Ernest Villafranca, Realtor, Real Estate Oakland CA

Now and then someone will ask me, “What’s a trustee sale like?”

Trustee Sales or Foreclosure Trustee Sales in Alameda County are held at 1225 Fallon St. Oakland CA Monday through Friday from noon to 2 pm.

It’s another real estate market, the last step in the foreclosure process.

The investors gather at the courthouse steps. The auctioneer calls out the properties and begins the bidding. It’s hard to hear the auctioneer but the investors can hear him just fine. The buyers are savvy investors resembling a group of Vegas gamblers. In a sense they are gambling, and they are addicted to the thrill of the auction.

The investors walk around with their papers letting no one see their numbers. Their homework done, they mill around waiting for the right deal. Each one has a way of checking out the properties. Some subscribe to special research services. These guys are serious. Many of them have been doing this for 10 to 20 years.

Most of the properties go back to the bank. The bidders know what’s a good deal, and it’s all about the bottom line. If they don’t get something today, they’ll be back tomorrow.

You need to bring cashier’s checks in denominations of ten thousands and twenty thousands. How would you feel carrying a load of cashier’s checks in Oakland?

For most buyers this market is not an option. It takes guts to plunk a hundred or two hundred thousand dollars on a house you know very little about, and once the bid is accepted the buyer can’t back out…not with the deposit anyway.

For curiosity, it’s good to see the trustee sale process, but I don’t recommend it for rookies or for people with low tolerance for risk.

On a side note, just this past month in Alameda and Contra Costa counties, three investors pled guilty to collusion and twenty other ones will be indicted by the FBI for participating in private auctions. Kind of paints a dark picture, doesn’t it?

How can I help an investor? By giving my opinion as to whether or not it’s a good deal and an idea of resale value.

Got a a short sale house listed for $299,000 and an all cash offer for $310,000. One lender. One loan. Bank of America, BAC and Freddie Mac. Bank foreclosed at the trustee sale for $277,000!

The owner had tried to refinance, and to loan mod. Nothing worked, so he was advised by the bank to do a short sale. The owner thought that was best too.

Got an offer for $300,000 all cash. Great.

Bank wanted all the documentation from the seller, income taxes, W-2s, checking and savings bank statements, pay stubs, hardship letter, Request for Income Tax Transcripts (4506-T), Conviction Certification (Dodd-Frank), Request for Mortgage Assistance (RMA), Borrower Financial Information, utility bill, Authorization Letter, Freddie Mac Short Sale Addendum notarized by ALL parties, Estimated Settlement Statement (HUD-1).

From the buyer the bank wanted the offer, earnest money deposit, proof of funds. The usual stuff.

Two months later, the appraiser values the house at $375,000.

Bank counter offers at $350,000 minimum. Buyer raised his offer to $310,000 but bank said NO.

Trustee sale date was coming up and there was no postponing it. At the courthouse steps, the bank took the house back for $277,000.

From my perspective it didn’t make sense. But I know that banks have their own logic…like the horse in the picture.The horse will drink the water when it's good and reay and not before, you know?

What I would like to see in the future: The bank saying what is an acceptable amount from the start or appraising the place right away after an offer has been accepted to determine if the amount is good for them.

Nice going Freddie Mac.

I got a phone call from a potential buyer. I went to see her at her house. She said she had lost a house three years ago in a foreclosure. Her current home was underwater, and she was renting out all the rooms to make ends meet. She had gotten a loan modification and was now going through a second one. She said if the bank didn't give her a good loan mod, she was giving them the keys back. She wanted to buy another house in Oakland, CA where houses where now cheap. If she got a new house, then she would decide to let the old one go or not.

She said most real estate agents didn't want to help her. She said most agents were the same, but that I had been recommended by a friend.

I put her in contact with three lenders and none could pre-approve her. She didn't earn enough and her son didn't want to co-sign for her.

I told her to go on with the loan mod and if she got it great, if not, to do a deed in-lieu or a short sale. She told me...well, let's see what happens, and I was sort of dismissed.

As real estate agents, we want to help, but sometimes it's impossible. I felt this was a long shot, but I gave it a go just in case, and to tell my past-client who had told her about me that I had tried. If I were to get a call from her for a short sale I'd be surprised.

Casi todas las casas a la venta REO (Real Estate Owned - pertenecientes a bancos) están desbaratadas, sucias y apestosas. Es por eso que los bancos las venden baratas. El problema es que los compradores financiados no pueden comprar casas con hoyos en las paredes, ventanas rotas, baños que faltan, alfombras sucias, etc. O los compradores no tienen el dinero para las reparaciones.

Por eso, el préstamo 203K de la Federal Housing Administration (FHA) es la respuesta perfecta para los REOs. El préstamo 203K es en realidad dos préstamos en uno, un préstamo para comprar la casa, y un préstamo para reparaciónes.

Requisitos para el 203K: 1) a) el comprador debe calificar para la cantidad que vale la casa, y b) la cantidad de renovación, y 2) la casa debe valorarse por la cantidad total, a + b. (Hay otras condiciones o requisitos.)

Hay dos tipos de préstamos 203K. El liviano de $35.000 o menos; suele ser para trabajos cosméticos, las cosas menos importantes. El pesado, para más de $35.000; es para los trabajos fuertes...para comprar ruínas. (Estas cantidades varían, así que pregúntele a su préstamista.)

Idealmente, la mayoría de los prestatarios deberían de usar el 203K liviano. El menos difícil.

Suena bien, ¿verdad? ¿Está listo para marcar 203K-X-REO?

¿Por qué no está todo el mundo usando 203Ks si son tan efectivos? Porque son duros.

El préstamista requiere:

1. Inspección de plaga y comején; una inspección de casa. Si hay otras inspecciones, el banco las va a querer ver también. Estas son inspecciones típicamente y cuestan $600.

2. Un estimado de un Contratista General (GC) para los reparos. El GC debe mostrar su licencia de contratista, licencia de conducir, número de Seguro Social, buena calificación de crédito, y tres recomendaciones por escrito. Puede tomarse dos o tres GCs antes de encontrar uno con buen crédito.

3. Una tasación que deberá cubrir el valor de lo que la casa va a valer después de repararla. Costo, $500.

4. Una inspección del HUD consultor. El consultor examinará todos los informes y reportes. (El consultor puede exigir otras mejoras y probablemente lo hara.) Costo, $ 750.

Les cuento mis dos experiencias con 203Ks:

1. Obtuvimos el reporte de plaga y termitas; hicimos la inspección de casa, recibimos un estimado del GC de $20.000. El precio de compra era de $160.000. El comprador estaba capacitado para pagar $180.000.

El consultor de Housing Urban Development (HUD), nos dijo, "Esta casa va a necesitar más de $20.000 para arreglarla." Entró en la casa, y señaló: "Hay moho aquí. Soy sensible al moho, y ya estoy sintiendo una reacción alérgica. Puedo ver que los pisos necesitan reparos. Esa grieta en el techo es de una gotera, esta casa va a necesitar un nuevo techo con una certificación para dos años. Usted va a necesitar nuevas ventanas."Su estimación salió por $ 40.000.

Por cierto, estamos casi dos meses en este acuerdo. El agente vendedor me seguía preguntando, "¿Cuándo vamos a cerrar?"

$200.000 dólares fue demasiado para el comprador y termino diciendome, "Que lástima. Creo que voy a seguir alquilando".

2. En otra compra, hicimos la inspección de plaga y comejen e inspección de casa. Salió bien la tasación. El consultor de HUD dijo que todo estaba bueno. Dos meses y $2.000 dentro del negocio, estamos bien con el préstamo de $335.000. Que es lo que deshace el negocio? El evaluador de préstamo rechaza al comprador; le niega el préstamo debido al choque de precio, la falta de bienes, pagos atrasados, e insuficientes líneas de crédito. Encontramos esto a la última hora! El evaluador nos había puesto otros requisitos.

Tuvimos que cancelar.

Las dos veces terminé decépcionado. Admito, mis dos experiencias no dicen toda la verdad, pero después de perder un cliente, cuatro meses, y Diós sabe cuánto dinero, ¿cómo se sentiría usted?

Algunos juran que el 203Ks si vale. Estoy seguro que hay algunos éxitos. Permítame preguntarle, de todos los prestamistas que usted conoce, ¿cuántos están haciendo 203Ks? ... Sólo unos cuantos verdad? ¿Por qué? La mayoría de las compras no se está haciendo con 203Ks. ¿Por qué cree que es así? En el área de la bahía de San Francisco-Oakland, sólo hubiéron 219 compras con el 203Ks en el 2009.

Bueno, sigo con esperanzas que el préstamo FHA 203K pueda servir para las casas embargadas (REO) o cualquier otra casa que necesite trabajo. ¿Sugerencias?

1. Reducir el número de personas involucradas con el préstamo.

2. Eliminar los innecesarios requisitos del préstamo.

3. El agente de préstamo debe ver la propiedad para ver si el préstamo se puede hacer.

4. El agente de préstamo debe informar a los prestatarios que el préstamos es difícil y que va a requerir mucha cooperación de parte del préstatario.

5. Conseguir un prestamista muy, muy hábil.

Almost all for sale REO (Real Estate Owned, Bank Owned) houses are run down. That’s why banks sell them cheap. The problem is that financed buyers can't buy houses with holes in the walls, broken windows, missing bathrooms, filthy carpets, etc. Or buyers don’t have the money for repairs.

That’s why the 203K is the perfect answer for the REO. The 203K loan is really two loans in one, a loan to buy the house, and a loan for repairs.

Qualifications for the 203K: 1) a) the buyer must qualify for the buying amount for the house AND b) renovating amount; and 2) the house must appraise for the entire amount, a + b. (There are other conditions/requirements.)

There are two types of 203K loans. The light, the streamline 203K, $35,000 or less, is usually for cosmetic work, minor stuff. The 203K heavy, $35,000 plus, is for major construction work... good for buying contractor’s specials. (Amounts vary per lenders so ask.)

Ideally, most borrowers should use the light 203K.

Sounds good, right? You’re ready to dial 203K-4-REO.

So why isn’t everybody using 203Ks if they’re so great? Because the lender requires:
1. A pest/termite inspection and a home inspection. If there are other inspections, the bank wants to see those too. These inspections are usual. Cost, $600.
2. A bid from a licensed general contractor (GC) for the repairs. The GC must show his contractor’s license, driver’s license, SSN, good credit score, and three written recommendations. It may take two or three GCs before finding one with good credit.
3. An appraisal which, again, must cover the projected value. Cost, $500.
4. A HUD consultant review. The consultant will review all reports and job bids. The consultant can require other improvements. Cost, $750.

Then it goes into, yeah, underwriting, the person/department that makes the actual loan. (No the loan agent doesn’t make the loan.)

Here are my two experiences with 203Ks:
1. We got the pest/termite report; did the home inspection; got a licensed GC bid, $20,000. Purchase price was $160,000. Buyer was OK for $180,000.
The HUD consultant said, “This house is going to need more than $20,000 to fix.” He walked into the house, and pointed out, “There’s mold here. I'm sensitive to mold, and am already getting a reaction. I can tell the floors need repairs. That crack in the ceiling is from a roof leak; this house is going to need a new roof with a two-year certification. You’re going to need new windows.” His estimate came out to $40,000.

By the way, we’re almost two months into this deal. The listing agent is asking me, “When are we closing?”
$200,000 was too much for the buyer. Buyer said, “That’s it. I guess I’ll continue to rent.”

2. On another purchase, we do the pest and home inspection. It appraised. HUD consultant said it was good. Two months and $2,000 later we’re OKd for the $335,000 loan. So what kills the deal? The underwriter rejects the buyer and denies the loan due to sticker shock, lack of assets, late payments, and insufficient lines of credit. We found this out at the end! The lender had additional “layer requirements” for 203Ks, whatever that means.

We had to back out. The loan agent couldn’t believe the severity of the underwriter/lender. Buyer said, “Let’s find another house; no 203K loan.”

Both times: disappointment. I admit, my two stories don’t tell the whole truth, but after losing one buyer, four months, and God knows how much money, how would you feel?

Some swear that 203Ks work. I’m sure some succeed. Let me ask you, of all the lenders that you know, how many are doing 203Ks?…only a handful right? Why is that? The majority of purchases are not being done with 203Ks. Why do you think that is? In the San Francisco-Oakland area there were only 219 purchases with 203Ks last year.

OK, I still think that 203Ks pair up with REOs. Suggestions?
1. Reduce the number of people involved on the loan side.
2. Eliminate unnecessary loan requirements.
3. The loan agent should view the property to see if the loan is even doable.
4. The loan agent should tell borrowers these are difficult loans.