With all the buzz about foreclosed properties I can’t help wondering if I should be looking into buying. I’m not really that serious about it, just curious. Then yesterday RealtyTrac reported a record 342,000 homes receiving notices of default, auction notices or undergoing bank repossessions, according to a regular industry report. They’re an online marketer of foreclosed properties and have been keeping records of the industry for over four years.
I see advertisements all the time for buying foreclosure lists. Like I said I’m curious, but not that serious, so I’m not about to spend money on a list. I’ve also done some searching online to learn what to expect if I did want to get into foreclosures. Most of what I’ve found are articles that give little information, or information that my gut tells me might not be correct. I’ve also read quite a few horror stories from buyers.
To learn what’s really happening in the foreclosure market I turned to my friend Jason Mighell, Asset Manager for Global Financial Review. Jason’s background is in collections and he’s quite knowledgeable when it comes to foreclosures. Here are some excerpts from our conversation with my research notes added in italics:
Me: So Jason, I see advertisements for companies that sell listings of foreclosure properties. Is this the best way to find these properties?
Jason Mighell: Yes, it’s the easiest. You can also work with a realtor. Some lenders, Chase-for example, make lists available on their websites.
Me: I’ve heard that you should expect a foreclosure purchase to take awhile. Is that true and why?
Jason Mighell: Oh yeah, there are a lot of reasons why it can take a long time. Three months is not unheard of. The lenders are overwhelmed with the stacks of foreclosures. If you work with a realtor that can make things move slowly. Their busy trying to work with other clients. The commission on a foreclosure that lists for $100,000 isn’t going to get much attention from them. To keep things moving you need to do the work. If you make an offer and haven’t heard back after a week, you need to call the repo department.
Me: How do you do that?
Jason Mighell: First you call the lender that holds the title. Then you ask for collections. Once you’re transferred to collections, ask for the repossession desk. The people on that end have stacks of foreclosures they need to move. When they get your call it shows that you are motivated and you’ll move up the pile. You’ve really got to take the extra effort.
Me: One website stated that although banks list at market value they are open to negotiation because they are desperate. How true is that?
Jason Mighell: Actually, foreclosures are listed to sell, so they are priced 10% below market value. But if you ready to negotiate, they are motivated and will come down.
Me: I’ve heard horror stories of foreclosed homes that have been vandalized by the previous owners. How much of that happens?
Jason Mighell: Damage definitely affects the price and it’s common. Sometimes previous owner will damage the property or someone might break-in. They might punch holes in the drywall or even steal the copper pipes. The lender will usually send an inspector by every 2 weeks to 30 days. If the home has been sitting for a long time and has a lot of damage the city can deem it a health hazard. At that point the lender’s only option is to bulldoze the property. This also works to control the market value of the neighborhood.
Me: What about other liens on the property? Will the new buyer be taking those on?
Jason Mighell: No
Me: So with the reports that foreclosures are up dramatically what would you say about the near future of the real estate market?
Jason Mighell: We’re not at the bottom yet. Those reports don’t include a lot of homes that are just starting in the foreclosure process. They also don’t include current data from states like Florida and New York that are even further behind in processing. I think it’s going to get a lot worse and it might be 1 ½ to 2 years before prices begin to adjust.
Me: Thanks Jason, not an uplifting outlook, but one that does seems to based on knowledge.
Jason offers some nice tips on how to keep your purchase offer on a foreclosure moving. I’d have to say that if I was looking to buy a first home I’d be looking at foreclosures. As an investment or a home to move into I’d be more cautious.