VA loans are just as likely to succeed with REO as any other conventional loan, they just take a bit more work and preparation. They can also be competitive, but the competition is fierce for well-priced homes. That may change some over the next few months, since we expect the available inventory to increase. Since February the national foreclosure moratorium clogged things up, but that’s started to loosen. So, patience and persistence will pay off. Hang in there.
With a VA loan, try to get a termite report in advance. The idea is to structure your offer to allow some buyer money to pay for repairs. If you know what the cost will be, you can ask the seller for a specific credit for VA required repairs in your offer, say in lieu of a credit for closing costs, then add the amount to your offer price. Most REO sellers will consider this an attractive offset. If you include the report and the Section I estimate, it would be a compelling offer. Sometimes the listing agent will have a report already, if not call in some favors and get your own. Of course this could get spendy if you have to do it over and again. Keep an extra watch for listings that are seasoned for 60 days or more because there will be less competition, but your VA offer should stand well among multiple offers. Seller will almost always ask multiples for a ‘final highest and best’ counter offer, so you might get a second shot at the price.
There’s a lot of buzz about loan modification, a process where borrower and lender renegotiate the terms of a home loan so that the monthly payments are lowered. Either the interest rate is reduced, or the repayment term is lengthened, or both.
The federal government, that is, both the administration and Congress, seem to think loan modifications are key to correcting the home loan mess. We disagree.
In fact, our opinion is that in general, loan modification only adds to the problem. We read recently where something like 3 out of 4 modified loans re-default within 6 months. 6 months! What are the numbers after 12 months? Basically, loan modifications are just extending bad debt further. This is exaggerating the problem, not solving it. Still, individual borrowers may get some short-term relief from a loan mod.
But be careful! We’ve heard some horrible stories about people who still lost their home to foreclosure after paying lots of front money to “professionals” who offered to negotiate a loan mod. They take your money, do nothing, and then they stop answering the phone.
Always interview more than one lender, ask a lot of questions, and don’t pay anything up front.
If you owe more than your house is worth and are having trouble keeping up with your payments, this is our first recommendation.
Very simply put, a Deed In Lieu of Foreclosure gives the property back to your lender, who forgives the debt, and you walk away mostly intact. You suffer far less damage to your credit and the lender suffers fewer losses than with either a short sale or a foreclosure.
If the circumstances allow it, this is door #1. Ask your lender about it, they should be very helpful in determining if this will work for you. After all, they’re plenty motivated to cut their losses, which are already substantial.
REO means: Real Estate Owned. Generally, this is a term commonly used in reference to bank-owned properties or properties that have been foreclosed.
More specifically, these are properties that revert to the lender after the borrower defaults on the loan. The process is complex, but in the end the lender takes the property back and there is no longer a loan, hence Real Estate Owned.
When I first started in real estate, I thought that REO meant Real Estate Owed. At least that’s what I heard, and it didn’t make any sense. I couldn’t figure it out no matter how my broker explained it to me. What a difference one little letter can make. If only I owned everything I owe.
