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The foreclosure frenzy feeds hungry investors hoping to capitalize on America’s historic housing crisis and ongoing recovery. That’s good. No, actually, it’s great. I’m a broker/agent in Salt Lake City, Utah and at no point in my 22-year real estate career has the foreclosure and short sale market been so hot. If you are an inexperienced investor looking to cash in on the remnants of the housing market crash, there are a few realities you’re just going to have to face. Perhaps the most important is that distressed properties available at deep, deep discounts are luxuries of the past. Suffice it to say lenders have a lot of catching up to do and they’re simply not willing to give properties away in an active market where prices are steadily increasing.
I receive a minimum of 30 foreclosure or short sale inquiries a day (I’m being very conservative here). The trend is good because it means consumer confidence is up; people are ready to take that leap into home ownership once again. The distressed home inventory will begin to wane and sellers with non-distressed properties will find it easier to sell their homes. The obvious impact on the economy as a whole is thrilling; and, blighted neighborhoods are improving as empty homes fill up and light up the streets at night.
Foreclosure properties are not easy to find and they do move quickly. If you fall in love with a home, don’t give up too easily. A thorough Realtor can research that property and in some cases deal with the financial institution and completely work around the listing process. A couple came to me recently; they had fallen in love with an enchanting Victorian home. Our team researched the address, but found no active listing for the property. It was a high-end home and I wasn’t willing to let it go without a fight. We identified the financial institution and after a few phone calls, contacted one of the bank’s board members who just happened to be the Realtor charged with managing the property. The bank had taken the home of the market because they hadn’t had any real interest. Just like that, our clients were able to make an offer on a previously unavailable property.
Following are 10 tips and tidbits of information I have gleaned from the daily grind that can save you time, frustration and maybe even a little money. Keep in mind that this information is specific to the Utah market and my experience helping clients buy and sell hundreds of homes on the Wasatch Front. Each state’s foreclosure laws vary. Ask your agent about foreclosure law in your state before you begin your search.
1. Two Words: When shopping on any giant national real estate website there are two words you need to look for; they are, “For Sale.” In Utah, foreclosures are primarily non-judicial; however, certain documents are made public from the moment they are filed. Many companies mine information from these public documents and offer a preview of properties that might (or might not) become available. Unless a property is marked “For Sale,” it is not likely to be on the market.
2. Pre-Foreclosure is not the same as “For Sale”: In Utah, when a homeowner falls two, three or four months behind on the mortgage the lender will file a Notice of Default. This notice is a part of the permanent public record. Once a Notice of Default is filed, the homeowner basically has three options:
• Make up the payments or make satisfactory arrangements with the lender to satisfy the loan obligation.
• Ask the lender to approve a short sale. A short sale is an emergency action that allows the homeowner and the lender to work together to sell the property for less than what is actually owed.
• Allow the home to go into foreclosure.
Unfortunately, when a homeowner chooses the first or second option, the property listing is rarely updated. A pre-foreclosure property listing could remain on a major national website to infinity and beyond.
3. Carefully review dates: Many sites provide home shoppers with detailed information. When a listing shows a pre-foreclosure date from several months past with no updated public information (i.e. a Notice of Sale) it is very likely the homeowner was able to keep his or her home. It is also possible the home has already been sold through a short sale. Don’t get your hopes up.
4. Mind your manners: Don’t ask your Realtor to call the homeowner directly. Foreclosure is a sensitive subject and there is a process in place to protect homeowners who are struggling financially (and to protect the lenders that serve them).
5. Foreclosure does not mean “For Sale”: Once a Notice of Default expires, a home can be sold at a foreclosure auction. Before such a sale, the foreclosure trustee or attorney will file a Notice of Sale. This can be posted 10 days prior to the expiration of the Notice of Default (three months minus 10 days). Major national real estate websites mine information from Notices of Sale and regularly publish the information on foreclosure listings. Look for the sale date. There are a number of reasons these sales are delayed, so if you missed one, look for the name of the foreclosure trustee or attorney on the listing and contact him or her for an update.
6. Be prepared: When buying at a foreclosure auction, be aware you will be required to pay a large sum of money down when/if you win the bid (very often $20,000). The remaining balance will be due within 24 hours. Remember, you may be bidding against the mortgage lender.
A good Realtor will look for creative ways to assist you whenever possible. Utah is famous for its world-class ski resorts. A rare property, a cabin near Brighton Ski Resort, was in the pre-foreclosure process. We had a buyer love-sick over this one-of-a-kind find. My partners and I arranged a 30-day loan so he could purchase the cabin at the foreclosure auction with the cash required. He secured financing in that time, repaid the loan, and owned his dream home. Of course, we can’t do that for everyone, but when all the stars align it does happen and you should never be afraid to ask about options.
7. Realtors rarely represent auction buyers: Buyer’s agents rely on the commission they earn from home sales as a source of income. Traditionally, buyer’s agents are paid a percentage of the total sales price from the seller’s proceeds. Foreclosure auctions do not offer Realtor commissions. There is an exception to every rule, so if you have a question ask the agent with whom you are working; or, contact the foreclosure trustee/attorney.
8. Patience is a virtue: Once a lender takes ownership of a home (through a foreclosure auction or by some other means) it becomes a part of that lender’s inventory. The home could be listed for sale, sold to another bank or to a private party and never listed at all. There are a number of reasons the listing of a foreclosure property can be delayed (legal issues, repairs, market conditions, over-stocked market, etc.). Some homes are listed within weeks; others take years. Lenders are not required to sell foreclosure properties at all.
9. It never hurts to ask: If you find a foreclosure property online or on your street, it never hurts to ask a Realtor to research it. You can also check county records to determine who received the most recent tax notice to determine ownership. In a few cases banks will work directly with a buyer or an agent.
10. Be realistic: Many would-be investors come to me expecting deep property discounts for foreclosures and short-sales. I’m afraid those are few and far between. Lenders are digging in their heels and holding out for realistic prices that will help them recover costs from the national housing crisis.