order to determine a reasonable offer price, you’ll need to know—at a minimum—how much money it will take just to satisfy the debt to the lender.

· Run a legal investing report – Before purchasing any foreclosure property, make sure it is free and clear of any bankruptcies, tax liens or other financial liabilities.

· Assess the condition of the property– If at all possible, visit the property, ask your realtor’s opinion, and review pest and structural reports to make sure that the property is in acceptable condition, or to determine how much of a rehab budget you’ll need to build in to your deal.

· Build a positive relationship with the seller – Before purchasing the property, try to make sure that you’re entering into a win-win situation with the seller, so that they’ll do what they can to make the process easier and leave the property in good condition

· Leverage your timing – Knowing when a property is going to be auctioned gives you an extra bargaining chip when negotiating with the seller or the lender.

5. Make a realistic offer

Despite what you may see on late-night cable TV, investing in foreclosure properties isn’t a sure fire “get rich quick” formula. Lenders aren’t likely to give properties away, particularly in a real estate market where prices continue to rise. And homeowners in financial distress may be difficult to deal with, particularly early in the foreclosure process. The keys to a successful foreclosure property purchase are diligence and patience.

As a rule of thumb, the best savings can be made at the pre-foreclosure stage, where home owners can avoid a foreclosure and lenders can save the time and cost involved in going through the process.

Another critical point in the process is immediately prior to the auction date, when all parties might be most open to a last-minute solution. It’s not unusual to save from 10-30% of the market value on a foreclosure property, and certain properties offer savings of 50% or even more. An educated buyer—one who knows how much is owed on the property and what its market value is—can usually come up with a realistic offer; one that offers significant savings, while meeting the requirements of the lender.

Now go out and familiarize yourself with the resources and tools available to take advantage of the opportunities offered by this formerly-hidden real estate market. With the experts pointing toward significant growth in available foreclosure properties, there’s never been a better time to line up your resources and get informed.

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