Reno-Time!

I will post what renovations I did (most everything), what prices I compared, and what stores, brands, companies had the best deals!

ForeCLOSURE

Once your offer has been accepted and you have gone through a home inspection to discover all of the problems with the home that need to be fixed you can CLOSE on the house and will no longer have to deal with the pesky lockbox on the front door!

Closing on a house is when you become the official owner. You will meet with your real estate agent, the seller, the seller's agent, and most likely an attorney. During this meeting you will sign the closing documents, receive the keys to the house (or be told just to take them from the lockbox) and hand over the big check or mortgage documents. Unless your accepted offer included closing costs you will have to have a certified check payable for all of the additional costs.

The additional costs that are typically included in "closing costs" are:

• Real Estate Sales Commission - this percentage of the purchase price of the home can be anywhere from 7% on down. If both parties, the buyer and seller, are represented by an agent, then the commission is divided between them. If only one party has an agent, the party without an agent will typically ask for a reduced payable commission so that the only agent in the deal doesn't get the entire 7%!
• REO Compliance Fee - some purchase contracts will include this fee, usually a few hundred dollars, because the sale price of the home is so low. This fee ensures that the listing real estate agent will make at least a certain fee on the sale.
• Taxes and utilities - if these items were prepaid for the year or period then you will owe to the seller a pro rata amount of taxes or utilities equal to the time that you now own the home for the rest of the year, or period. If taxes or utilities are owed on the home then the seller will credit the amount due up to the closing date to you so that when you pay this bill you are only paying the amount due from the date that you took ownership of the home.
• Additional Agent Fee - some real estate sales agents will charge an additional fee in addition to the commission they will receive
• Legal Document Preparation - fees for the purchase agreement, closing documents, and land transfer documents
• Land Record Recording Fees - fees that the county and state charge to record the transfer of ownership for the property

Also presented at the closing meeting should be the deed to the property signed by the seller and a certificate of title insurance. Title insurance can be agreed to be purchased by the seller or the buyer. It is important to have because it basically states that no one else has a claim of ownership to the property that you are buying and if someone ever does assert a claim to your property the insurance company will pay to defend your claim to the property as insured.

You should also check with the city of wherever you are buying your home to ensure that there are no liens on the property. A lien is a legal claim that entitles the lien holder to money from the sale of your property. Liens can prevent you from refinancing or obtaining any future mortgages or using your property as security for some other debt. Most liens come in the form of taxes or water bills that were never paid or a special assessment from the city. Special assessments occur when the city makes an improvement to the city's land that is for the benefit of the community and the cost is divided up so that each home owner pays a portion, an example of this would be new sidewalks. A lien can also appear in the form of a construction lien - this lien is placed on a house when a contractor performs work improving the home and is not paid. All of these expenses should be taken care of by the seller before passing the title of the property to you.

Once you leave the closing and hand over the check, the house is yours! Before you get started on all of the work that needs to be done check with your city. More and more cities are requiring buyers of foreclosed houses to register the house with the city. This includes paying a fee and providing information about yourself and your home, and having a city inspection before any work is done so that the city can keep track of the work you are doing to repair the house. Many different repairs and replacements require permits from the city. A permit usually costs around $50 for each renovation or repair. The permit document is required to be displayed in the front window of the home and when the work is complete the city will perform an inspection to check to see if the work was done correctly to meet the safety code.

Some cities, like St Clair Shores, MI, require a permit for almost everything - new cabinets, drywall, gutters, siding, windows, plumbing, electrical - everything except carpet and paint. Other cities like Dearborn and Ferndale actually send a city inspector out to estimate the cost to bring the house up to code standards and require you to deposit whatever that sum may be into an escrow account and draw money for the repairs from that account. You will not receive any left over money from the account until the inspector returns and gives you the approval that you have done everything correctly and made all necessary repairs.

If you do not comply with the foreclosed home rules or permit rules for your city you may be fined. Most cities have a city employee whose sole job is to drive around and look for people doing home renovation without a permit. They will also look for trash or brush around your house and issue violations. I once found a man from the city snooping around my backyard and was issued violations twice - once for having branches out at the road to be picked up (I had them out a few days too early) and the second time for not getting my gutters up quick enough! If the city snoop doesn't catch you, there is a chance your neighbors will report you so always be sure to make a great first impression on new neighbors!

I have to admit, one of the most stressful parts of my home renovation was worring I would get caught doing all my work without the required permits!

If They Didn't Pay Their Mortgage, They Probably Didn't Pay For Repairs

Inspecting a Foreclosure

The following is a list of everything a potential buyer should look at when inspecting a foreclosure home including the potential problems that might arise and estimated costs:

Exterior
Siding:

• Brick? Is the brick in good condition or is it cracking and crumbling. It is very expensive to re-brick a house. If it is only cosmetic brick can be painted at a low cost.
• Aluminum? Most houses that have aluminum siding need it replaced. Aluminum is not used on houses anymore so most likely it is very old. People tend to paint aluminum so the paint may be peeling or chipping off. If you want to keep the aluminum and repaint it to give it a fresh look, all of the existing paint needs to be scraped and power-washed off first. This could be done fairly inexpensively but will take a lot of sweat equity (do it yourself time). If you have a company re-side your home and they are charging you to take the aluminum down first, don't go for it! Aluminum is worth money at a scrap yard and if they are keeping the aluminum, they should not charge you to remove it!
• Shingles? If a house is completely shingled, as in small squares lined in rows around the house, the shingles most likely contain asbestos. Asbestos, known to cause cancer, means that you cannot scrape the old paint off to put a new coat on. If you decide to remove the shingles, it will be quite an expense to dispose of this material because it is regulated by the Environmental Protection Agency and cannot be simply thrown out with other waste. If you plan to put new siding up and the current siding is this shingled asbestos type, it is best to side right over top of the old stuff. On the positive side, siding over top of the old shingles provides extra insulation!
• Vinyl? This type of siding is most commonly used on new homes. The new style is about 6 inch wide strips. If you are looking at a house with about 12 inch strips, the siding is probably old and needs to be replaced. **A way to instantly test the siding to see whether it needs replacing or not is to run your finger across the siding. If you look at your finger and there is white dust on it, the siding needs to be addressed. If your finger has no color on it from the siding, it is fairly new and is in good shape.** Vinyl siding comes in many different colors, is a good insulator, is easy to maintain, and will last a long time. You also will have the choice to get the sides and windows of your home "wrapped" in a different color if you want. My house has cape-cod gray siding with all of my trim and windows wrapped in white. Vinyl siding is a great investment and can cost anywhere from $4,000 for a small 1,000 sq ft home up to $10,000 for a small 1,000 sq ft home. No, this was not a mistype. Why is there such a difference in price? Answer: the contractor you choose to go with. You will be better off going with an independent contractor or handyman who knows what he is doing than going with someone like Hanson's who is much larger and will charge you for the name! I received a quote from Hanson's that was $6,000 more than the construction crew I ended up having my siding done by!

Windows:

• Are the window frames wood? Is the glass single pane? Is there plastic wrap on the inside of the windows? - If yes to any of these questions, you will need new windows! Old wooden, single pane glass windows can allow a lot of cold air to get through into the house and your utility bills will be high because of it!
• When you open the window does it stay open? If not, the window is not installed securely.
• Can you feel cold air coming around the edges of the window? If yes, the window is not sealed correctly.
• Do you see caulking around the windows? If yes and the caulk is in good shape then this will prevent some cold air from getting past. If not, the windows need to be caulked.
• I went with Excalibur brand vinyl replacement windows (done by a private contractor) that typically run about $250-$300 per window including installation.
• Wallside Windows were the best price ($250 per window), after getting quotes from many different places. Pella were the most expensive being over 3 times more expensive than Wallside.

Doors:

• Does the door close tightly? If not, outside air will get in and this will raise your utility bills.
• Are there any gaps around the door, where the door bottom meets the threshold? If the door does not close tightly at the bottom you will need to raise the threshold, which is the plate that goes across the bottom of the door frame. Sometimes there is no plate and you can simply add one. You can buy an adjustable threshold at Home Depot for $20 and it is easy to install.

Roof:

• Look for shingles that are popped up, discoloration, missing shingles.
• Also look at the chimney - check for cracks and see that it is sealed around the roof.
• Check to see the number of layers of shingles on the roof - too many layers can be a problem, the old layers should be removed first before adding a new layer to ensure good quality workmanship.
• A poor roof can cause a lot of problems, #1 problem being water damage.
• The cost to replace a roof can be high.

Foundation:

• Look for cracks.
• Some cracks can be easily repaired but others indicate foundation problems.
• Older houses will inevitably have cracks and they may not be indicative of a pressing problem - houses to settle and shift and as long as the cracks are fixed and sealed the foundation may not ever move again.
• A crumbling foundation is obviously a problem and will need to be fixed.
• Bowing or beveling foundation walls must be fixed.
• There are companies that can secure the house with steel beams and pull or push the wall back into place, this typically can cost anywhere between $3,000 to $6,000 for about 30 feet of bowed or beveled wall.
• The best option is to replace the wall entirely. If the foundation is made of concrete blocks it will be easier to replace than if it is a poured conrete wall. The foundation may also be made of stone or rock, in which case it can be replaced with concrete block. The house will be supported with I-beams, a deep trench dug out around the wall, the old wall removed, the new wall built back in, 2 x 4s added at the top of the wall to attach the bottom of the house to the new walls. This option can cost up to $10,000 for 30 feet of wall. However, I had a crew do it for less than half of that amount. The cost is not in the materials but in the labor. Especially if the crew is digging the wall out by hand, which was done for me, rather than using a back-hoe.

Gutters:

• Should be free from obstructions and any seams should be secure.
• New seamless gutters with downspouts range from $600 for a small house on up.

Landscaping:

• How much landscaping needs to be done? The best time to add new plants is in the fall because they have time to root into the earth and are all half off!
• Look out for large trees! Trees that hang over top of your house can damage your roof or even end up falling on your house! You can find tree trimmers to take down a large 80-100 foot tree for $1,000 IF they can do it without using a truck and crane AND if you agree to dispose of the wood and branches yourself. You will at least want to have any branches that hang directly over your house cut down.
• Large trees also have large roots that stretch out pretty far and this can damage your plumbing or the foundation of your home.

Soil grade:

• All of the dirt that touches the outside of the house should be sloped away from the foundation.
• This can be fixed by purchasing dirt to back-fill up against the house and packing it down at a negative slope away from the house.
• If your dirt is sloping toward the house you can end up with water in your basement or crawl space.

Insulation:

• A lot of older home are not insulated!
• A house should at least have under the roof line insulated (this can be done with rolled fiberglass pink insulation), the exterior walls insulated (best way is blown-in insulation), and around the foundation insulated (done with a pink, water-proof, insulation foam board).
• Blown-in insulation is environmentally friendly, low cost (starting at $1,000 for a small house), and will save a ton on your utility bills!
• The only obstacle with blown-in insulation is getting it into the walls. The insulation company will have to drill holes around your entire house, about 2 inches in diameter, in order to blow the insulation into the walls. This can be done on the inside or from the outside. If you are getting new siding, definitely have this done before the siding goes up because they can drill from the houseside, fill the holes, and the siding will cover up all of the marks. If drilling through your siding is not an option you will end up mudding, sanding, and repainting over all of the drill spots.

Consider everything and how much it will cost you to replace or repair and then add more because there are always new expenses that you will end up paying as you go.

Investing In Someone Else's Mistake

Buying a Foreclosure!

As a potential buyer, you can attend a foreclosure auction and bid on a property. The chance you take to great a great deal is that most of the time you have never seen the inside of the property, have no opportunity to do an inspection, and you must provide cash in full for the amount at the time of the winning bid.

Since most foreclosures end up being owned by the bank or the lender, you can find foreclosed homes in the same listings as other properties for sale. The lender, who now owns the house, will hire a real estate agent to sell the property. Foreclosures are advertised on the multiple listing service that all real estate agents use.

When buying a foreclosure, you will inevitably get the house for a substantially reduced price than it last sold for. However, you must really know what to look for when inspecting the house or hire professionals to do an inspection for you to see exactly what is wrong with the place. The house will be sold "as-is." This means that the owner (bank or lender) will not fix anything that you find wrong with the house. This does not mean that you can't ask for an inspection period in your contract to purchase. An inspection clause is a must! If you find out that too much is wrong with the house for your taste and ability to make your own improvements then you can back out of the contract and not be forced to buy the house, you will also get your deposit back. If you find things that are wrong and you know how much it would cost you to make the improvements then you can continue to negotiate asking for a reduction in price.

Inspections are so crucial because in almost all foreclosures there are huge problems that could cost you so much money that the low bargain price for the house is not even worth it! The biggest obstacle with doing an inspection of a foreclosed house is the utilities. Most likely the electric, gas, or water will not be turned on. It may take some time to get these utilities turned on so that you can see if they actually work because most prior owners not only did not pay their mortgage payments but also did not pay their utilities. Utility companies are becoming more and more reluctant to turn on the services until you show proof that you own the house. Well this doesn't help you when you need to see what works so you can decide whether you want to own the house!

Without gas or electric you will not be able to tell whether the furnace or hot water heater work, two big expenses if they need replacing. Without the water turned on you will not be able to tell if the plumbing works, another huge expense if your pipes are broken.

Most houses, especially those that are vacant during the winter months, have been winterized (prevents the water from freezing in the pipes and the pipes from breaking due to ice during cold temperatures since no one will be paying for heat to run in a vacant house). You need to get the house dewinterized and the water running before you agree to buy it to see if you have plumbing problems! Even though a house has been winterized it may not have been done correctly. It could have been winterized too late and the pipes could have already broken. A plumber needs to come to the house and dewinterize by turning the water back on and checking for leaks.

Some purchase contracts will require the buyer to put the utilities in your own name to get them on, and will require you to pay for the dewinterization (about $150). It is worth the money if you find out there is a problem you would not have known about otherwise.

Just remember, there is always room to negotiate when buying a foreclosure so only offer what you really want to pay and what you think the house is worth. I have seen houses drop in price by $10,000 several times waiting for someone to buy them. If a house is priced super low it is because there are problems. Even if you look at a home and it doesn't seem that bad, but it's priced very low, something is wrong with it. You really get what you pay for so check out everything. Knowledge of every repair and cost is extremely important.

Check out http://www.moveinmichigan.com/ for property listings very similar to what a real estate agent can find for you!

In following posts I will discuss what to look for in a foreclosure, how much certain repairs can cost, and what to run from when you see it!

Short Sale

If you cannot afford to pay your mortgage, or you cannot sell your home for the amount that is owed on your loan, you can consider a short sale.

A short sale is selling your home for less than the loan on it. The lender will have to agree to allow a homeowner to do this type of sale - basically the bank must be willing to take an amount less than what it is owed in satisfaction of the loan, agreeing that the homeowner will no longer owe any amount on the loan once the short sale is completed.

In order to do a short sale the homeowner must have some kind of special circumstance affecting his or her ability to make the mortgage payments. Simply saying that you can no longer afford the interest rate is not going to cut it. The homeowner is asking the bank or lender to take a loss so the excuse better be a good one. Short sales are approved a lot of the time because the lender would rather take a loss on the loan than see the house go to a foreclosure sale and end up owning the property itself and trying to sell it for even less.

The homeowner has to get an appraisal done on the property to prove that the house is worth less than the amount owed to the lender for it. Sometimes the bank or lender will then set a specific price that the house must sell for in order for them to accept the short sale. Most times the house goes up for sale like any other property and buyers will make an offer on it hoping the bank will approve their offer. This is the reason short sales are known to take forever to close. A lender may take its time in considering an offer since it is accepting a loss on the note (the promise from the borrower to repay the loan at a specified amount).

Short sales are a great option to avoid foreclosure because they do not have an effect on your credit like a foreclosure does!

Michigan Foreclosure Law

This post specifically applies to real estate in Michigan but other states have similar laws.

Once an owner fails to make the mortgage payments on the property they have defaulted on the loan. The loan for the house, or the loan taken out using the equity in the property, is secured by a mortgage on the real estate. This mortgage tells the lender, "If I fail to repay this loan, you can take my property." If the owner does not pay then the lender initiates a foreclosure action to attempt to recoup the money that is owed on the loan.

There are two types of foreclosure in Michigan: judicial foreclosure and foreclosure by advertisement. A judicial foreclosure is one that is effectuated by the courts, giving notice of the sale to all interested parties, and an auction of the property is held by a court officer and a sherrif's deed is given to the highest bidder. A foreclosure by advertisement is less formal and the lender can advertise the auction of the property and conduct the auction privately, giving a deed to the highest bidder. Remember, the owner of the real estate can always pay the past due amount on the mortgage before the auction takes place (equitable redemption) and save the property from foreclosure!

A representative for the lender, most of the time a bank, will always attend the foreclosure action. If no person bids higher than the amount still owed to the lender, the lender will bid the amount of the mortgage and receive the deed to the home. The lender takes the deed in satisfaction of the mortgage, in other words it pays nothing. If an individual other than the lender wins the property they must immediatly pay cash for the real estate.

The highest bidder at the foreclosure auction now has an equitable interest in the property. This basically means that the bidder will own the property as long as the prior owner does not take it back. The prior owner is still the legal owner of the property for 6 months even though the property was sold at a foreclosure auction! This concept is a Michigan law called the statutory period of redemption. During the 6 months following the foreclosure sale, the prior owner can get the property back by paying the amount that the property was sold for at the auction. If at the end of the 6 month period, the prior owner does not come up with the money, the equitable owner becomes the legal owner.

Sometimes a house is worth less than what is owed on a mortgage. In this case, it may be a strategic plan for a homeowner to let the property go into foreclosure and have a third party (a strawman) bid on the house at the auction. The third party wins the auction, the prior owner gives the third party the cash to pay for the house, and the third party transfers the house back to the owner. Wouldn't this just be paying off the mortgage? Where is the strategy? Well, often a homeowner has multiple mortgages on a property. If it is the senior mortgage that is being foreclosed on (usually the loan taken out to buy the house in the first place), and the property is sold at auction, all junior mortgages are wiped out. In sum, a homeowner could end up paying off one mortgage but not owe anything for the others. Othertimes, a homeowner might be able to find an investor who is willing to buy the property at auction and lease it back to them.

Of course, foreclosure kills your credit so preventing a foreclosure is always a homeowner's best option.

Welcome!

This blog will share all of my legal and real estate knowledge about foreclosure but more importantly my first-hand knowledge of going through the entire flipping process myself.

I will be posting all of those "you wish you knew then what you know now" moments to be as helpful as possible to others going through this process or debating about whether to take on such a project.

I ended up buying a house that needed more than a little TLC, it needed more like EVERYTHING! Attempting to do everything on a very strict budget that really did not allow for everything was quite a challenge but I learned tricks along the way and a lot of do-it-yourself strategies.

This blog will take you through the entire process and give you lots of opinions about where to get the best deals, what to do yourself and how to do it, and smart investment decisions. Enjoy!