The Foreclosure Report

Luxury Home Short Sales In Missouri

2007-07-18T15:07:00.000-07:00

The Suburban Journals reports from Missouri. "Increasingly, doors are being slammed shut on homeowners across the county as they face foreclosure. St. Charles County in March posted the state's highest rate of foreclosures. One household out of every 26 in the county faced a foreclosure that month, a number 37 times the state average and almost 30 times the national average."

"The failure to meet mortgage payments is a problem affecting all segments of the market, from those buying their first home to the luxury-home buyer."

"'It's primarily people getting into a house that they could have waited a year or so to get into,' said Don Rogers, president of the St. Charles County Association of Realtors. 'Others get into a house, have a good job and get blindsided. I had two incidences last year, roughly half a month apart, one person lost their job and they no longer had the income (to meet mortgage payments).'"

"In the luxury market, some lenders are settling for a less orthodox resolution to unpaid mortgages. 'We've seen more short sales,' says Cort Schneider of Schneider Real Estate. Schneider says such sales have not been widely used in St. Charles County before."

"What makes the upswing of foreclosures so excruciating is its damage across a wide swath of home prices. 'The upper-end price range homes are the first ones to take a hit,' Schneider says, though foreclosures hit homeowners 'across the board.'"

"Pat Sivels, St. Louis office director of Acorn Housing, says the organization has seen considerably more people facing foreclosures in the last three to four months."
Homebuyers' reasons for foreclosure vary

"Why are so many county residents finding themselves in jeopardy with their mortgage lender? 'I think it's really education (that is necessary),' Rogers says. 'In the case of first-time homebuyers or those moving to their next level, maybe they can wait a year.'"

"Rogers says that while area real estate agents work to get buyers pre-approved for loans, for some buyers, patience is the best policy. 'Sometimes I see a pretty flower and I want to buy that pretty flower, and next thing I know I need to pay for the thing,' he says of some buyers' anxiety to get into a home fast. 'Impulse buying is really a monster.'"

"On June 29, regulators with the Federal Reserve Bank issued a policy statement saying that lenders shouldn't dole out adjustable-rate mortgages at deep discounts, but rather at the full index rate, which is determined by the average yield of U.S. Treasury securities. Adjustable mortgage rates reset every 12 months to adjust to the average yield of the treasury securities."

"Even when adjustable-rate mortgages may not be involved, Sivels sees more than lost jobs or prolonged illness as culprits in foreclosures. 'My only concern is that most mortgage companies want to wait until a person is three months behind before working with them," Sivels said. 'We have made calls to mortgage companies and they tell us that (the client) is only one month or two months behind.'"

"Sivels says such policies lead to unnecessary foreclosures. 'By three months, clients owe more money, they then need to come up with more money,' she says. 'They may get a workout plan, but why not start when they (already) know there is going to be a problem?'"

"In the Dardenne Landing subdivision in Dardenne Prairie, there were three active foreclosure properties and two more pending foreclosures the week of July 1. Subdivision residents have varying views on the prevalence of foreclosures in the neighborhood."

"'I think two years ago when it was a seller's market, people who were upgrading bit off more than they could handle,' says Ignacio Gomez, who lives in the subdivision. 'I think some of it is jealousy and an attitude of 'I can do it if you can.'"

"Some sellers in the subdivision were not aware of the number of properties up for foreclosure. 'There was only one home on the opposite side of the subdivision that I know of,' says Adam Mills, who is selling his house because of a job relocation. 'There was one other house that I thought possibly was a foreclosure because of the price it was selling for.'"

"Mills says he was largely unaware of the foreclosure rate and that the topic was never breached in discussions with his real estate agent."

700 Short Sales Under Way In Phoenix Area

2007-07-15T04:39:00.000-07:00

A report from the Arizona Republic. "Deals that help struggling homeowners avoid foreclosures are on the rise in metro Phoenix. 'Short sales' are similar to regular home sales except a deal is worked out in which the lender accepts what the house is appraised for or what it will currently sell for instead of what is owed on it."

"The deals are recorded as a regular sale and can be tough to track. But Travis Olsen, president of the National Short Sale Center, is tracking the market and said there are more than 700 short sales under way in the Phoenix area."

"Real estate agents say that two years ago, there were almost no short-sale properties on the market or deals closing."

Tips From An Expert

2007-07-06T14:45:00.000-07:00

A report from the Washington Post. "The Post's Mary Ellen Slayter recently spoke with Ralph R. Roberts, co-author of 'Foreclosure Investing for Dummies' and a longtime real estate agent and investor in Michigan. An edited transcript of the conversation follows."

"Q: Who is a good candidate for investing in foreclosures? A: It's right for someone with a secure job, solid cash flow and lots of cash on hand, someone who wants to make some money on the side. If you're married, your spouse needs to be on board, too. I like for people to use their own money. But if you don't have enough cash but you're willing to do the work, find a partner. My first 'bank' was my grandmother. I didn't pay her interest, but every time I made a deal, I took her out to lunch. If you really want to do it, you can always find sources of investment capital."

"And who's not a good candidate? A: Anyone who thinks this is easy money. It's a myth, perpetuated by all these late-night TV gurus, that you can get rich quick doing this."

"Q:How does it work in declining markets, which are the ones that are most likely to have lots of foreclosures?"

"A: You account for this in the price you pay for the property. You make your profit when you buy, after all; you realize it when you sell. There's a formula in the book that helps you adjust for a soft or flat market. My wife once pointed out to me that no matter what the economy looks like, people are still going to buy and sell houses. They're still going to get married and start families. Even if 10 percent of workers are laid off, the other 90 percent are still working. They will still need housing."

"Q: Describe the perfect property for the foreclosure investor. A: It should be in a good neighborhood. And you should be able to see clearly what you need to do to fix it up and sell it."

"Q: What types of properties should investors avoid? A: Don't buy if there are a lot of distressed properties on a block. Don't invest in foreclosures long distance. You need to be able to see what you're buying. And don't touch pre-construction projects. Also, avoid any deal in which somebody promises you cash back at closing. This is never legal. Stay away from that."

"Q: What are some other things that potential investors should keep in mind? A: Always have a Plan B. Not every house on the market sells right away. You may need to rent the place out for a year or two after you fix it up. This isn't necessarily a bad thing. It can lower the tax rate on your capital gains. And be prepared to lose money sometimes. Even I don't hit home runs every time."

Massachusetts Foreclosures Up 74%

2007-07-02T14:00:00.000-07:00

A press release from Massachusetts. "ForeclosuresMass.com released its June 2007 Massachusetts Market Analysis Report today, with data revealing that foreclosure filings continued in record numbers with May being the eighth consecutive month posting over 2,000 foreclosures. The report shows that 2,136 foreclosures were initiated statewide during the month of May 2007, 32.34% higher than the number recorded in May 2006."

"Over the past 12 months, lenders initiated foreclosure proceedings against 23,638 homeowners, representing a 74.14% increase over the same period a year earlier. 'May continues to be a record month for foreclosures affecting Massachusetts homeowners and the trends suggest that we may continue experiencing these historical numbers throughout 2007,' said company president Jeremy Shapiro. 'The fact that the housing market has remained relatively flat means it’s still difficult for homeowners to refinance or sell their property contributing to the high number of foreclosures.'"

"Highlights of the ForeclosuresMass.com June 2007 Market Analysis Report include:
2,136 foreclosures were initiated in Massachusetts in May 2007: Foreclosures increased statewide by 32.34% in May 2007 compared to May 2006 (2,136 vs. 1,614). On average, there were 107 foreclosure filings every business day in May. The jump in foreclosures from April to May was the biggest month-to-month increase this year."

"23,638 new foreclosures were initiated in the past 12 months (June 1, 2006 through May 31, 2007): Foreclosures increased statewide by 74.14% over 2006 levels (13,574 v. 23,638. Filings during Q1 of 2007 were 73% above Q1 of 2006 (2,755)."

"Other 2007 statistics of note include: Suffolk, Worcester and Barnstable experienced the largest increases. Suffolk County saw an 83% increase (1,435 vs. 2,628), Worcester County levels were 80% higher (2,028 vs. 3,646) and Barnstable County had a 79% increase (647 vs. 1,158)."

"In communities with 10 to 49 foreclosures over the past 12 months, the biggest increases were in Adams (517%, 6 v. 37), Boxborough (500%, 2 v. 12), Hardwick (467%, 3 v. 17) Sutton (210%, 10 v. 31), and Millville (200%, 6 v. 18)."

"In communities with 50 or more foreclosures over the past 12 months, the biggest increases were in East Bridgewater (233%, 15 v. 50), Everett (184%, 67 v 190), Walpole (152%, 21 v. 53), Lawrence (152%, 232 v. 585), and Clinton (146%, 24 v. 59)."

Tough Times Mean Booming Business

2007-07-01T12:12:00.000-07:00

The Orange County Register reports from California. "Tough times in the real estate industry mean booming business for Michael S. Buescher, a Trabuco construction contractor who specializes in cleaning and fixing up repossessed homes. As more property owners fail to refinance or repay their subprime loans, Buescher's pay days are getting bigger and bigger."

"In Orange County, the number of foreclosures through May hit 1,031 – seven-fold the number a year ago. Default notices soared 121 percent, to 4,520 homes, during the first five months of the year. 'We get more every day,' Buescher said. 'We've been waiting eight years for this to start happening again.'"

"So far this year, business has taken Buescher to dozens of trash-outs and fix-ups in Orange, Riverside and San Bernardino counties, to gated communities and rat-infested crack dens, all united under the title 'real estate owned' or 'bank repo.'"

"'This is more fun than building houses,' he said as he admired his crew's handiwork at a foreclosed four-bedroom, three-bath split-level home in an unincorporated area near Tustin. 'I can make more doing this than on homebuilding. This is quick turnover. You don't have to wait eight months to get a permit. The cash flow keeps coming.'"

"Buescher is far from the only person profiting from a real estate market troubled by slack sales, sagging prices and soaring defaults. The Tri-Star Group, a Fullerton development company, hired Joseph Baleto as a 'foreclosure adviser' in January. It was a new line of work for Baleto, a Realtor since 2004, a period when the market has known only good times. His assignment: Buy properties at auction to renovate, 'bring out the original luster' and resell."

"'Inventory is up, which is great on the one hand because there's a lot of property to pick from,' Baleto said. 'On the other hand...you really have to have a product that stands out, and you have to have it priced correctly in order for it to sell.'"

"Mike Roberts, a real estate agent and radio host, has revived his Laguna Niguel company Trust Solutions Inc., which offers homeowners who are upside-down on their loans a legal method for selling their property without having to go through lender approval. The process, Roberts said, has the advantage of getting the seller out of an unaffordable loan without the penalties of a foreclosure or short sale. For buyers, it can mean acquiring homes at a lower property tax rate."

'So far this year, Roberts said Trust Solutions has negotiated one or two deals a month. But he expects business to pick up as more homeowners find themselves underwater."

"'I suspect by late summer we'll be doing one a day,' he said. 'That's what we were doing the last time the market was in trouble in '94, '95, '96 and early '97.'"

"Patti Donovan, president of Stearns Asset Services, a Santa Ana firm that manages and markets real-estate owned properties, said she got back in the business last year after a four-year hiatus when the market was hot. Donovan, who started in the foreclosure business in 1984, said she expects the down market to last three to five years."

"'The difference this cycle is it's not the economy that's causing this to go upside down,' she said. 'It's more the types of loans – 100 percent financing, adjustable rate mortgages. Before, it was people losing jobs. Now it's just people borrowing too much.'"

"As banks accumulate more property, they hire managers to coordinate contractors, maintenance crews and payment schemes for insurers and tax bills. They also seek out home sellers who specialize in distressed property, like Staci Treloggen, who heads the real-estate owned group at Prudential California Realty in Laguna Niguel."

"'Banks outsource to people like me,' Treloggen said. 'I need people like Mike (Buescher) to staff up.'"

"Treloggen assigned Buescher and his five-man crew to an abandoned home at 17571 Rainier Drive in an unincorporated triangle between Orange, Tustin and Santa Ana. Public records show Wachovia Bank foreclosed on the property in May. The asking price is $762,500."

"When Buescher and his crew arrived, the swimming pool was a mosquito breeding ground; bird cages and bales of hay littered the yard; the garage closeted a mountain of papers, clothing, toys and other trash. After two days' work, the four-bedroom, three-bath 1959 split-level home looked neatly trimmed and vacuumed."

"Buescher typically proposes a cleanup plan in several stages. He charges $500 for a barebones job to rekey locks, install smoke detectors and secure a house from intruders. He can tell if a house has been broken into if there's a rush of air when he opens the front door, because it means there's an opening somewhere else."

"After securing a property, his job escalates to the 'trash out,' filling dumpsters with yard waste, clothing, toys, appliances and furniture abandoned by tenants. Items worth more than $300 must be stored for 19 days for the owners to claim. Few people come back, Buescher said."

"For some reason, he said, tenants almost always walk off with shower heads. Many rip out counters, air compressors and other fixtures that belong to the bank. Sometimes neighbors join the looting. 'If the air compressor is gone, the first place I look is over the fence,' he said."

"It's not Buescher's business to understand why people lost their home. To encourage renters to leave, he'll offer a few hundred dollars. If he finds a squatter, he'll ask the cops to arrest them for trespassing. If the bank agrees to pay for it, Buescher will repaint the walls and replace the carpets. He recommends neutral, vanilla colors to avoid turning off potential buyers."

"As the repairs get more complex, Buescher's fees escalate. Granite counters, a reshingled roof, new wiring, they all make his cash register ring. 'My job is to convince the client to spend more money to sell the house,' he said. 'But at this point, the banks aren't willing, because the market hasn't hit bottom.'"

A Distressed Property Update: Las Vegas

2007-06-29T03:37:00.000-07:00

A report from NARREIA. "Since the implosion of the sub-prime mortgage market at the beginning of 2007, the distressed property market has really gained momentum. This is especially true of markets like Las Vegas, where the extreme appreciation of 2003-2005 has been met with a year long cool down and the start of a slide in property value."

"When looking to invest in a market like Las Vegas, you need to consider which investment vehicles or strategies might actually be profitable. Rent is definitely too low for properties to cash flow positively with a down payment of 20% or less. This leads most local investors to the distressed property vehicles, but not all of these vehicles work well in down and depreciating market."

"Therefore, before you invest too much time in learning about a specific vehicle you need to determine if it will actually result in a profit. The most well known distressed property investment vehicles are the Notice of Default List, Short Sales, Foreclosures ('on the court house steps'), and Bank Owned REOs (Real Estate Owned)."

"There are a total of 25,659 available properties on the Las Vegas MLS with only 2,995 additional properties under contract. Of the available properties, 2,048 (7.9%) are flagged as short sales."

"Working short sales is very different than working the other pre-foreclosure investment strategy, the Notice of Default (NOD) list. When working with the NOD list, you are dealing with the owner and you are looking for properties that have a high equity, low Loan-to-Value (LTV) ratio. You need the low LTV because your profit is the difference between what the value of the home is and the amount the banks need to pay off the loan."

"While negotiating with the owners over the equity in their house might sound challenging, it is usually cut and dried. They either understand the situation they are in and are willing to negotiate or they don’t fully comprehend that they are about to lose their house and will shut you out entirely, and this can be determined quite quickly. If they stonewall you, you move on to the next property. If they are willing to negotiate, the process is relatively simple."

"In a short sale, however, you will be dealing directly with the bank and you’ll be looking at properties where the LTV will likely exceed 100%. The problem for the investor is two fold. First, where is the profit in this deal with the bank? Logically, the bank will want to get the most they can for the property, minimizing their losses. Seldom are banks willing to let a property go for anything considerably below today’s current market value, so this makes it very hard for the investor to work in their profit."

"The other hurdle that you will face is that the banks are notoriously slow in dealing with short sales. Banks regularly take 4-8 weeks just to respond to an offer, and if a property is already in the foreclosure process, that time could easily extend past the Notice of Foreclosure Sale date. Additionally, the owner will have to be very cooperative in coming up with the required financial statements and writing the hardship letter, and owners who are in these situations are not typically quick to respond."

"True foreclosures, what people sometimes refer to as 'buying on the court house steps,' is a cash-intensive process that is very competitive in the Las Vegas market. This makes this vehicle very challenging for most individual investors. Clark County requires you to pay the full amount of the offer immediately before the next property is auctioned, which means you need to have cash for the entire purchase price with you right there."

"While there are a few bargains to be had, it is not the fire sale that you might think as the banks would still rather hold on to the property than give them away."

"The banks’ current stance on valuing the properties on the high side leads to a growing REO market. REO stands for Real Estate Owned, and it is the term for a property the bank has foreclosed upon and did not sell at the county auction. What is amazing is that the banks will deny a short sale on a property only to drag it several months through the entire foreclosure process and then list it for less than the denied short sale price. While it is not yet a 'fish in a barrel market,' some banks are starting to deal on a few of their properties."

"Where is this all going? Either the banks will start dealing with the current owners utilizing workouts and short sales, or the REO market will explode."

"At the beginning of June, 2007, the banks were still playing hard ball, unwilling to negotiate in most short sale situations even in very reasonable scenarios. The only positive sign that we’ve seen recently is their willingness to arrange for workout programs for the current owners. These programs allow the owners to miss a few payments to try to get back on their feet, but this is truly a band-aid approach."

"Owners that are not able to make their payments today will more than likely not be able to make their payments at the end of summer, and we will still see the need for either a short sale or foreclosure."

"Until the banks face the situation squarely and start accepting more short sales, the properties will flow to the REO market and that is a good place to be looking for some bargains."

"As the supply in that market swells, look for even further discounts to come. The local market tends to slow down in the fall and stagnate in the winter, so the distressed property market should be in its prime at that time."

Sean Brown
Las Vegas, NV
NARREIA Advisor

A Lot Worse Before It Gets Better

2007-06-21T15:11:00.000-07:00

A press release from Bruce Norris. "California's real estate downturn will be deep and long lasting, with home prices falling 15 to 30% during the next 36 to 42 months, according to a real estate expert. Bruce Norris, who correctly forecast both the real estate boom that began in 1997 and the subsequent doubling of home prices, said the downturn will reflect a perfect storm that includes record numbers of foreclosures, a sharp decline in migration to California, substantial increases in unsold inventory, and, of course, falling prices."

"'We are in for a very rough ride in California's real estate market, which is likely to be far more severe than analysts, state officials and real estate industry associations have acknowledged,' Norris said, adding, 'Foreclosures alone are likely to be more numerous than anything we've ever experienced, with bank repossessions ultimately accounting for as high or as many as 25-30 percent of all homes sold during the next three years.'"

"Norris said prudent investors need to arm themselves with the facts and come to terms with the fact that analysts, state officials and the California Association of Realtors are either not being frank about the severity of the coming crisis or they simply aren't looking at the right categories of statistics."

"But while Norris' outlook is gloomier than most observers for the short term, he expects California real estate prices to again rebound in 2011 as foreclosures decrease, the number of homes for sale declines to a manageable level and as California again experiences a net increase in population migration from other states."

"'There is light at the end of the tunnel,' Norris said, 'but we have to be very careful in this market environment. Investors need to know that marginal deals are no longer acceptable. The market will no longer cover their investment mistakes. If they don't know what they're doing, they need to stay out of the market until conditions change.'"

"The trouble with the analysis given by most real estate observers is that it's based on flawed assumptions, including the widespread belief that interest rate adjustments can somehow hold back the looming real estate crisis."

"'Interest rates alone do not determine the direction of prices,' Norris said. 'Look what happened the last time we had a real estate downturn in California. Interest rates were actually lower in lower in 1997 than they were in 1990. Yet prices declined by as much as 35 percent in some areas.'"

"The most reliable indicator of a downturn in California is low affordability. Historic affordability lows signaled the previous two real estate recessions and prevented inventory from selling quickly."

"'We still have strong employment and historically low interest rates,' Norris said, 'yet we continue to see the inventory of homes soar, even as builders lower prices and give huge sales incentives. This change in the market caught economists off guard because they said that without an increase in unemployment, you can't have a real estate downturn. That wasn't true!'"

"Centex Corp., Hovnanian Enterprises, Pulte Homes, Lennar and D.R. Horton together have written off more than a half-billion dollars worth of land option agreements during the past year, Norris said, citing published reports. 'If prices were heading upward and if demand for housing was strong, they wouldn't be walking away from these land option agreements,' he said."

"'Many economists and real estate observers and even government officials continue to offer rosy assessments because they are under political pressure to say nothing or because they are simply looking at the wrong statistics. Trouble is, there are many investors, including builders, who have been misled by their commentary,' said Norris."

"Various organizations are deliberately misleading investors and the general public, Norris said, adding that the National Association of Realtors (NAR) launched a $40 million ad camping in January of this year in which they told buyers that now is the perfect time to buy a home."

"Even more recently, Jeff Davi, commissioner of the California Department of Real Estate, is quoted in this month's issue of California Real Estate Magazine saying that California continues to need another 250,000 single and multifamily housing units to be built each year."

"'If this was truly the case,' Norris asked, 'why are we seeing vacant properties, increasing housing inventory and builders walking away from millions of dollars in land options? The reality is that the real estate market in California is going to get a lot worse before it gets better.'"

"The good news is that the market should turn upward again in 2011. By then, Norris said, prices will be low enough to lure many people back into California again, lenders will have again adjusted their lending guidelines and investors will again re-enter the market, sensing bargains and opportunities for additional profits and equity growth in the years ahead."

Defaults "Nearly Triple" In Massachusetts

2007-06-19T15:32:00.000-07:00

The Boston Globe report from Massachusetts. "Foreclosure auction announcements in Massachusetts nearly tripled in May when compared with year-ago numbers, according to a new report from the Warren Group. May also marked the eighth straight month in which more than 2,000 petitions to foreclose were filed, said the Warren Group, the Boston publisher of Banker & Tradesman and a provider of real estate data."

"There were 1,589 announcements of foreclosure auctions in May, compared with 654 in May 2006, the group said."

"'As we can see from May's numbers, foreclosures are still affecting homeowners across Massachusetts,' Timothy Warren, CEO of the Warren Group, said in a statement. 'And the Bay State has not yet seen this problem peak.'"

"Warren noted in his statement, 'As we see a higher number of homes make it farther through the foreclosure process, it becomes evident that homeowners are finding it difficult to refinance their mortgage or sell their homes before they reach auction.'"

"One factor driving the increase in foreclosure auction announcements, regulators believe, was the rising popularity of so-called subprime loans in recent years; in general, subprime loans are marketed to home buyers with poor credit ratings."

The Business Journal. "May also marked the eighth consecutive month in which more than 2,000 petitions to foreclose were filed, the Warren Group reported. There were 1,589 announcements of foreclosure auctions in Massachusetts last month compared with 654 in May 2006, an increase of 143 percent. Petitions to foreclose rose 39.3 percent compared to May 2006, with 2,164 filed this year and 1,553 filed last year."

"Petitions rose slightly from April, when 2,005 were filed in Massachusetts Land Court compared with 1,589 in May. Auction announcements, however, fell from April to May. There were 1,712 announcements in newspapers in April."

Buying A HUD Home

2007-06-15T04:55:00.000-07:00

The Denver Post reports from Colorado. "Buying a home continues to be an iffy proposition for many Coloradans. The state is on track to log more than 37,000 foreclosures this year, a 30 percent increase over last year, according to the Colorado Division of Housing. While so many people have been forced to surrender their piece of the American Dream, others have unearthed diamonds in the rough."

"HUD houses, once thought of as dilapidated properties reserved for low-income families, have been redefined as one of this decade's most accessible solutions to homeownership."

"A HUD home is a Department of Housing and Urban Development residential foreclosure property. The caveat with these homes that has changed the landscape for so many of today's first-time buyers is the caliber of HUD homes now available. 'The market is being flooded with houses that...people can now afford,' says Rachel Basye, spokeswoman for the Colorado Housing and Finance Authority."

"HUD homes, whether single family, townhouses or condominiums, are usually cheaper than comparable homes in the same neighborhood. The buying process is often less cumbersome, and many HUD homebuyers are able to cash in immediately on thousands of dollars of built-in equity."

"Many of the properties listed on the CHFA's website, Coloradohousingsearch.com, are such federally insured homes. But there is a catch: HUD homes are sold 'as-is.' That means the new owner must incur the expense of any necessary repairs, and those can be numerous and expensive."

"Some argue it's a fair trade, as HUD home prices are adjusted down
When Shannon DeLoach bought a HUD house two years ago its interior was comparable condition to this current HUD sale home nearby to account for expected improvements. HUD also goes through the trouble of pinpointing potential remodeling needs."

"Last week, for instance, HUD was offering a three-bedroom, 2 1/2-bathroom property in east Denver for $154,500. In ads for the property, HUD estimated that about $400 would be needed to replace a missing vent cover, a kitchen sink and address other plumbing issues. An initial inspection report also was included with the listing."

"Buyers should be realistic about how much repairs might cost, says Capital Brokers real estate agent Anthony Davis, who specializes in selling HUD properties. The $400 fix-up estimate for that east Denver property may have been low."

"Davis says any visual inspection of the home might reveal only inexpensive wear-and-tear issues. A subsequent investigation by a certified housing inspector could reveal a financial burden waiting to happen."

"Housing experts such as this advise that it is paramount to have these properties inspected before the closing so that buyers know exactly what they are getting into. A foreclosed house left vacant for months can develop unforeseen plumbing problems, for instance. It's also common to uncover damage to the roof, foundation, electrical wiring, water heater or furnace, expenses that could easily cost $20,000 to $30,000."

"Plus, previous owners often take out their anger and disappointment over the foreclosure on their property. One HUD home Davis sold had holes in the basement drywall where someone had repeatedly thrown a billiard ball against the wall."

"Jerry Chesser owns the Broomfield-based Win Home Inspection franchise and has investigated numerous HUD homes. 'There are some real gems out there,' Chesser says. 'Other times, conditions are such that buyers have to honestly ask themselves if they have enough cash...to bring the home up to livable standards.'"

"He has seen the previous owners of foreclosed homes drill holes in plumbing, kick in doors, throw bleach on carpeting and destroy garbage disposals. Another frequent problem: missing fixtures and appliances."

'Chesser says the best case scenario with a HUD house is severe cosmetic damage. The house may need new landscaping, caulking and waterproofing in the bathrooms, a few leaks plugged or a furnace replaced. The worst case scenario is a roof collapsing from water damage, mold creeping 4 feet up the walls, or that the property once housed a meth lab."

"HUD house investor Stephanie Williams suggests having enough money on hand to make mortgage payments should a refurbished foreclosure fail to sell quickly. Williams purchased a HUD home last November in Aurora for $151,000 and sold it for $172,000. But she had to carry the mortgage for three months before it sold."

"Loire Warren has fixed and flipped three HUD condos in Aurora since May 2006. Warren warns buyers to pull any criminal records associated with the house or the previous homeowner. One of her previous owners saddled Warren with more than $600 in unpaid homeowner's association fees."

"'It's very common that HUD will have liens against a property,' says Warren, who worked with HUD and the title company to pay off the liens."

Below The "Upset Price"

2007-06-11T11:03:00.000-07:00

A report from MSNBC. "Brett Golden, 31, was one of the few bidders at a recent foreclosure auction to walk out with a purchase: a 2.5-story, 1,352-square-foot house in Queens, N.Y., that he got for $365,000. The previous owner had bought it in June 2005 for $415,000. Once Golden and his father, who together run a 50-year-old family business of buying and flipping foreclosed properties, are done fixing this place, they hope to sell it for about $480,000, netting up to $80,000 after expenses."

"Buying the house wouldn't have made sense but for a small detail: The mortgage lender, HSBC, put it up for auction for $90,000 less than it was owed. In other words, it went below the 'upset price' of the property. The upset price, also called the judgment amount, is what the bank is owed on the property, usually the sum of the outstanding mortgage and any interest and fees accumulated since the start of the foreclosure process. Normally, lenders put up houses for auction with bids starting at the upset price in order to recoup their costs."

"But as foreclosures increase, some banks are beginning to reconsider their required bids. 'In the past few months, I'm starting to see banks come down on upset prices,' Golden says."

"For many real estate investors or simply folks looking for a cheaper home to live in, finding a deal in foreclosures has become increasingly difficult. A lot of the homeowners now in foreclosure have drained the equities in their homes with multiple refinancings, have mortgages for more than 100% of the property value or simply bought at the height of the market."

"The banks, after all, know how much these houses are worth. Before a house is put up for foreclosure auction, it's usually appraised. And though banks weren't as diligent with appraisals when the market was booming, that's starting to change, says Brian Tracz, a New York real estate attorney specializing in foreclosures."

"'For the last five years, the banks blindly bid their judgment amount to recoup their loss,' Tracz says. 'Now I think you're going to start seeing banks bidding less if the appraised values don't justify the judgment amount.'"

"To be sure, this trend is in an early stage and has yet to be seen in many parts of the country. In Florida's Miami-Dade County, for example, where almost 25,000 properties went into foreclosure in 2006, banks haven't gone below their upset prices, according to Richard Housey, a real estate investor who specializes in pre-foreclosures and attends the county's twice-weekly auctions. 'That's been a real problem for investors,' he says."

"In the Chicago area, lenders are not only starting to go below the upset prices on properties, but they're also becoming more flexible with so-called short sales, says Jane Garvey, the president of the Chicago Creative Investors Association, a local network of real estate investors."

"In all, whether a lender will sell below a property's upset price largely depends on where the property is located, says Jay Brinkmann, the vice president of research and economics at the Mortgage Bankers Association, an industry group. If lenders expect real estate prices to go down in a particular area, they might decide to put properties on the market now to cut their potential losses. If they expect prices to remain steady, they may hold on to the properties for better prices later on."

"Take the Los Angeles area. Lenders are beginning to sell below the upset prices on properties in Los Angeles County. But that's not happening in nearby Orange and Ventura counties, where prices are steadier, says Larry Loik, the founder of the Real Estate Investor Network in California."

"Needless to say, the concept of selling below upset prices isn't new. It was particularly common in the housing crash of the early 1990s, when lenders faced a glut of hard-to-move properties, says Jonathan Miller, the president of Miller Samuel Real Estate Appraisers in New York. But now, Miller doesn't expect such discounts to become nearly as widespread."

"'Lenders have become much more sophisticated in terms of avoiding foreclosures,' he says. 'One thing they learned in the last housing downturn is it's extremely expensive in terms of managing properties.' Instead, banks will now focus on helping homeowners prevent foreclosure, he says."

But that may be more difficult if the lender that originated the mortgage sold it to investors in the form of mortgage securities, a particularly likely scenario in the subprime market, where foreclosures are now most common."

"When a bank sells a loan to investors, it has less flexibility to negotiate a settlement with the borrower, such as refinancing at better terms or repackaging the loan so that any delinquent payments are tacked on to the remaining loan balance, says the Mortgage Bankers Association's Brinkmann. Once the property is in foreclosure, on the other hand, the lender might have fewer such limitations, he says."

Back To The Basics In FLorida

2007-06-04T15:25:00.000-07:00

The Orlando Sentinel reports from Florida. " Joseph Peri is hunting for homely houses in Orange County. As a new franchise owner in Winter Garden for HomeVestors of America, Peri is ready to buy properties that need some work. HomeVestors is the company known for its 'We Buy Ugly Houses' signs, though the homes are not always ugly and other companies sometimes rip off the slogan."

"Florida has been one of Home- Vestors' best markets, with 42 franchises, second only to the company's home state of Texas. And there's no shortage of houses for sale, a virtual smorgasbord."

"'I'm looking at some from $50,000 to $550,000. It's pretty spread out,' said Peri, one of two HomeVestors franchisees in the Orlando area. But these days, many of the homes for sale in markets such as Central Florida can't be bought, rehabilitated and sold for a profit."

"'We've enjoyed tremendous growth in Florida historically, and we still have pockets of franchises doing well,' said John Hayes, CEO of Dallas-based HomeVestors. But the sharp run-up in home prices in recent years, the lack of equity that owners have in many of the properties now for sale, slack demand among home buyers and other factors have made the business more challenging."

"'I don't know how some [owners] are able to pay the taxes and insurance,' Hayes said. 'But this is temporary. We're just riding through this transition with Florida.'"

"Hayes said he expects Florida lawmakers will find ways to bring down both property taxes and hurricane-related property insurance, and help boost existing-home sales. 'They are not going to allow an exodus from the state,' he said."

"Ron Smith, an independent housing-rehab specialist in Apopka, said he gave up his sideline business a few months ago after 20 years of working the Orlando area."

"'It just got a lot tougher. I went to work full time with a roofing company,' said Smith, who used to buy and fix up homes to sell, or to rent until he could find a buyer, as many as four or five times a year."

"Smith said his best years were the late 1990s through 2004, when 'it just went crazy.' So many buyers were bidding up prices, it got harder to compete, he said. Then, earlier this year, sales went flat as thousands of homes flooded the market at inflated prices."

"'I didn't believe the market here would go 180 degrees, but it did,' Smith said."

"The median resale price of an Orlando-area home was appreciating as much as 36 percent on an annualized basis by mid-2005, before settling back to single digits by mid-2006 and turning negative in April for the first time in five years."

"Ed Rogner, who has been a HomeVestors operator in Orlando for the past six years and in real-estate sales locally since 1978, said the once-thriving market's sharp turn has surprised many veterans. 'I've never seen it like this,' said Rogner. 'There are just so many sub-prime loans out there. People will call us and want us to buy their home, but there's almost no equity. We can't do that.'"

"And when the company does close on a sale and puts the property back on the market, 'you're competing against all these other houses.'"

"The Orlando area's median sales price as reported by Realtors leveled off at about $250,000 beginning in April 2006 and recently dipped to about $240,000 as the inventory of listed homes jumped 50 percent in that period to a record 24,435 in April."

"Andrea Tolbert of Sanford, who has been buying, rehabilitating and selling homes in the Orlando area since 1999, said the market is more challenging but still workable for savvy investors. 'It's tougher to sell but easier to buy,'" Tolbert said, because of the record inventory of existing homes for sale by Realtors. 'Of course, you've got to be careful,' she said. 'We're going back to the core basics,' with much slower price appreciation."

"Tolbert, president of a real-estate networking and education association in Winter Park, said she still is able to make a profit buying and selling homes by focusing on those worth $100,000 to $200,000. 'There are always buyers in that range,' she said."

Now Come The Banks

2007-05-31T13:46:00.000-07:00

The Sacramento Bee reports from California. "First it was individual homeowners who turned to the auction block to sell fast at a discounted price. Then home builders. Now come the banks. Home loan lenders, stuck with rising numbers of repossessed homes, will auction 242 houses next month to bidders in Sacramento, Modesto and San Mateo."

"It's the biggest home auction in Northern California in the wake of a five-year housing boom. The auction especially signals a new sales rival to home builders, investors and individual sellers: the banks."

"Robert Friedman, chairman of REDC, said buyers typically get a 10 percent to 20 percent discount from asking prices, while banks get quick results. 'It's just a business decision. You sell them quickly and take your hit,' Friedman said. 'In the long run they do it better by taking this route.'"

"Keith McLane, who runs a separate Carmichael-based home auction firm, said the sheer number of houses being auctioned next month "illustrates the quantity of foreclosures that are out there."

Foreclosures.com reports that banks owned 661 homes in April in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. That's up from 92 in April 2006."

"Statewide, banks owned nearly 5,500 homes in April, according to the Web site. The same month in 2006 it was 1,111. Many of those still haven't reached the market, said Foreclosures.com's Alexis McGee."

"Demand is high when they do, said Luann Richardson, a Fair Oaks-based real estate (agent). 'Everybody wants a deal right now. There's very strong demand for a deal,' she said."

From Flipping To Renting

2007-05-23T09:50:00.000-07:00

The Detroit Free Press reports from Michigan. "In real estate, timing is everything. That's what David Elosegui discovered when he made an offer on the Lake Orion house he fell in love with in February for himself and his daughter. 'I went to make an offer and the bank said the house had just gone to auction,' said Elosegui, who wanted to offer Wells Fargo Bank, the home's owner, $214,000. The house had been listed by a Realtor for $220,000 but had gone into foreclosure."

"The following weekend, he walked away with his dream home from an auction of foreclosed properties conducted by the Texas company Hudson & Marshall. He had made the highest bid, $179,000."

"'It was surprisingly easy,' said Elosegui, who had been living in an apartment since June 2005. 'I knew I would be willing to bid a little higher than an investor.'"

"Elosegui is one of thousands of Michigan residents who are benefiting from a surge in foreclosures. With the 10th-highest rate of foreclosure in the country and thousands of homes to choose from, Michigan's foreclosed housing market is no longer the exclusive playground of real estate investors and buyers with marginal credit."

"Fueled by defaults on subprime loans and job losses, Michigan reported 29,467 foreclosures for the first quarter of the year. Detroit reported the highest number of foreclosures, 16,351, among the nation's top metro areas for the first quarter of this year, according to Realtytrac."

"The three-bedroom, 2 1/2 -bath, 1 1/2 -story, 1,800-square-foot home that Elosegui bought had been vacant for two years. Wells Fargo Bank took possession of it and then put it up for auction shortly before Elosegui made his offer."

"'I did quite a bit of reading before I went down there,' Elosegui said, adding that he familiarized himself with the terms and conditions of buying a house at auction. For example, he wasn't aware until after he began studying that the auction house adds a 5% nonrefundable fee to the price of each house it sells."

"Bret Logan of Dearborn has been investing in real estate on a small scale since 1991 when he and a friend bought a foreclosed house in Detroit, fixed it up and sold it for double what they paid for it. Logan bought a second property in 1997, a four-unit house in Hamtramck for which he paid $60,000. He currently has tenants in it."

"He then paid $46,000 for another foreclosed house in 1999 on Fielding, on Detroit's west side, that he fixed up and lived in. While living in it, Logan revamped the 1,100-square-foot brick bungalow. He added a new roof, updated the kitchen, and put in copper plumbing, new windows and crown molding."

"Last year, as more houses in Detroit went into foreclosure, he decided to bid on another house, this time in Dearborn. He bid $102,000 and won it. That's when he decided to put the house on Fielding up for sale for $86,000. The house was appraised at $106,000. That was eight months ago."

"Logan says the glut in houses has made it hard to get people to view the Fielding house and now he is considering renting it."

"'It's much more challenging to flip houses here than anywhere else in the U.S.,' Logan said. 'Even in the outlying suburbs, you have to be very careful about the direction your neighborhood is going. If you're trying to flip, you have to be really conservative about what you're paying and all the related costs. Costs are going up while property values are going down. It makes your return and your margins much more slim.'"

"Steven Morris of Fair Haven has been flipping houses since 2003. But when the market began to tank, he changed his approach. Two years ago, he switched from flipping properties to fixing them up and renting them."

"'What most people do when they do rentals is put in as little money as possible and try to put someone in them,' he said. 'I try to make it something I would love to live in. My goal is for my tenants to want to stay in my house as long as they can.'"

"Morris has 10 properties in metro Detroit and a waiting list of tenants to get in. His latest purchase is a house in Warren, which he is currently renovating. He bought it for $40,500 and is putting $60,000 into it, he said. He has added new appliances, granite countertops and fancy door handles."

"'I put quality stuff in them,' Morris said."

"He also hired friends who have lost jobs in the slow economy to work on the houses. He has established accounts at Home Depot for them to come in and pick up materials."

"Since 2003, the foreclosure market has provided more and more investment opportunities, he said. Foreclosed homes are going for less and less and the competition from those who could buy them with risky subprime loans has abated."

"'If you look at the mortgages that people had on some of these houses, they could move back into the same house, beautifully remodeled, and have cheaper payments than what they had,' Morris said."

A Dicey Time To Buy Foreclosures

2007-05-16T15:14:00.000-07:00

A report from Minnesota Public Radio. "Homes that have been foreclosed on often sell for a lot less than they're worth. But that doesn't mean they're a steal. There are a lot of impediments to selling a foreclosed property. There's no question that the spike in foreclosures has put many people out of their homes. But for others, hope actually springs up alongside the 'for sale.'"

"That was the case for Blake Thompson. He's a year out of college and works as an electrical engineer. When Thompson decided to buy his first house this past spring, he specifically wanted a foreclosed property. His plan was to do some rehabbing. It was as close as he could come to his real dream."

"'I've always wanted to build my own house, and in the city there aren't that many places to build at an affordable rate,' Thompson says. 'So I figured I could buy a foreclosure at a reasonable rate and still have money left to do what I wanted, build it the way I want to see it.'"

"Thompson put a bid in on a foreclosed property in St. Louis Park. Its assessed value was $260,000 but was listed at $175,000. 'They were so tired of people coming in and giving him offers and not accepting, the bank thought it was the real estate agent's fault.'"

"'Three people had put in offers and ended up backing out. And it was so bad that when I went in to put in my first offer, they fired the first real estate agent. They were so tired of people coming in and giving him offers and not accepting, the bank thought it was the real estate agent's fault,' he says."

"Thompson's not sure what turned the other buyers off. Maybe it was the tacky mirrored wall in the living room, or the electrical work mandated by the city inspector. But Thompson knew how to do a lot of the work himself and saw the fixes as minor. He finally scored the house for $171,000 and considered it a steal."

"Real estate experts say foreclosures can be a great fit for people like Thompson, a first time home buyer willing to put in a lot of work. But the fact that three buyers bailed before he came along speaks to the difficulty of selling a foreclosed home."

"'There's a reason why they're priced low,' says Twin Cities real estate agent Steele Propp, who specializes in foreclosures."

"Standing outside a foreclosed property in St. Paul, he says these properties aren't for everyone. He steps inside the house and points out that, like many foreclosed homes, it lacks a stove and other appliances. Other houses may have problems with mold, or vandals may have stripped them of copper pipes and aluminum siding. There might be liens on a house due to previous maintenance that a buyer would likely have to pay off."

"On the other hand, Propp says, if a house is in good condition it might be priced at less of a discount than buyers are hoping for. He says on average, a decent foreclosure property will sell for about 85 percent to 90 percent of the fair market value, not the 70 percent some eager buyers expect. Propp says mortgage lenders typically don't want to unload their foreclosed properties for a song."

"'They have a responsibility to their shareholders. And if they were giving away properties, first of all, they'll probably get fired. They have to show they actively tried to market the property, and do their best, this is what the market was willing to [pay],' Propp says."

"Flat or declining home prices are also playing a role, and reducing the pool of potential buyers for foreclosed properties. Rick Sharga of RealtyTrac, says foreclosures can be a good fit for those who want to occupy or rent a property, but not for investors who want to quickly rehab and resell."

"'For people who want to get into real estate as an investment, this is a dicey time to buy foreclosures,' he says. 'This is a really tough time to buy and flip a property.'"

"Jason Cramer of the Twin Cities HomeVestors franchise agrees. That's the 'We Buy Ugly Houses' company, which buys, rehabs, and sells homes. Cramer says it's hard for his company to pick up foreclosed properties at a price that covers the transaction and holding costs and allows for a profit."

"'That becomes increasingly difficult, even for us, as professionals in the marketplace, when you have an unpredictable market value, decreasing market value, and the marketing times are lengthening,' Cramer says."

"All in all, real estate experts say a foreclosed home can be a good investment for someone who wants to hold onto a property for a few years--if they're willing to put in as much work as Blake Thompson, and his contractor father, who recently showed up at his place to help. 'Friday I got a call from my dad asking me what time I was coming home. I was planning to go to happy hour, but that didn't happen,' he says."

"Thompson estimates he's still got three months of work before he'll be finished rehabbing his new home."

Defaults Up 244% In Alabama

2007-05-15T15:57:00.000-07:00

The Birmingham Business Jopurnal reports from Alabama. "Foreclosures were still up in Alabama in April, according to RealtyTrac Inc.'s monthly market report. The foreclosure-data provider reported a total of 899 Alabama properties in some form of foreclosure. That's one for every 2,189 households, ranking Alabama 29th in the country."

"The data represents a nearly 12 percent increase over March and more than 244 percent increase over April of last year."

"'The company expects foreclosure activity to stay above last year's levels for the rest of 2007. The 'combustible mix of risky loans' taken out in the last few years - many in the subprime market, and slowing home price appreciation are not helping, he said."

"For the fourth month in a row, Nevada reported the highest foreclosure rate for the month - one for every 232 households, which is more than three times the national average, according to the report."

"Colorado had the second highest with one for every 314 households. Six out of the top 10 metropolitan cities with the highest foreclosure rates were located in California."

Ground Zero In California

2007-05-11T11:21:00.000-07:00

Reuters reports from California. "Twice a day, would-be real estate moguls gather on the local courthouse steps for the latest can't-miss opportunity in California's land rush: the foreclosure auction. Veterans and 'newbies' crowd around auctioneer Gary Oberdalhoff as he lists a property whose owners couldn't pay the mortgage, one of thousands to go on the block in this sprawling, arid region 50 miles east of Los Angeles."

"'Do I have any opening bids?' Oberdalhoff asks. Several step forward to show him cashier's checks worth hundreds of thousands of dollars, and the bidding begins. It might be a scene straight out of the Great Depression, if you ignore the Bluetooth wireless headsets."

"As the nation's real-estate boom curdles, speculators who a year ago might have camped out in front of new housing developments are now hoping to find a bargain among the thousands of houses emptied by foreclosure. But veterans say true bargains are becoming harder to find as the number of homes on the auction block swells."

"Many of these new homeowners couldn't afford their mortgages, or fell behind when their adjustable monthly payments shot up. Two years ago, they might have been able to sell the house for a healthy profit. But that's not an option now that prices have stopped rising."

"After three months of missed payments, homeowners receive a default notice. Three months after that, the bank can repossess the house and auction it off to pay off the loan. Foreclosure and default filings in the region quadrupled from February 2006 to February 2007, according to research firm First American LoanPerformance."

"During the first three months of the year, 1 in 68 houses in the Inland Empire was in default or foreclosure, a rate surpassed only by Detroit and Las Vegas, according to RealtyTrac."

"'This is ground zero; this is where it's all happening,' says Juan Cruz. Cruz has his eye on a four-bedroom house in nearby Corona offered at $131,000. That figure represents the unpaid balance on the previous homeowner's foreclosed mortgage. Like the other bidders, Cruz has never seen the inside."

"When the bidding starts, Cruz has plenty of competition. The speculators bid steadily in hundred-dollar increments with cell phones pressed to their ears, keeping their bosses up to date on the action. Twenty minutes later the house is sold to a heavyset man for $286,000."

"That's less than it would have fetched last year. But veteran home buyers have grown more cautious as the market has cooled."

"More houses are on the market now than at any time in the past eight years, according to the Multi-Region Multiple Listing Service database. At the current pace it would take more than 13 months to sell them all, compared with 7 months at this time last year."

"Bargains are scarce on the auction block these days. Houses purchased in the last two years are often saddled with steep mortgages that can exceed the house's market value. Sales are down from last year and prices have risen less than 1 percent, according to DataQuick."

"'Now your house has to be underpriced and spectacular to sell,' says foreclosure investor David Schultheiss."

Buying A Home At Auction

2007-05-10T10:21:00.000-07:00

A report from CNN Money. "Rising foreclosures will bring misery to many home owners - but bargain prices for some lucky home buyers. Real estate auction house Hudson & Marshall is currently marketing more than 500 foreclosed properties in Michigan alone from May 19 to May 24. The prices will vary widely but, some people will walk away with homes for less than $5,000, according to Crystal Wright, spokeswoman for Hudson & Marshall."

"Most of the properties have already gone through the entire foreclosure process. First banks took them back from borrowers who fell behind on payments. Then, they then put them through public foreclosure auctions (often held on county courthouse steps) where the homes failed to sell. The banks then cleared any title issues and put them back on the market through a traditional real estate broker."

"If the properties sit for 90 days or more on the market, with expenses piling up, banks get very impatient. That's when they call the auction houses. 'Unlike a foreclosure sale on the courthouse steps, all these homes are sold free and clear, no liens, no debt. The seller even pays for title insurance,' said Dave Webb, one of Hudson & Marshall's owners."

"Business, according to Webb, is jumping; it grew 20 percent during the first quarter of 2007, usually a slow period for the company, compared with the fourth quarter of 2006. He anticipates even better times for the next year or two."

"Dean Williams, CEO of auctioneer Williams & Williams, said his company is also very busy. It sold 3,200 properties in the first quarter and currently offers residential properties from 36 states and the District of Columbia."

"Although many of the sales this year have clustered in the economically hard-hit Midwest, many of the homes coming to auction later this year will be higher-end properties from sun-belt states where the economies are generally strong, but speculative real estate investing has dried up, such as California, Texas and Florida."

"'In June, we'll have 200 properties in San Diego and Los Angeles on auction,' Webb said, 'with an average value of around $300,000.'"

"Not all the auction properties are huge bargains. According to Williams, 12 percent of the houses he sells, most of which have already been marketed for an average of six months as conventional listings, sell at auction for more than the original asking prices."

"But most of the houses do sell for less, and about 15 percent of time 'shockingly' so, said Williams."

"Buying a home at auction is fairly easy and straightforward but, even so, some people approach it with fear and trepidation. According to Wright, inexperienced buyers often attend one or two sales before they actually make bids."

"Bidders don't need to do anything special. Just, 'Be there,' Williams said, 'Bring your driver's licence, show it to get a bidding paddle. If you win the bid you sign a contract and leave a 5 percent earnest deposit; it can be a personal check. After that, you have 30 days to close.'"

Defaults To Weight On Prices In Rhode Island

2007-05-07T15:08:00.000-07:00

The Providence Journal reports from Rhode Island. "Rising home foreclosures in Rhode Island could claim a new casualty, house prices. Of all the ways to sell a house, a foreclosure generally yields the lowest price. Mortgage lenders looking to unload a property seized from borrowers who fell behind on their payments can expect to get back only enough to cover the loan, if that."

"In 2005, house sales in Rhode Island outnumbered foreclosure auctions advertised in The Providence Journal by 14 to 1. Now, that ratio has narrowed to less than 3 to 1."

"'That’s the possible storm cloud on the horizon,' said Timothy Warren Jr., CEO of The Warren Group. 'There’s a threat that those distressed properties, whether they sell at auction or are dealt with another way, could have an impact on the market.'"

"Even one foreclosure in a neighborhood can drive down property values of nearby houses an estimated 0.9 percent to 1.36 percent, according to one study. On a $255,000 house, that amounts to a decline of $2,300 to $9,200."

"The median price of a single-family house in Rhode Island this year has already fallen nearly 3 percent, or $7,000, to $255,000, compared with $262,000 during the first-quarter of last year, according to The Warren Group."

"'The steady increases in house prices in some ways covered up the potential of foreclosures in the past,' said Ren Essene, a research analyst at Harvard’s Joint Center for Housing Studies."

"Paul Talkowski, president of Daniel J. Flynn & Co. Inc. of Quincy, Mass., waits for bidders to arrive at the home of Kenneth and Lisa DeVoy at 6 Anawan Ave. in Bristol, before selling the house at a foreclosure auction. When no bidders registered, Talkowski accepted a pre-submitted bid from the bank for $174,583.02."

"Lenders advertised 678 houses in Rhode Island for foreclosure auction during the first quarter, up 122 percent from the same period last year, according to a Journal analysis of newspaper legal ads. The pace is on track to exceed last year, when just over 1,850 homes were advertised for foreclosure sale, which was more than twice as many as in 2005."

"'There’s a lot less credit available for borrowers, and a lot more foreclosed property being sold at a discount,' said Mark Zandi, chief economist for Moody’s Economy.com. 'I think this will put a pall over the spring market.'"

"During the 1990s real-estate crash, Richard August managed the residential portfolio of foreclosed properties for Fleet Bank. Part of his job was to go to foreclosure auctions for houses where the bank’s subsidiary, Fleet Mortgage Corp., was the lender. If the bids were too low, he was to buy the property back."

"'Investors are bottom feeders and would come up and they’d be looking for a real killing,' said August, who is retired. 'When they saw me driving up they’d say, 'Oh, Fleet’s here again!' They’d know they wouldn’t get a bargain.'"

"To lenders who got burned in the last real-estate downturn, the latest rise in foreclosures is no surprise. 'When mortgage lenders start offering zero-interest loans and start saying to people you don’t even have to have a down payment — we’ll write a separate loan you can defer for several years… you know this problem is coming,' August said. 'It’s absolutely inevitable.'"

"Mortgage lenders, he said, knew this. 'In every group of deals,' August said, 'there’s a built-in assumption that some are going to fail.'"

"In 2005, nearly 11,979 houses were sold in Rhode Island, according to The Warren Group. That year, 829 houses were advertised in The Providence Journal for foreclosure auction. So the ratio of houses sold to foreclosure ads was 14 to 1."

"Last year, house sales in the state dipped to 10,358, while foreclosure ads in the Journal climbed to 1,852, narrowing the ratio to about 6 to 1. Foreclosure impact on the market now is even more acute, with just under 2,000 houses sold in Rhode Island during the first quarter of this year, and 678 advertised for foreclosure, a ratio of 3 to 1."

"In previous real-estate downturns, most of the loans were made by banks and government-insured lenders. Now, more than half of all outstanding loans have been packaged into mortgage-backed securities financed by Wall Street investors. So if there is no return on these investments, the money to finance such loans dries up. That means less money available for homeowners to refinance their way out of debt — and less to loan to new buyers."

"There were 5,639 single-family houses on the market in Rhode Island as of the end of March, the largest number for that time of year since 1997, according to data provided by the statewide MLS to the Rhode Island Association of Realtors."

A "Perfect Storm" In Texas

2007-05-02T12:36:00.000-07:00

ABC 13 reports from Texas. "There isn't a lot of good involved in a foreclosure, but there may be a way to get out from under a home about to be taken by the bank. Selling the house at auction just might be the way to avoid the financial ruin associated with a foreclosure. Foreclosures can be devastating if the bank will not work with you. The better option may be a quick sale and auctions offer that."

"One home near TSU is for sale, but instead of sitting on the market for weeks on end, it will be auctioned off to the highest bidder in two weeks and that house is not alone. 'We have about 70 properties that we are selling that day,' said auctioneer Kelly Toney."

"'We're basically trying to bring the buyer and the seller together and take the seller out of the middle of the equation and put the auctioneer there mediating the price up rather than negotiating the sales price down,' said Toney. 'It's another option for a seller in distress that keeps them out of further credit problems,' said Toney."

"'Sometimes there are great deals and sometimes the properties go for market value and above,' said Dwight Toney with Tranzon auctions. Buyers must be able to put down 10 percent of the auction price at the time of sale. They then have 30 days to come up with the rest of the money."

"The idea of buying at auction may seem odd, but it may be the right time to consider it. 'We almost have what we call the perfect storm if you are a buyer because you have a lot of property on the market,' said Steven Kaufman with the Realty Investment Club of Houston. 'Demand that is low, not as many buyers able to buy, and you have low rates.'"

"Kaufman says there are opportunities and the auction route could be worth exploring, but... 'If you know a realtor that is willing to look up some comparable sales for you in the neighborhood, I think that is a great idea,' said Kaufman. 'That's the best thing to do, to see what the house is really worth.'"

An Auction Opportunity In California

2007-04-30T13:42:00.000-07:00

The LA Times reports from California. "Many see trouble in falling home prices and rising foreclosures. Karen Krynen sees opportunity. So after dropping her two children off at preschool one day last month, Krynen headed for Los Angeles County Superior Court in Norwalk, where foreclosed houses were being auctioned on the steps outside.

"The two dozen or so bidders, mostly men, whispered into cellphones, tapped into databases from their laptops and juggled clipboards loaded with documents and printouts. No one seemed particularly friendly."

"'I walked up and thought, 'Oh no, this is what they do for a living,' said Krynen, 42. 'They knew what they were doing. I kind of hoped that nobody else would be around.'"

"There were 5,977 foreclosed homes on the auction block in Southern California in the first three months of the year, up from 711 in the same period last year, according to DataQuick. State law requires these properties to be sold at public auction, which in theory puts everyone on an equal footing. Amateurs such as Krynen, however, face competition from professional real estate investors as well as the lenders themselves, who come to the auctions ready to bid for homes they issued loans for if it appears that the properties can be resold at higher prices."

"The notion of buying a home this way didn't take shape until a few weeks ago, when she came across a website. The site offered a trial subscription to troves of foreclosure data, which are public but not very accessible. Krynen was intrigued. A few mouse clicks later, she found a house about five miles from hers in Whittier. The owners had defaulted on the mortgage and were facing an auction in two weeks. Opening bid: $100,000."

"Krynen figured the four-bedroom home was worth about $800,000 and thought it would be the perfect replacement for the 1,400-square-foot house she and her husband, Jeff, have owned for 14 years."

"But that's about all she can say about it. Although she has driven past the place at least a dozen times, she could never get inside for a good look. That was lesson No. 1 Krynen learned about foreclosures: Buyer beware. You buy property 'as is,' with no chance of a pre-purchase inspection."

"'That scared me a bit, that I couldn't see inside,' Krynen said. But her husband, a professional contractor, assured her that he would be able to mend whatever needed fixing."

"From her online research, Krynen learned that the road to a foreclosure sale in California typically begins when a homeowner misses three mortgage payments. The lender then files a notice of default with the county recorder. If the homeowner fails to pay up in 90 days, the trustee, usually the title company, sets a date for a public auction."

"By long-standing custom, most auctions are held outside courthouses or the recorder's office. Krynen found this aspect of the process especially appealing. 'If it goes to the courthouse steps, there's a level playing field,' she said."

"Neither local government nor the courts play a role, however. The title companies and other trustees hire professional auctioneers to run the sales. It's the real estate equivalent of last rites, making Kyle Speer something of a priest of property. At 10 a.m. sharp each weekday, Speer takes his place on the courthouse steps in Norwalk."

"With his back against the marble wall and his face to the crowd, the professional auctioneer cracks open his leather portfolio, clears his throat and begins the archaic ritual of 'crying the sale.'"

"A 17-year veteran of foreclosure auctions, Speer says he's seen a sharp increase in newbies such as Krynen showing up. Bombarded by questions from beginners, he recently began offering a $200 seminar every Thursday to decode the auction process."

"One day last month, as Krynen stood off to the side taking notes, prepping for the upcoming auction of the Whittier house, Speer kicked off the bidding for the day's auction by reading the property's street address, followed by a long string of parcel numbers, deed numbers and loan numbers."

"'Do I have any opening bids?' he asked. 'Cashier's checks needed to qualify.'"

"That was news to Krynen. Before entering the bidding, you must show the auctioneer a cashier's check good for at least the minimum bid amount. Auction pros carry cashier's checks in varying sums.

"There were six homes on the block this day. They were bought in 2005 and 2006, at the crest of the housing boom, by buyers who financed the entire purchase. That means the homes are probably worth the same, or less, than the amount the buyers owe. No one bid."

"'I get asked every day if there are any good deals,' Speer said. 'Not too many right now.'"

"Homes that aren't sold are turned over to the lender, which can then sell the property however it chooses."

"When there is a bargain, a bidding battle usually ensues, pros say. At 10:30 a.m., after Speer had finished, Travis Toth, an auctioneer hired by other trustees, stepped up to market a foreclosed condominium near La Cienega and West Jefferson boulevards in Los Angeles. The opening bid was $259,592, which was the sum owed on the mortgage plus about $20,000 in processing fees."

"Right away, two men and a woman produced cashier's checks to identify themselves as serious bidders. With cellphones at their ears and hands cupped over their mouths, the bidders bumped up the price in $1,000 and $100 increments. One man worked a laptop too, scrolling a title company's research page on the Internet."

"After 10 minutes of back-and-forth, the auctioneer calmly declared, 'Sold.' The winner handed over four checks in amounts ranging from $500 to $120,000. He politely declined to give his name to a reporter except to say that he had been doing this for 11 years."

"Whatever his identity, he appeared to have scored a bargain. The final sale price was $267,500, more than $100,000 below its estimated value."

Filings Continue Record Setting Pace: MA

2007-04-24T10:51:00.000-07:00

A press release from Massachusetts. "ForeclosuresMass.com released its Massachusetts Market Analysis Report for the 1st Quarter of 2007 today, with data revealing that foreclosure filings in Massachusetts continue to escalate at a record-setting pace and reached a new high during the first three months of 2007."

"The report shows that 6,624 foreclosures were initiated statewide during the 1st quarter of 2007 (January, February and March), 76 percent more than the number recorded in the 1st quarter of 2006."

"Over the past 12 months, lenders initiated foreclosure proceedings against 22,342 homeowners, representing an 80.61 percent increase over the same period a year earlier. March 2007 was the 6th consecutive month with more than 2,000 foreclosure filings, indicating no slowdown in historic surge in foreclosures being initiated throughout the Commonwealth."

"'It is clear that tens of thousands of Massachusetts residents are trapped in properties they can no longer afford. They can’t keep up with mortgages payments that are too high, and the downward pressure on statewide housing prices means that they can’t sell the home to pay off their debts,' said Jeremy Shapiro, president of ForeclosuresMass.com. 'With no substantial market turnaround in sight, we expect Massachusetts foreclosure rates to continue at record or near-record levels for months to come.'"

"Highlights of the ForeclosuresMass.com 1st Quarter 2007 Market Analysis Report include: Foreclosures spiked by nearly 50% in March 2007 compared to March 2006. The increase statewide was 46.78% (2,190 v. 1,492). On average, there were 110 foreclosure filings every business day in March. March was the third-highest month on record, and marked the sixth consecutive month with over 2,000 foreclosure filings."

"6,624 foreclosures were initiated statewide in Q1 2007 (January 1, 2007 through March 31, 2007). Foreclosures jumped 76% higher than Q1 2006 (3,769). Q1 2007 had the highest number of quarterly foreclosure filings on record. This is the 2nd consecutive quarter with over 6,000 foreclosure filings."

"22,342 foreclosures were initiated in the past 12 months (April 1, 2006 through March 31, 2007): Foreclosures increased 80.61% statewide when comparing the past 12 months to the same period a year earlier (22,342 v. 12,370)."

"Barnstable, Worcester and Suffolk Counties experienced the largest increases. Barnstable County experienced a 93% increase (1,084 v. 562), Worcester County had an 87% increase (3,461 v. 1,850) and Suffolk County jumped by 87% (2,434 v. 1,302)."

"In communities with 50 or more foreclosure filings over the past 12 months, the biggest increases were in the town of Dartmouth (241% increase, 92 v. 27), the town of Somerset (194% increase, 53 v. 18), the city of Everett (186% increase, 166 v. 58), the town of Bourne (158% increase, 103 v. 40) and the city of Chelsea (151%, 113 v. 45)."

"In communities with 10 to 49 foreclosure filings over the past 12 months, the largest increases were in Adams (467% increase, 34 v. 6), Huntington (433%, 16 v. 3), Boxford (300% increase, 20 v. 5), Westborough (289% increase, 35 v. 9), and Hardwick (267% increase, 11 v. 3)."

Auction Horror Stories

2007-04-22T07:43:00.000-07:00

The Ann Arbor News reports from Michigan. "Buying foreclosed property is not for novices. 'There are horror stories,' said Special Deputy Jimmy Moore, who auctions off mortgage foreclosures every week at the Washtenaw County Courthouse. 'There have been a lot tears.'"

"He said he knows of a case where a couple bought a house at an auction. Later, it burned to the ground. Because they couldn't insure something they don't yet own, and there's a six- to 12-month redemption period before they take ownership, they lost everything except for the value of the land."

"It's also possible for someone to pay $100,000 for a house only to learn later that the federal government has a $150,000 tax lien on the house, Moore said. Unless the new homeowner comes up with the taxes, he's out $100,000, Moore said."

"Moore said it's important to check on the history of the house at the county's register of deeds, and check with the IRS, a process he admits could take hours, to find out if there's a tax lien on the house. 'And don't buy anything you can't really afford,' he said."

"There aren't many private buyers at the sales, Moore said, because there really aren't many great deals as there were years ago due to the fact that most have little equity."

"Washtenaw County Treasurer Catherine McClary said the sharp increase in the number of property foreclosure inserts in the Washtenaw County Legal News, where the first listing of at-risk properties occurs, verified concerns about an increased trend in tax delinquencies, a leading indicator of fore-closures to come."

"'You would think Washtenaw County would be healthy and immune from some other areas of state, but we're seeing six to seven new insertions every business day. It's a huge amount,' she said."

"Kip Sen of Northfield Township showed up at a recent foreclosure auction, hoping he'd walk out with a new house. He has had his mind on a Dexter Township house since reading about it in a foreclosure notice. After trying unsuccessfully to reach the owners to discuss a preforeclosure deal, Sen showed up early for the county's foreclosure auction."

"The homeowners had come up with the $15,000 they owed on the house, which was then removed from the auction list. Sen says he'll be back. After all, the foreclosure numbers show no signs of abating any time soon."

"'It's like a lottery,' said the Northfield Township engineer. 'If you don't try, you won't get it.'"

Redemption Clause In Tennessee

2007-04-18T13:34:00.000-07:00

The Jackson Sun reports from Tennessee. "A statement in Sunday's business story about buying foreclosures was not completely clear. The statement said, 'It is important for those buying a foreclosure to have the redemption right' of the seller waived."

"Sally Pate, a local real estate agent who specializes in selling foreclosed property, called Monday to say that while Tennessee is a redemption state, the mortgage holder waives the ability for that property owner to reclaim their property in their deed of trust at closing."

"'One of the few times a redemption clause comes into play is when a property is being sold at the courthouse for unpaid property taxes,' Pate said."

Sheriff Sales In Wisconsin

2007-04-16T13:58:00.000-07:00

The Monroe Times reports from Wisconsin. "It's 9 a.m. and Deputy Steve Hoesly is ready to start the auction. Foreclosures of homes resulting in sheriff's sales have increased recently, from 10 in 1997 to 58 in 2006, according to statistics from the Green County Sheriff's Department. The highest number in a given year was 67 in 2005."

"Locally, auctions generally are held in the basement conference room of the Green County Sheriff's Department. But the room is occupied, so Hoesly conducts the sale in the employee break room. Beth Luhman from the Green County treasurer's office joins him, a representative from the office always sits in on the sales. Any back taxes owed on the property will become the responsibility of the new owner."

"On this Tuesday morning, there is one written bid for the property, and it's from the current owner of the house. He has bid about $7,000 more than the amount of judgment against him. If just one person steps forward and offers one cent more than that, the property would be theirs."

"But no one else shows up. With little ado, the bid is declared the winner."

"It's not always this simple, Hoesly said. Sometimes, third-party buyers, or individuals who aren't representing either the mortgage holder or the homeowner, show up at sheriff's sale to bid. Once in awhile, there will be active bidding."

"Hoesly is quick to point out he's not an auctioneer. He's a deputy with 23 years in at the Green County Sheriff's department, the last six in civil process. State statutes dictate the local sheriff's department conduct sheriff's sales in foreclosure cases. Civil process also handles evictions, small claims matters, restraining orders and the occasional vehicle repossession."

"After the sale, the buyer is required to provide 10 percent down on the property. A real estate transfer form then is filed and a confirmation hearing before the judge makes the property transfer official."

"Stereotypes about foreclosed homes sold at public auction aren't always true. The homes sold, for example, aren't necessarily run down or abandoned. 'There's all kinds of homes,' he said. Some are in poor condition, others are 'quite nice.'"

"Nor is it always a great deal for potential buyers. Lenders often will submit a bid to make sure a property doesn't go too cheaply. And because homes in foreclosure aren't open for inspection before the sale, buyers don't know what kind of repairs may be needed."

"'Sometimes, you get a good deal, sometimes not,' Hoesly said, adding he doesn't have any information about the home or its condition. 'I just post them,' he said."

"Often, homes at auction still have people living in them until a sheriff's sale and confirmation hearing. Because of that, Hoesly warns interested buyers not to trespass to get a better look at the property. 'I tell them if you go up and peek in windows, you do so at your own risk,' he said."

"Once in awhile, the homeowner will attend or contact Hoesly to find out the auction's result. But they usually aren't emotional about it, he said. 'When it gets to that point, they pretty much figure it's done,' he said. 'A lot of times, it's a relief.'"

Area Foreclosures Ranked

2007-04-11T11:23:00.000-07:00

A report from the LA Times. "The congressional Joint Economic Committee released a report today detailing the local impact of high-risk sub-prime mortgages and foreclosures. California ranked 14th in the nation for foreclosures per household last year, one for every 86 households, according to RealtyTrac."

"Colorado's foreclosure rate was the highest, one per 33 households, followed by Georgia, Nevada and Texas. The average national foreclosure rate was one per 92 households."

"Among metro areas, Detroit had the highest foreclosure rate last year, with 40,219 total foreclosures, followed by Atlanta, Indianapolis, Denver and Dallas, according to RealtyTrac."

"Two California metro areas made the top 20. Stockton ranked 11th with 5,153 foreclosures, one per 37 households. Riverside-San Bernardino-Ontario ranked 13th with 30,255 foreclosures, or one per 39 households."

"The report also found that: The Rust Belt, Sunbelt and Colorado saw the highest number of foreclosures in 2006, with 60% due to sub-prime loans, despite the fact that such loans are only 14% of the total outstanding mortgage debt, according to RealtyTrac."

"Overall, 1.8 million hybrid ARMs (30-years adjustable rate mortgages with low teaser rates that often reset after two or three years to much higher rates) are expected to reset 2007 and 2008. Half of sub-prime borrowers over the past two years provided limited financial documentation and 90% overstated their income."

"Foreclosures this year are on track to match or surpass the 1.2 million in 2006, according to RealtyTrac."