Saturday, December 31, 2005

Pre-Foreclosures May Be Best Bet Now

Bankrate.com has this Q and A on buying a foreclosure. "Dear Real Estate Adviser, I am thinking of buying a foreclosure home to live in and possibly another for an investment some time in the next year or so. I am wondering: Is this a good time to look?"

"It might be the best time in years, which would mean it's perhaps the worst time for thousands of financially strapped U.S. homeowners struggling to hang onto their homes."

"Many economic experts are predicting that mortgage delinquencies will rise, up to 15 percent in 2006, among homeowners with higher-cost or 'subprime' loans. About 19 percent of all U.S. home loans are now subprime in contrast to just 5 percent 10 years ago. A lot of those homeowners with adjustable-rate subprime loans will see their loans reset at higher interest rates in the coming months and that will spell trouble."

"Foreclosure buying is a very competitive game right now, with so many real estate gurus advocating the strategy in books and seminars, and on TV and the Internet. Just do a Web search under 'foreclosure opportunities' and you'll see what I mean."

"While there's not space here to go through all the strategies, buying a 'pre-foreclosure' from a defaulting or financially strapped owner might be the best way to go on the consumer end. The county clerk's office keeps lists of such pre-foreclosures. Seek out titles where a 'lis pendens' notice has been filed by the lender."

"The foreclosure-property auctions that you see advertised are usually the realm of more heavily bankrolled professional investors who stand ready to pay cash for a property."

"If you are brave and well capitalized, you might try your hand at it. You might want to attend one or two for observation before acting. Whichever approach you try, don't give up if your first few efforts don't pan out."

7 Comments:

At 10:06 AM, Blogger txchic57 said...

This is nonsense. You won't be able to cut deals on these properties until the banks have a portfolio full of them and are being pressured to dump them or risk bad quarterly reporting and/or failing.

It's way too soon for this game.

 
At 10:07 AM, Blogger Ben Jones said...

TxChic,
I agree, it is way too soon. The fact that there is competition for these properties shows that a contrarian should wait.

I did want to post it, as it had a little info. It's curious, because right before Xmas, foreclosure reporting all but stopped. I guess no one wants to read this stuff around the holidays.

 
At 12:21 PM, Blogger Chip said...

I wish that Consumer Reports or JD Powers (or Ben :)) or someone would rate foreclosure Web sites, given that they all charge a fee. There could soon be so much interest in foreclosure data that a site could almost pay for its research work from banner ad revenue. I just balk at paying a subscription for a service that is "un-rated" by anyone I trust.

 
At 10:21 PM, Blogger el scooter de heffe said...

This comment has been removed by a blog administrator.

 
At 10:36 PM, Blogger el scooter de heffe said...

Actually, txchic57, it is not entirely nonsense. You have to make a distinction between pre FC homes, homes at the FC sale, and REO.

Banks don't own homes until they buy them back at the FC sale - thereby becoming Real Estate Owned (REO, for short).

When there's price appreciation - as there has been in CA - hardly anything ends up REO. If anything actually makes it to sale, it usually ends up going third party to an investor - not to the bank. Banks do bid at the foreclosure sale; but they get outbid in this type of environment - I won't go into how banks determine their bids amounts.

By the time a property ends up REO, it usually isn't much of a deal. This is the biggest myth out there; I won't here go into how banks price their REOs, and the business decisions that drive REO.
But, I can say that they generally list and sell the same way you do - get a market value and try and sell it at that price.

The best deal is a pre-FC property. These are homes where the people are in default, need out, would love to sell it either at zero profit or a small profit assuming they are reasonable, and are in some stage of the FC process - but haven't been foreclosed out yet. These are people in trouble; and people who present the best "foreclosure investment", if the timing and the market, as well as the business fundamentals, make sense.

You can also try to buy it at the FC sale itself, but that's dicey. You tend to take as is, without any more than a title report and an exterior visual inspection. And, you'll have to outbid the bank - which may or may not hold a note worth more than the house is worth. And, you've got to pay cash. Here in CA, where the median value approaches $500K, that's a lot of cheese - and it isn't for the faint of heart.

It is NOT nonsense or too soon to get into the pre FC game. In fact, I can say now is a pretty good time to get in this game, as the investors are too busy flipping homes to spend the blood, sweat, and tears hunting pre FCs takes.

The FC game itself is probably ripening, depending on the particualr home, as price appreciation flatlines. Of course, there are a ton of variables here, but values can be found.

The REO game really is never much of a game, except for people who for some reason think they are "foreclosures" - they aren't.

But, like anything else, any of these games take some knowledge and experience - you can't just decide to get into it. And, as notes, there's no good way to learn the game other than trial by error.

There's alot more to say here; but it really isn't friendly to a post. And, yes, I work in mortgage residential default, and have for the better part of a decade. I'm not making this up.

 
At 8:29 AM, Blogger Chip said...

El Scooter -- thanks for the insights -- that was very helpful to me.

Are there any pre-foreclosure Websites that you would recommend as giving fair value for money and sufficiently simplified information that an absolute novice can figure it out? Or should novices stay away? All I want is one nice and fairly new home for my own residence.

 
At 11:17 PM, Blogger el scooter de heffe said...

Chip -

The pre FC game is, unfortunately, not real organized, and is tough sledding for a novice. And, no one's really interested in organizing it - there's too much money to be had in harvesting the properties yourself.

Remember, if you're reading on a website about a house in pre FC that you think is a deal, chances are pretty good ALOT of people will think it is a deal - and a good chunk of these people won' t be waiting for it to appear on someone's website.

That said, my guess is that buybankhomes.com (Fidelity) and foreclosure.com are probably acceptable - they are, at least, the most commercial of these sites. But, as I don't use them and have never used them, I can't vouch for them.

And, again, I'm not sure you're gaining an advantage using these or any websites - in pre FC, gaining an advantage in timing is a large part of the game.

Good luck (And remember that if the people ain't making their house payments, they probably haven't maintained their home in some time either. You'll get a cheap sales price; but will ahve to sink some cash into it.)

 

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