Robert Peronne Associate Broker

How Do I Buy Foreclosures?

There are basically 3 ways to buy foreclosure properties in Philadelphia;

1. Sheriff's Sales
2. Bank Owned (REOs)

3. Short Sales

Sheriff's Sales

First of all, I know about what happens in Philadelphia, Pennsylvania. I am sure that in any other county and state in the US everything is different and none of what I say applies. Now that we got that disclaimer out of the way...

If you are buying a home. DO NOT EVEN THINK ABOUT BUYING A PROPERTY FROM A SHERIFF'S SALE. You would have to be crazy. You will be so sorry. For the one person who did buy their home at a Sheriff's Sale and is happy. Congratulations on being lucky.

If you are an investor with actual money that you can afford to lose and serious time to invest then maybe you might want to start learning about Sheriff's Sales. We have 3 kinds of tax sales (depending on the type of tax lien) and one mortgage sale here. In PA. tax sales, the owner of the property has up to 1 year to buy the property back. Even though this rarely happens it does seriously affect your ability to obtain title insurance and resell a property.

With all Sheriff's Sales you are buying the property blind. You can not see the inside. Typically properties sell for about 50 to 70% of market value but of course the actual condition that you find the property to be in will be a pleasant or unpleasant surprise to your bottom line. You must be ready to walk away from your 10% deposit if the property is a loser.

While a Sheriff's deed does theoretically clear all liens and judgments against the property, there is no title policy. If the Sheriff's office makes any mistakes in properly notifying lien holders and paying them then it is YOUR problem. You need to order a title after you bid and before you settle with the Sheriff.

If you are serious about buying properties at Sheriff's Sale in Philadelphia and YOU ARE WILLING TO PAY ME FOR MY TIME I will be glad to meet with you and discuss it.

Short Sales

OK, Short Sales are not foreclosures because they haven't been foreclosed, BUT it is the prospect of foreclosure (in some cases a valid hardship will be sufficient even if the seller can afford to continue making payments) that causes the lender to agree to accept less than the full amount owed on the loan. The problem is that most Real Estate agents do not comprehend this simple concept. If the owner/seller can afford to continue making payments and has available assets (not including IRA, 401K or retirement accounts) to pay the difference between what the property is worth and what is owed then the lender will not approve the short sale. In other words, it is a waste of your time.

The ONLY way that the lender will agree to a short sale if the seller can afford to pay is if the seller and/or the agent deceive the lender. This is fraud and since most banks are federally chartered institutions it is a Federal Crime. If you think that someone in your transaction may be committing fraud against a lender I suggest that you go straight to the US Attorney's Office and tell them everything that you know.

So, with more disclaimers out of the way, it is time to qualify yourself. It is going to take 60 to 90 days to get an answer from the lender. Are you willing to hang in? By the way, we are assuming that you can afford the property and provide proof of funds and/or finance. If you think this is going to be a no money down deal please go to the Real Estate Riches website. They have a seminar to sell you.

There are 3 qualifying steps to know if you have a good chance of buying a short sale.

1. Qualify the Seller. Just like I would qualify a buyer to see if he can afford to buy a property. We qualify the seller to see if he can not afford to keep the property AND/OR if the seller has a valid hardship the the lender is will find acceptable. There are some hardships that are sufficient even if the seller can afford the property such as military service but these are exceptions rather than the rule.
2. Qualify the Seller's motivation. This is difficult when we are on the buy side of the transaction because the Seller's agent is naturally not going to think that they should reveal this information. The point is we need to know that the seller is going to hang in the transaction. They will get their financials together and go to their court dates. (In Philadelphia the court is of incredible significance. The courts will delay the Sheriff's Sale almost indefinitely if the seller does what he is supposed to do and acts in good faith.) We can tell alot by requesting a copy of the short sale package and reviewing the court docket. The court docket is a key if you know how to read it.
3. Qualify the Property. The lender is going to order a BPO (broker's price opinion) they may send 2 or 3 agents out to look at the property. If it is an fha deal there will be an appraiser looking at the property. The point is you have to be willing to pay a price that it somewhere near what the value of the property is. The asking price is absolutely meaningless. We are more concerned about the pricing history that shows the seller started out at a reasonable price and reduced it to the current price. If there are no comps to justify that your price is somewhere near the value...Waste of time. Will not be approved.
4. Inspect the Property. You are buying AS-IS. If there are repairs needed the lender will consider the cost of those repairs. A list of required repairs needs to be submitted along with the offer if the required repairs are substantial. The good thing is usually short sales are occupied by the owner. You can get full disclosure. The seller has no interest in hiding any defects they just want the deal to go through. The more problems here are with the property the more the bank doesn't want it. The seller can not get any proceeds from the sale.

So, now that we have qualified everybody it is time to write the agreement and continue to qualify the seller to the next level. I like an agreement that has everything we will possibly need right there. Total proof of funds from the buyer. A condition that the seller provide us with a copy of the completed Short Sale Package within 5 to 7 days as well as proof that it has been submitted to the lender. A title report and a discussion of who is paying for it and an authorization for the buyer's agent (me) to communicate with the lender. I also want to ask the seller for their HAMP/HAFA application. Many lenders require it and it may come in handy if the buyer has to go to court. I want to be able to talk to the negotiator after the complete package has been reviewed and the negotiator comes back with a counter. I do not trust that the seller's agent is the most effective negotiator in a short sale. The reality of these negotiations is that it benefits everyone if the negotiator deals with the buyers agent.

As much as you wanted the property and you waited 2 months now you have to be ready to walk. Remember the bank only cares about how much they net if they do the short sale and how much they net if they foreclose. Everything else they say is just a tactic to try and get more money. They are going to ask for more if your offer is good then stick with it.

If you agree to the lenders counter offer now they want you to settle right away. Make sure the money is as close to being available ad you can.

Bank Owned REOs

Buying bank owned properties is the easiest way of the three to buy foreclosed properties.

If you are planing on buying we look at the properties on the lists and proceed like a normal buyer. Look at properties, when you find something you like make an offer. You will save money buying a bank owned property but in most cases the property will not show as well as a traditional home. There is no new paint and carpet. It is not staged. It may not be very clean. There is no disclosure the utilities are off and you need to have everything inspected.

The bank will usually take a week or 2 to respond to your offer. It is best to get the banks corporate addendum before submitting the offer to keep the process down to one step. The agent for the lender will favor a complete offer because they are overworked and underpaid. Generally, the selling agent will not get double the commission for representing the buyer and they are probably too busy to take you out to show the property.

If you are interested in getting favorable finance terms the properties owned by FannieMae qualify for low down payment financing. If you are buying a condo you will generally face the same finance challenges that every other condo buyer faces.

The main thing to remember about bank owned properties is that the bank is a very motivated seller but not a sucker. They usually price the property to sell and will lower the price that they will accept if the property sits for too long. A good REO agent will get a reduction every 30 days. The main thing to know is who is the REO agent and/or is it a good REO agent. These agents are largely responsible for the property and they have to pay the bills. They do not get paid back until the property settles. They do not want to get stuck with inventory.

Conclusion

If you are a Real Estate Pro with money to spend the Sheriff's Sale may be for you. If you are willing to wait and see if your offer gets accepted a Short Sale can be a real bargain. If you are looking to buy soon then REO's are a good option.

If you want a new home in perfect move-in condition and you expect the seller to make repairs if your inspector finds any problems then stick with a traditional purchase.

Pre-Foreclosure and Short Sale Department

Philadelphia Realty Exchange

1608 Spruce St. Philadelphia, PA 19103

Robert Peronne, Associate Broker

(215) 888-3061 robertsells@gmail.com

These are our Handpicked Deals for 4/28/2010

Bank Owned Houses

2247 League, 19146, 2/1 $184,900. Sold for $289K 1/2007

2240 League, 19146, 2/1 $169,900. Sold for $200K 1/2006

2530 Salmon, 19125, 3/1 $174,900. Special financing available. Sold for $210K 2/2007

2613 Belgrade 19125, 3/1 $89,900. Special financing available. Refi for $101K 8/2007

839 Moyer 19125, 3/1/1 $129,900. Sold for $160K 8/2005

Bank Owned Condos

500 Admirals Way, 19146, Naval Square, 1/1, 882sf, $300,000. Sold for $443K 11/2006

7 N Columbus, 19106, Piers Marina, 2/2, 2229sf, $235,000. Refi for $420K 1/2006

1324 Locust, 19107, Arts Condominium, 0/1, 321sf, $87,500. 321sf, Sold for $443K 12/2006

1324 Locust, 19107, Arts Condominium, 0/1, 335sf, $84,900. Special financing available. Sold for $139K 10/2007

309 Arch, 19106, Hoopskirt Factory, 1/1, 927sf, $250,000. Special financing available. Sold for $339K 5/2007

219 S 18th, 19103, Parc Rittenhouse, 1/1, 510sf, $324,900. Sold for $317K 1/2008

Short Sale Houses

914 S 16th, 19146, 4/2/1, $299,999. Refi for $387K 11/2007

841 Perkiomen, 19130, 3/3/1, $197,500. Refi for $250K 4/2008

2652 Memphis, 19125, 3/1, $125,000. Refi for $154K 7/2008

1332 Earl, 19125, 3/2, $325,000. Sold for $505K 3/2007

Short Sale Condos

901 N Penn, 19123, Waterfront Square, 2/2/1, 1522sf, $475,000. Sold for $743K 9/2006

901 N Penn, 19123, Waterfront Square, 1/1, 924sf, $299,999. Sold for $378K 8/2006

901 N Penn, 19123, Waterfront Square, 1/1, 924sf, $225,000. Sold for $388K 8/2006

428 N 13th, 19123, Loft District, 1/1, 914sf, $205,000. Sold for $255K 10/2004

1010 Race, 19107, Ten Ten, 2/1, 1005sf, $225,000. Sold for $257K 10/2004

1010 Race, 19107, Ten Ten, 2/1, 672sf, $149,900. Sold for $265K 7/2005

1100 S. Broad, 19146, Marina Club, 1/1, 654sf, $199,995. Sold for $258K 1/2008

1001 Chestnut, 19107, Victory, 1/1, 566sf, $159,900. Sold for $273K 11/2005

1001 Chestnut, 19107, Victory, 2/1, 897sf, $240,000. Sold for $365K 3/2006

2601 Pennsylvania, 19130, 2601, 1/1, 952sf, $207,000. Sold for $203K 11/2004

717 S Columbus, Dockside, 19147, Dockside, 1/1, 852sf, $289,000. Sold for $374K 9/2006

315 Arch, 19107, Arch Bldg, 1/1, 771sf, $250,000. Sold for $263K 2/2007

674 Franklin, 19123, Liberties West, 2/1, 566sf, $185,000. Sold for $218K 4/2006

676 Perth 19123, Liberties West, 2/1, 566sf, $150,000. Sold for $273K 1/2006

Pre-Foreclosure and Short Sale Department

Philadelphia Realty Exchange

1608 Spruce St. Philadelphia, PA 19103

Robert Peronne, Associate Broker

(215) 888-3061 robertsells@gmail.com

A couple of weeks ago, I got a call from a person who had seen my webite PhillyShortSale411 saying she was in foreclosure and needed to do a short sale. I was out at the property the next day with the package of paperwork that I put together everytime I go out to meet a client facing foreclosure. The package includes;

• The deed
• Any open recorded mortgages
• A statement of property taxes due
• A list of any Liens and Judgments
• A Printout of recent comparable sales

After looking at the property I immediately saw that the owner still had equity in the property. There was just one small problem. The property wasn't in her name. It had belonged to her mother who had passed away 2 years prior. After a short discussion I learned that there were no other heirs or other complications. So I explained what she needed to do to file letters of administration and legally sell the property. We contacted the attorney who was handling the foreclosure and got a stay on the sheriff's sale. By the end of the day we had the property listed.

One week later it was under contract. It's 3 weeks later and we just left the settlement today. The owner walked out with a check for $41,263. Foreclosure avoided, money in her pocket and a chance to start again. Some stories do have happy endings.

If you are facing foreclosure do not wait! Go to PhillyShortSale411 and find out about your alternatives. We have all of the resources you need in one place including links to housing counsellors, where you can go to find out if you are qualified for President Obama's Making Home Affordable program and what you need to do if selling is your only option. We are here to help you get a new start.

What’s the 411?

www.PhillyCondo411.com Explains

Lease vs. Purchase Decision Analysis for Condo Homeowners?

Before we start with the Lease vs. Purchase Decision keep in mind, what we are talking about is a decision about money. This analysis does not include the “Emotional” factor of pride in ownership or the “Quality of Life” factor that you can make changes or customize your own home to your needs and desires. We will not consider the potential for appreciation of the property in the mathematical analysis.

Because money decisions are based on the number of dollars this is largely a mathematical exercise. In the attempt to make this understandable for “everyone” we will make many simplifications on the “Commercial Real Estate Industry Standard” mathematical methods used in Lease vs. Purchase Decision Analysis. If this isn’t complicated enough for “you” give me a call I can make it much more confusing.

Basic Assumptions:

“You” have $2,000/mo to spend.

“You” will earn 6% simple interest if you leave your savings in your investment account.

“You” will be keeping the property beyond the 5 year period.

“You” pay a marginal rate of income tax (federal, state and local) of 33%

“You” will buy a condo for $350,000

“You” are qualified a conventional mortgage

The seller will pay your closing costs (about 6% of the purchase price)

Tax savings on interest are based on year 1 (they will go down slightly each year after)

The unit you buy or rent does not include parking.

The property you buy is tax abated for the next 5 years.

Your rent, fees and expenses will not change for the next 5 years

20% Down Payment Buyer

“You” can get a 5.25% interest 30 year fixed mortgage.

The second example is based on everything being the same except you only have 5% or $17,500 in available savings. Your monthly payment will be higher because you are financing more and you will have to pay a higher rate of interest (5.5%) and monthly private mortgage insurance (pmi.)

5% Down Payment Buyer

“You” can get a 5.5% interest 30 year fixed mortgage.

The Big Win!

The “Big Win” is appreciation and we are not talking about the kind of appreciation when the market peaked. That was appreciation based on Supply and Demand. Many people would say that demand was false because many of the buyers were not truly “qualified” based on traditional lending standards.

We are talking about the market returning to “equilibrium.” That is the point where existing construction sells for the same amount as it would cost a developer to buy a piece of land, build a new building, sell the units and make a fair profit. The point of equilibrium for Condos in Center City today is about $500 per usable square foot. When the economy returns to normal and construction costs go up that number will rise. When you consider the cost and lack of availability of land in Center City the cost of procuring a building site is exorbitant. 5 years from now in a healthy economy the equilibrium point for a new construction condo in Center City could easily exceed $700 per square foot.

Someday the excess inventory that exists today will be absorbed into the market. When that happens, prices will go up (return to equilibrium.) Only when prices are again driven by supply and demand above the equilibrium point will new construction begin. Center City Condo prices will go higher than they were during the 2005-2007 Peak. The ONLY question is, how long will that take? The range of reasonable guesses is anywhere from 2 to 10 years.

Inevitably, after equilibrium is reached new construction will begin at a frantic rate. There will be a perception in the market place that prices can only go up forever. Lenders making big profits on construction loans will ease lending standards making more development money available. Prices will skyrocket as more and more new condos are built. Eventually, the supply will exceed demand. At that point, construction will stop and prices will fall. Some developers and investors will perfectly time it right and will get out with outrageous profits. Others will fail as the market becomes saturated and prices drop. There will be a wave of foreclosures and liquidation sales as inventory is absorbed and the market returns to equilibrium…

Condominium Sales Team

Philadelphia Realty Exchange

1608 Spruce St. Philadelphia, PA 19103

Robert Peronne, Associate Broker

(215) 888-3061 robertsells@gmail.com

Another Article from www.phillycondo411.com

Cu257, That is 257 N 2nd St goes on the auction block May 15th.

9 more Luxury Old City Condos will be sold Saturday, May 15th. The opening prices (from $100K) are so far below market value that they are guaranteed to all be sold. We have been to the building several times over the last 2 years and I gotta tell you. These guys did a fantastic job. The builders attention to detail and thorough planning is just over the top. I am still impressed by the window backsplashes in the kitchens. Planning the windows to fit perfectly as Kitchen counter backspalshes says it all for the workmanship on this job. And the spaces; 2300+ square feet, high-end finishes all the way around, 2 units per floor, generous room sizes, maximum view exposures, sound-proofed walls, parking. Am I going on and on. I love this building.

What went wrong?

The location just isn't quite it. The timing was horrible the first units were available in late 2008 just when no one could get jumbo financing. The price point was above the market because they spent to much on the building. The original marketing...just didn't quite work out.

Is it a Deal?

This is a great opportunity for someone who wants a nice sized 2 or 3 bedroom condo in Old City to live in. We expect units to sell for around $500K. This is a 10 unit building so the condo fees will not be low we guessing about $800/mo is realistic. Taxes are abated for the full 10 years.

Is it a Steal?

They sold 1 unit. If you think your going to buy to flip...stay in bed. If you want to own a quality ($2,500-$3,000/mo) investment property, you are looking to put $150K to $200K cash in to the deal and you can benefit from the tax savings then this might be a good building to look at. It's brand new and well constructed there probably won't be any surprises that co$t you later.

Do I need an Agent?

Absolutely, YES! You need to plan your bidding strategy based on where you want to be in the building. As always a real understanding of value is part of your prep work. The story with the condo docs and the attorney review is unclear but we will work with you to get to the bottom of it. As always, PhillyCondo411 buyers will receive a free attorney condo doc review from Frank Ermilio (I think Frank actually wrote these docs) before you are committed to your bid.

And remember, the auctioneer gets 10% from you on top of your bid price. They will allow you to pay part of that money to your agent. So you are represented for free. That's right, whether you have an agent or not does not affect the price you pay.

Can I see the Pictures?

See the auction brochure at MaxSpann.