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FHFA Reveals Policy Change On GSE Selling Existing REO Properties

A policy change was announced last Wednesday by the Federal Housing Finance Agency (FHFA) allowing Fannie Mae and Freddie Mac to sell existing REO properties at fair market price to any qualified buyer to be determined by the companies.

The new policy only applies to single-family REO inventory of Fannie Mae and Freddie Mac, which according to FHFA are currently 121,000 properties with the two GSEs inventories combined.

In the past, Fannie Mae and Freddie Mac require homeowners or third parties buying the property in behalf of the homeowner to pay the entire amount owed on the mortgage in order to purchase back the house after a foreclosure. However, with this newest directive from the FHFA, homeowners or the third parties representing them are now allowed to purchase back the property under a fair market policy, which as well applies to those buying other REO properties.

“This is a targeted, but important policy change that should help reduce property vacancies and stabilize home values and neighborhoods,” said Melvin L. Watt, Director of FHFA. “It expands the number of potential buyers of REO properties and is consistent with the Enterprises’ practice of requiring fair-market value for those properties.”

Furthermore, the current rules of both GSEs necessitate the former homeowners to wait a minimum of three years following a foreclosure to be eligible for another GSE-guaranteed loan. Aside from this, the rules of the GSE also require that the previous owner uses the property as his or her principal residence.

Charlotte Foreclosure Activity Rates Remain Unchanged

According to a report released by CoreLogic last Tuesday, residential foreclosure activities in Charlotte last September remain to be below the year-ago rates. However, there have been no improvements in such area.

In the month of September, the foreclosure rate in Charlotte-Concord-Gastonia metro was 1 percent, which is down from 1.8 percent a year ago. Such figures remain the same from August.

But the local foreclosure activity rate remains better than the national rate of 1.6 percent for the month of September while it is still higher than the statewide rate of North Carolina at 0.9 percent.

CoreLogic’s report also shows that the mortgage-delinquency rate in Charlotte has also dropped year-over-year with only 3.7 percent of mortgage loans delinquent 90 days or more. This is a slight decline from September 2013’s rate at 4.8 percent. But like the residential foreclosure activity rates in Charlotte, such figure also remains the same from August.

Overall, CoreLogic’s report shows that both figures have greatly improved every month since the early months of 2012.

Foreclosure Activities Dropped In 10 States

Although the foreclosure activity in the U.S. had its biggest monthly increase in four years as it jumped by 15 percent from September to October, 10 states still experienced a month-over-month drop in foreclosure in October based on the October 2014 U.S. Foreclosure Market Report released by RealtyTrac last week.

New Jersey tops the list with 41.8 percent, the biggest monthly drop in foreclosure activities including notices of default, scheduled auctions, and bank repossessions/REOs for the month of October. The state was ranked third in the list of highest foreclosure rates nationwide in the third quarter with one foreclosure filing for every 218 homes. However, the decline in the monthly foreclosure activities last month has pushed New Jersey to the 9^th place with one foreclosure filing in every 878 housing units.

Other states that experienced a drop in monthly foreclosure filings include Colorado (37.5 percent), Rhode Island (36.12 percent), Maine (33.6 percent), Connecticut (22.1 percent), Massachusetts (12.6 percent), Iowa (5.4 percent), New York (3.2 percent), North Carolina (2.7 percent), and Florida (2.2 percent).

On the other hand, foreclosure filings declined by 8 percent across the nation from October 2013 to 2014. The state seen with the biggest year-over-year drop in foreclosure filings was Rhode Island with 57.2 percent, followed by Colorado with 56.8 percent. According to RealtyTrac, Rhode Island and Colorado were ranked 41^st and 44^th among the states with the highest foreclosure activities, respectively.

In general, 26 states experienced a year-over-year decline in foreclosure filings in October.

North Carolina Sees Surge In Zombie Foreclosures

North Carolina was named as one of the 16 states with the year-over-year increase in “Zombie Foreclosures.”

Zombie foreclosure is a term used when the homeowner, who is in financial distress leaves the property before the bank completes the foreclosure process. The number of zombie foreclosures in different places across the country continue to grow even though it’s dropping nationally.

New Jersey tops the list of 16 states in the third quarter where a surged of zombie foreclosure numbers were noticed with a 75 percent year-over-year increase, followed by North Carolina (65 percent), Oklahoma (37 percent), and New York (30 percent) and Alabama (29 percent).

New York metro area garners the top spot of the most zombie foreclosures with 13,366 in the third quarter. This is followed by Miami (9,869), Tampa (7,509), Chicago (7,326), Philadelphia (5,405) and Orlando (3,732).

According to RealtyTrac, there were 117,300 owner-vacated foreclosures nationwide in the third quarter, which is down 23 percent from the same period in 2013. They currently account for 18 percent of the total properties in foreclosure. Such properties will either be sold through a short sale, a foreclosure auction or a bank-owned sale.

Out of all the metros with a 200,000 population, 28 percent or 60 cities saw a increase in zombie foreclosures.

RealtyTrac’s Vice President Daren Blomquist said that lengthy foreclosure timelines make a “zombie foreclosure breeding ground”. “As we see a backlog of delayed distress finally hit the foreclosure pipeline in some of those markets, the problem is coming more to light,” he said.

Man Discovers Dead Body After Buying A Foreclosed Home

A Florida man recently bought a foreclosed house through an auction but got surprised to see a dead body inside.

William Wilson, a resident from Cape Coral, Florida, purchased through an auction a foreclosed light pink house at SE 19th Lane last Tuesday, November 4, for $96,000.

When he was inspecting the property last Wednesday, November 5, he was shocked to see a dead body of a woman in the master bedroom, presumed to be the previous owner who has been missing since November 2011.

“The inside was a mess,” Wilson told the News-Press. “It looked like (someone) was packing to move. There were a lot of boxes, some pictures of children on the fridge.”

“You couldn’t tell who it was,” he added. “You couldn’t tell if it was a male or a female … it’s disappointing and a sad thing that nobody cared enough to check.”

According to the News-Press report, the corpse was found at the floor of the master bedroom next to the bed.

Once reported, the police arrived and cordoned the property.

Neighbors claim that two sisters used to live in that property but they haven’t seen them for quite some time. Furthermore, it was discovered that the most recent piece of mail was from November 2011 and that there was three years of unpaid property taxes.

“It’s disappointing and a sad thing that nobody cared enough to check,” Wilson said.

This isn’t the first time such an incident took place. Just last March, a body of a woman was also discovered by a contractor at the garage of a foreclosed Michigan home. Another grim incident also took place in 2012 when workers discovered a man’s body in a home in Milwaukee County.

Foreclosure Inventory Declines, Great Deals Still Out In The Market

A lot of homebuyers perceive both foreclosed and distressed properties negatively. They think that it will give them a headache, that it requires expensive makeover, or multiple title liens.

The truth is, although distressed properties have decreased in numbers, those that are currently available can help you save a lot provided that you know what to watch out for when shopping for such type of properties.

According to RealtyTrac, Mecklenburg County continues to have excellent deals for all sharp buyers out there. Properties either bank-owned or actively in foreclosure, have a median sales price of $98,200 for the month of August. This is half the median sales price of non-distressed properties within the county, which were sold at $195,000.

However, you want to enjoy such discounted prices, you have it find it. According to the Charlotte Regional Realtor Association, both foreclosed and short sale properties comprised 5.3 percent of the closed sales last September down from 9.4 percent a year ago. On the other hand, distressed properties accounted for 15.3 percent of the closed sales in September 2012, down from 20.9 percent in September 2011.

List of foreclosed properties dropped

Local realtors gave some reasons why foreclosure inventory has fallen aside from the recovering economy.

According to Todd Lynch, broker and owner of Lynch Realty based in Charlotte, banks are holding onto their distressed properties because they want to avoid flooding the market with such properties, as this would decrease the home prices.

However, broker-in-charge and owner of Charlotte-based Showcase Realty Nancy Braun says that there are still a lot of prospects out in the market. Real estate investment trusts that flattened the Charlotte market a few years ago have lessened their expenditure, which gave opportunities for individual investors.

“The market in Charlotte is not as frantic as it was,” Braun said. “There’s less inventory but there are still opportunities to purchase foreclosures.” Furthermore, homebuyers that purchase foreclosed properties typical save around 20 to 40 percent off the market value.

“I think the big mistake is people think they can come into this market and get a house for pennies on the dollar,” Charlotte Realtor Eric Layne said. Layne has purchased a lot of foreclosed properties and has received a distressed property expert certification from the Mingle School of Real Estate in Charlotte,

Timing is everything

Furthermore, Layne claims when buying a distressed property, correct timing is necessary to ensure you enjoy the benefits it can give you. Purchasing short sale properties is time-consuming since the negotiation and selling process will take a long time hence, the homebuyer cannot move into the property right away. Layne claims that it’ll take around six to nine months to finish the short sale process.

Another thing to keep in mind is both short sale and foreclosed properties need home inspection. “Be wary of the conditions of the home,” Lynch said. “Foreclosure means the occupying owner was in distress. That tells me they didn’t have money for maintenance.”

Rough competition in auctions

If you wish to purchase a property through an auction on the courthouse steps, you have to know that although it’s profitable, it’s an intense process. The competition can be aggressive since most of the bidders are professional real estate investors.

“I wouldn’t recommend (buying at auction) for the owner-occupant,” said Perry Butler, office manager of Concord-based Benham Real Estate Group. “You’re competing with hedge funds who can outbid with cash on hand.”

In addition to that, Braun also claims that there’s a risk of liens when buying a property as the auction since there’s no more time to inspect the house. “At an auction, you take (the property) with all the blemishes,” she said. Sometimes, you may even have to struggle evicting the present occupant.

Plus, in North Carolina, a mortgage borrower has a 10-day right of redemption after the action sale through paying what he owes to the lender along with the costs of the sale.

Purchasing from banks

The final step of the foreclosure process is purchasing a real estate owned property, which is actually less terrifying process than auctions. “It’s an easier scenario,” Braun said.

Real estate owned properties or REOs usually have clean titles and are vacant from its previous owners. Plus, the potential homebuyer is given a chance to inspect the property. However, REOs are sold in an “as is” condition, which means it’s the responsibility of the homebuyer to do any necessary repairs or renovations.

But even in such case, REOs can still be excellent deals especially for those who are willing to invest in repairs and renovations for instant appreciation of home value. Plus, Braun said that this gives buyers a chance to move right into the neighborhood they couldn’t afford.

Due diligence is the secret behind successful purchases of foreclosed properties. Therefore, Braun highly recommends asking the assistance of real estate professionals (real estate agent, lawyer and home contractor) especially those experienced in handling distressed properties. “Foreclosures are a different animal,” she said.

Lynch adds, “buyers need a successful REO agent to critique the home and ask the bank to improve the property.”

J.C. Underwood, executive director of Metrolina Real Estate Investors Association, also recommends getting educated through joining trade associations to get foreclosure process trainings. “Learn the business,” he said. “It’s not for the weak of heart but it’s not scary either.”