Finding & Buying Foreclosures for IRA Investors

FINDING & BUYING FORECLOSURESwith Foreclosure Market Outlook

What we’ll cover today

• What is RealtyTrac?• What is ‘Foreclosure?’• Why Buy a Foreclosure?• The 3 Foreclosure-Buying Opportunities• Foreclosure Market Overview & Outlook• Best Markets for Buying Foreclosures• Best Banks to Buy From

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A BRIEF INTRODUCTION TO REALTYTRAC

WHO RELIES ON REALTYTRAC DATA

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WHO RELIES ON REALTYTRAC DATA

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WHAT IS ‘FORECLOSURE?’

Foreclosure Overview

What is ‘Foreclosure?’•Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan.

When does foreclosure begin?•The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens.

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MOTIVE: WHY BUY A FORECLOSURE?

REASON 1: AVAILABILITY

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Nearly 1.5 million U.S. properties in some stage of foreclosure

REO inventory represents 16-

month supply at current REO sales

pace

AND MORE COMING

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3.2 million U.S. delinquent mortgages

EVEN MORE POTENTIAL DISTRESS

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12.5 million mortgages seriously underwater

DON’T MISS OUT

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23 percent of all residential sales in the second quarter were

properties in foreclosure or bank

owned

MORE DISTRESSED SALES

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Short sales that closed before a property started the

foreclosure process increased 18 percent from 2011 to 2012

BIGGER INCREASES IN SOME STATES

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REASON 2: POTENTIAL SAVINGS/PROFIT

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Average price of these foreclosure-related sales subtracted from average

price of non-foreclosure sales.

DISCOUNTS VARY BY MARKET

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BUT PRICES RISING – A GOOD THING

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REASON 3: LESS COMPETITION

• Only about 20 percent of properties in the foreclosure process are already listed for sale

• Only about 15 percent of bank-owned properties are listed for sale

• The foreclosure auction is not for many buyers (more about that later)

• Condition of some foreclosures turns off many buyers

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THE 3 FORECLOSURE-BUYING OPPORTUNITIES

THE 3 STAGES OF FORECLOSURE

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PRE-FORECLOSURE

• Contact the owner to make offer

• Purchase from “distressed” homeowner

• Often short sales (but not always)

• Average discounts of 26 percent in second quarter

• More than 600,000 on RealtyTrac

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SAMPLE PRE-FORECLOSURE HOME

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List price is above estimated value, but

the property has been in foreclosure for 323 days so the owner and

lender may be willing to deal.

The loan history shows three outstanding loans on the property, which may make a short sale

more difficult.

FORECLOSURE AUCTION• Purchase at public auction

• Contact trustee to verify auction dates

• Often requires full payment in cash

• High risk, high reward

• More than 300,000 on RealtyTrac

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SAMPLE AUCTION HOME

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List price is $10,000 below estimated market value, but

auction date is not until Oct. 10

BANK OWNED• Work with listing agent if listed

• Contact bank to make offer

• Be persistent if not listed

• Submit offers online

• Average discount of 37% in second quarter

• More than 500,000 on RealtyTrac

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SAMPLE BANK-OWNED HOME

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The list price for this duplex is $12,000 below estimated market value,

and the property has been bank owned for

105 days

More details about how to purchase this Freddie Mac property is in the

listing description

FORECLOSURE MARKET OVERVIEW, OUTLOOK

PAST THE PEAK NATIONWIDE

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March 2010 was absolute peak with rolling average of 336,909

total foreclosure filings

5+ YEARS ELEVATED FORECLOSURES

• From January 2007 to Aug 2012 nationwide

• More than 9 million foreclosure starts• These can be NODs, foreclosure lawsuits or

scheduled foreclosure auctions, depending on the state

• Nearly 4.5 million completed foreclosures• These are REOs, or properties repossessed by the

lender through foreclosure

• More than 1.9 million pre-foreclosure sales• Typically short sales or sales at foreclosure auction

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REO DECLINES DRIVING DECREASES

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22 straight months of year-over-year

declines starting in November 2010

REOS REBOUNDING IN SOME STATES

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AND A RECENT JUMP IN STARTS

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6 Percent Increase in Q2 2012 first annual

increase since the fourth quarter of

2009

STATES WITH BIG INCREASES

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IMPLICATIONS

• Fewer opportunities to buy bank-owned in the short term except in some select states

• But increase in foreclosure starts mean more short sales in the next six to 12 months and more REOs in next 12 to 18 months

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DISPOSING OF DISTRESS: REO SALES

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REO sales decreased 31 percent from a year ago in the

second quarter of 2012

DISPOSING OF DISTRESS: REO SALES

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REO price increased 10 percent annually in second quarter, biggest increase

since Q3 2008

REO SALE ACTIVITY SUMMARY• From Q1 2007 to Q2 2012

• More than 2.7 million REO sales nationwide

• Average REO sales price nationwide spiked 10 percent in Q2 from year ago, but still down 22 percent from peak in Q2 2008

• Average REO sales price in Q2 2012 was $155,892, 37 percent below average non-foreclosure price

• Accounted for 12 percent of all sales in Q2 2012

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DISPOSING OF DISTRESS: SHORT SALES

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Pre-foreclosure sales hit 3-year high in first quarter of 2012

DISPOSING OF DISTRESS: SHORT SALES

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Short sale discount hit all-time high in second quarter

SHORT SALE ACTIVITY SUMMARYFrom Q1 2007 to Q2 2012•More than 1.9 million pre-foreclosure sales nationwide

•Average pre-foreclosure sales price decreased 1 percent in second quarter from year ago and was down 28 percent from peak in Q1 2007

•Average pre-foreclosure sales price of $185,062, 26 percent below the average price of non-foreclosures

•Pre-foreclosure sales accounted for 11 percent of all sales in Q2 2012

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FORECLOSURE MARKET OUTLOOK• Foreclosure activity in late 2012 and into 2013

will continue to increase off artificially low levels of 2011 and early 2012 – but not in every market.

• Foreclosure activity will not return to the peak of 2010 (depending on market), and foreclosure activity will resume its downward trend in 2013.

• Biggest increases will come in states with the biggest backlogs created in 2011: Florida, Maryland, Massachusetts and eventually even New Jersey and New York

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PRICES AND PRICING SETTING STAGE

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• Average price of foreclosures up in some areas, in part because of artificially limited supply• Detroit foreclosure sales prices up 18 percent• Miami foreclosure sales prices up 9 percent• Phoenix foreclosure sales prices up 18 percent

• Lenders are pricing bank-owned and short sales more aggressively• “We’re pricing things to sell. We’re not holding onto

anything thinking that values are going to come back … I don’t think anybody is in that mode. … It’s almost like you have to price properties to sell or your inventory is going to explode.” – Executive with mortgage servicer in Wisconsin whose company services mortgages nationwide.

BUYERS & INVESTORS READY• “Investors are back, they’re paying cash,

they’re excited about the deals they’re getting and they’re buying multiples” – Kandy Clayton, broker/owner at Clayton & Associates Real Estate in Sandy, Utah

• “We have a backlog of buyers we are working with that just can't find the right home based on the homes that continue to come to market.  2012 will be a nice turnaround year and once interest rates begin to rise we believe many of these buyers will come off the fence and make a move before this market changes.” – Ian Whitelaw, broker/owner at Central Properties Group in Oakland County, Mich. 

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MORE INVESTOR PERSPECTIVES

“It’s easier to get short sales than REOs. The banks just are not releasing the properties on the market. It’s an artificial supply shortage. With short sales they are more willing to deal.”– Bill Bronchick, president, Colorado Association of Realtors

“I don’t care about retail. I’m buying cash flow and return. I buy cap rates. We’re buying at 2001 and 2002 levels.”-- Dan Valentine, investor in Phoenix

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BEST MARKETS FOR BUYING FORECLOSURES

BEST MARKETS FOR FORECLOSURES

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BEST MARKETS FOR FORECLOSURES

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BEST BANKS TO BUY FROM

BEST BANKS TO BUY REOS FROM1: Ally Financial (Formerly GMAC) Avg. REO Sales Price: $60,254 Avg. Percent Savings: 60% Avg. Time to Sell: 104 days

2: Wells Fargo Avg. REO Sales Price: $83,530 Avg. Percent Savings: 43 % Avg. Time to Sell: 157 days

3: Citigroup Avg. REO Sales Price: $68,406 Avg. Percent Savings: 49% Avg. Time to Sell: 167 days

4: U.S. Government Avg. REO Sales Price: $93,941 Avg. Percent Saving: 30% Avg. Time to Sell: 187 days

5. JPMorgan Chase (Tie) Avg. REO Sales Price: $98,864 Avg. Percent Savings: 41% Avg. Time to Sell: 203 days

5. Bank of America (Tie) Avg. Sales Price: $120,801 Avg. Percent Savings: 27% Avg. Time to Sell: 187 days

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BEST BANKS FOR SHORT SALES1. PNC Financial GroupAvg. Pre-Foreclosure Sales Price: $133,015Avg. Percent Discount: 40%Avg. Days to Sell: 151

2. Government Entities (Fannie, Freddie Mac, HUD)Avg. Pre-Foreclosure Sales Price: $127,618Avg. Percent Discount: 42%Avg. Days to Sell: 154

3. Ally Financial (Formerly GMAC)Avg. Pre-Foreclosure Sales Price: $143,410Avg. Percent Discount: 35%Avg. Days to Sell: 188

4. Ocwen FinancialAvg. Pre-Foreclosure Sales Price: $126,071Avg. Percent Discount: 43%Avg. Days to Sell: 168

5. Sun Trust BanksAvg. Pre-Foreclosure Sales Price: $151,308Avg. Percent Discount: 32%        Avg. Days to Sell: 2076. Bank of New York MellonAvg. Pre-Foreclosure Sales Price: $155,488Avg. Percent Discount: 30%Avg. Days to Sell: 283

7. Bank of AmericaAvg. Pre-Foreclosure Sales Price:  $166,389Avg. Percent Discount:  25%Avg. Days to Sell:  223

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