Wednesday, February 07, 2007

Opportunities At Three Stages

The Press Enterprise reports from California. "Mortgage defaults reported to have doubled in a year in Riverside and San Bernardino counties are enticing bargain hunters to the foreclosure market. Professional investors say they are spotting more novices at foreclosure auctions, and real estate agents are fielding calls from clients demanding foreclosure properties."

"But they warn families who believe an upswing in defaults and foreclosures is synonymous with affordable housing that, so far, deals are not easy to find. 'It's not that you can't get a good deal. But you have to be very, very cautious,' said Jennifer Harrison, a professional bidder from Moreno Valley who works for an investment firm."

"Here's why: In a softening housing market, owners of homes in default often owe as much or more than the house is worth. That means once the home is sold and the loan repaid, there is little profit left for investors."

"And those with experience from previous housing downturns say foreclosures as yet are not voluminous enough to prompt lenders to give large discounts on foreclosed properties. But with foreclosures expected to continue increasing, they add that in six months to a year that could change."

"Kurt De Meire, owner of a foreclosure tracking service, outlines buyer opportunities at three stages: the nearly four months following a notice of default when owners can sell to avoid foreclosure, the foreclosure auction on the courthouse steps, and after the auction when lenders market homes that received no bids."

"In the months after a default notice is filed, particularly as the foreclosure auction approaches, homeowners in financial distress who have some equity may cut a deal to sell their home rather than lose both the house and their credit rating."

"'There are potential deals because you have a motivated seller with a time-frame problem,' said Bruce Norris, owner of a Riverside investment firm. If a property is overencumbered with debt, he said, an alternative is a 'short sale,' which means obtaining the agreement of the mortgage lender to accept a sales price that is less than what is owed."

"Rick Stallworth, a Moreno Valley investor, said many homeowners facing foreclosure are in denial. They won't discuss a sale when he knocks on their doors. 'I sent 100 letters to people in default and got no response. I offered to bring them current (on their mortgages), take over their payments and give them a couple thousand dollars for moving expenses,' Stallworth added."

"Lenders will permit a homeowner to sell a house for less than the mortgage only for hardship, such as a loss of a job or death in the family, said Lee Medlin, an agent in Corona. It generally takes time for a lender to agree to a below-market sales price, he said. 'But for people willing to go through the hassle, that is how you get a good deal,' Medlin added."

"Buying a house at a foreclosure auction is widely considered the most risky approach for an amateur wanting to buy a family home. 'Avoid trustee sales at all costs. That is a pros' game,' said Norris."

"Unlike those who buy a home from an occupant or lender, those who buy homes at auction have no right to inspection nor insurance to guarantee a clear title. Also they must come to the auction with a cashier's check for the total price."

"De Meire cautions that before bidding on a home at trustee auctions, it is vital to know which lender is foreclosing. If a second or third mortgage holder is auctioning a home at a starting price that seems a steal, that's because the buyer will still have to pay off the senior lenders."

"Norris said investment companies have teams of employees who check the titles for the properties they are interested in. 'You need to make no mistakes' at a trustee auction, he said."

"Right now, there are so few good deals at trustee auctions that many days only a handful of bidders show up. Greg Norris, Bruce Norris's son who has been making the rounds of auctions, said today a bidder is lucky to buy a house at 20 percent below market. By contrast, Bruce Norris said during the economic downturn of the late 1990s, 'I bought hundreds of properties from lenders at less than 50 percent of value.'"

"With the rate of defaults rising, Greg Norris predicted lenders will be overwhelmed with foreclosures and start discounting significantly in six months to a year."

"De Meire said for lack of bidders, more than half of foreclosed homes are returning to lenders after the auctions. He said the best time to negotiate with a lender for a discount is the day a house is rejected at the foreclosure auction, and before it is assigned to a broker."

"Medlin said it is a myth that bank-owned houses are always the cheapest. Sometimes people with troubles like divorce or a job change are more motivated to cut prices to sell quickly, he said. 'I get offers every day that are ridiculous because they think the banks will give away the farm and they won't,' said Mike Novak-Smith, a broker-agent in Moreno Valley who specializes in selling homes for banks."

"He said, however, that banks, unlike some private owners who are emotionally attached to their homes, will lower their price to follow a declining market."


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