Silicon Valley Real Estate Investor

The other day I was talking to my brother and he mentioned to me that he was starting to educate himself about home auctions because he was interested in purchasing his next home at auction. This was a new concept to him, but the more he researched it, the more he like the potential deals. [...]

ForeclosureRadar.com recently released its revamped California Foreclosure Report.

This is a must-read for the California real estate investor. The short report draws some interesting conclusions about foreclosure filing rates (123% over last year), inventory levels, discounting, and other statistics.

Over on John Barry’s blog My Life in Real Estate, he mentions an article put out by the Southland Regional Association of Realtors, explaining 5 common myths regarding the sale of REO properties.

This reminder comes at a particularly handy time. With bank foreclosures representing such a large portion of the activity in the market, as real estate investors it’s very helpful to receive a deeper explanation of some of those things we begin to take for granted. Make sure to read the whole article if you have a chance; in the meantime, here’s a high level view of the five common myths that are cleared up.

Both foreclosure activity and Notices of Default dropped sharply in Silicon Valley last month, but no one is ready to call it a trend because the underlying causes are still there – negative equity and delinquent payments.

Previously, we broke down our investing activities into 4 broad phases:
1) Buy
2) Hold
3) Sell
4) Repeat

So far, we’ve been breaking down the first phase, on Buying Real Estate, into small chunks and discussing one piece at a time. In this post, we’ll talk about buying Subject To, which is more about a certain financing technique for buying properties.

What is a subject-to purchase?

What is a short sale? To keep it simple, we can define a short sales as a scenario where a lender agrees to accept less that what is owed on a mortgaged property in exchange for considering the debt satisfied. If a bank approves it, it is because for them it presents a better alternative than taking the house through the foreclosure process and selling it into the current open market. We’ll cover this topic in greater detail later on.

The main advantage to buying on a short sale, of course, is the ability to buy discounted property, without the constraint of what the current lien on the home is.

However, there are certain disadvantages, too …

The practice of buying bank-owned properties is getting a lot of attention because it represents such a big, and growing, supply of ready-for-sale housing.

When a borrower stops paying, one of the principal recourses a lender has is to take over the property against which the loan was secured, and sell that asset to try to recover its money. Foreclosure can be a long process, but at the end of it, if no other way is found of settling that debt, the ownership of the property will fall to the bank. Banks are good at lending money but not at managing properties, so generally the banks don’t want to hold on to the properties and will usually try to sell them quickly. Traditionally the holding and selling of real estate this is handled by the “Real Estate Owned” department of the bank, thus today’s “REO” for short hand …