Now Come The Banks
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
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
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
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
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
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
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
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.'"
