Auctions are coming to the rescue of the banks to offload their inventory of foreclosed houses. Rates are being drastically cut but there are risks attached.
A house on Shelby Avenue in East Nashville was up for auction among 30 others. The auction was being conducted by Bob Parks Auction – the company being on a fast tour of the area disposing of houses. The house had been renovated with top class hardwood floors, fireplaces ringed by exposed bricks and a kitchen with a fresh coat of paint. The tax authorities had listed the house at $297,300. But a bidder won the house of $166,000. Even the buyer, Stewart Levine who was representing a local investor, Lane Wallace, was surprised and said, “I’m surprised it didn’t go for more. In this market, things are just down.”

Auctioneers are opining that auctions of bank repossessed homes are increasing as the banks are facing pressure to get rid of their huge inventories of foreclosed houses. Meanwhile the developers and owners of the units are drowning under jumbo debts. With no or less income there is very little hope in front of them.

For the lucky bidders some are real deals but the investors together with the auctioneers warn that it is better to play the game after knowing the rules. There are potential pitfalls in auction bargains.

Dale Hire has been purchasing and refurbishing houses for the last two decades. He opines that these auction deals are a sort of gamble. For those with ready cash and luck in their pockets there are many opportunities to snap up. Across USA in 2008 the number of auctions went up by 1% calculating to $17.1 billion in gross-sales-revenue. This is as per the findings of National Auctioneers Association.

Locally the sale of plots and houses fell by 29% in 2008 from what it was in 2007. Meanwhile auctions are becoming more and more popular. In Nashville over 100 auctions were recently listed.

Charlie Montgomery of Comas Montgomery Realty and Auction of Murfreesboro said, “It’s across the board that a lot of companies are seeing an increase.” He explained that this increase has been due to an increase in the number of foreclosures and the desperation of owners to dispose of them as quickly as possible. On an average it takes a listed house to be sold within 87 days in Nashville as in July as per the observations of Greater Nashville Association of Realtors.

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Thanks to the recent passage of a new law foreclosure auctions in Illinois have been delayed but not cancelled. It is apprehended that the number of default notices will continue to increase.

During the past three months in the Chicago region the default notices had dropped because of decrease in the number of filings for a period of 30 days that started from last April. The default notice is the first step in the foreclosure process. But once more foreclosure numbers are rapidly rising.
In Chicago region the default notices in April shot up to 5,539. In May it dropped sharply to 1,694 default notices but again in June it went up to 3,468. Experts are opining that the trend of increase will continue.

In the early part of April Governor Quinn inked into law Homeowner Protection Act. It bans foreclosures from starting within the first thirty days of the loan becoming delinquent. It also stipulates lenders to communicate to the borrowers that they have a grace period of 30 days within which to work out the loan working through an HUD approved housing counselor.

Geoff Smith of Woodstock Institute said, “The 90-day window is good but only good if you can help the borrower get into a better loan and theoretically that would be through the (federal loan modification) program.” Referring to the grace period he noted that it “seems to have achieved its goal of delaying the foreclosure process. What happens next is where the big question mark is. Are those people, whose foreclosure was delayed, are they now getting the help they need?”

Earlier in August the Treasury had noted that merely 9% were eligible for reworking of loans. Delinquent homeowners are being asked to avail of a trial period of three months to show their capability of being current with the newly worked out loan terms as laid down in the Home Affordable Modification Program.
The Department of Financial and Professional Regulation of the state is getting about 2,000 calls per months from the borrowers who have received notices relating to the grace period from their servicers. They are trying to locate a bonafide counselor. The problem is that there are not enough counselors to handle the mounting requests.

In July there were 14,524 initial default notices, auction sales and bank repossession on properties in Illinois – 35% more than in June according to RealtyTrac. Of these 6,770 were default notices. In June there were 3,648, default notifications, 3,139 default notices in May and in April 6,407 default notices. The bank repossessions numbered 3,700 in July.

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Mike Shannon is a Detroit real estate broker and specializes in foreclosures in the city. In the past couple of months he has picked up 10 fresh clients from outside the state who are making bulk purchases. They want to buy up 50, 100 or 1,000 units – eager to snap up each and every decent bit of property going cheap that they can locate.

The foreign buyers are the recent among a long line of purchasers taking over the falling housing stock of Detroit – a city that had been a might centre of the automobile industry and boasted of the maximum number of owner occupied homes in America. Unlike many other jumbo cities, the single-family houses dominate the scene here and not the high-rises.

The buyers coming from abroad are attracted by the huge volume of vacant houses available for extreme low prices – much lower than anywhere else.

The poor housing mood of Detroit has impacted on the sale of HUD houses. The average price tag of these houses has fallen to $8,692 from $46,702 in 2008. In January 2009 it has dipped to $6,035.

However this is not the picture across the entire real estate market of Detroit. For instance a seven bed roomed Tudor house in Indian Village is asking a price of $849,900. A penthouse condo in Albert Kahn Building is asking $765,000.

The population of the city has dropped to half since 1950 and there are no signs of it picking up. The winners in this drama could be the renters who have settled in the houses of bonafide landlords. The losers are those who have fallen into the clutches of dubious ones who have no right to let out the premises. Those who have managed to cling on to their houses in this foreclosure climate will benefit with neighbours moving in to reside but the cost they will be pay is a further fall in their own property prices.

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The investor must first plan what to do with property after having made a thorough search about liens and deeds. A cashier’s check must be ready in case the bidder turns out to be the winner. Then one must be prepared for a shock because properties are often yanked off the shelves at the eleventh hour for many reasons – the main one being an agreement between the lender and borrower. This is all part of the foreclosure game.

Having crossed this zone if finally the buyer does land up with the property then other problems might pop up – the occupants might have to be evicted and extensive repairs might derail the budget.
Hannigan attracted both seasoned investors as well as novices beginning to toy with the idea. Jerry Tagliaferri is new in the field having just recently got a real estate license. The falling real estate market edged him on to try his luck at foreclosed auctions. He has been regularly attending auctions but comments that most of the foreclosed houses hardly get any bidders. It then becomes REO or property of the lender. The few units that do have some equity left over and above the loaned amount are fiercely fought over. Tagliaferri was lucky to win a four-hour free discussion with Hannigan. The latter usually charges $250 by the hour while training.

Another listener was Jim Pollina who drove down from San Luis Obispo County to listen to Hannigan for the third time. He was amazed to note that many people slipped into foreclosure even when there was equity on the house. The point is to spot these goldmines.

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The highest bidder will take over about 152 acres short of the actual clubhouse, situated on Oxford Road. The house is specifically exempted from the foreclosure notice. Apart from the sprawling golf course the property also includes a swimming enclosure, tennis courts – all amounting to a heated area of about 22,000 square feet.

The total value of the property is over $3.9 million as per records with the break up being $1.44 million being land value and $1.4 million being value of building. $1 million is calculated to be value of extra features. In 1986 it was sold for $1.75 million.
The Brook Valley Country Club with its golf course made its debut in 1966. The East Carolina Bank is handling the foreclosure. It remained non-committal and excused them by saying that they are legal hurdles about discussing without seeking the permission of their clients.

The foreclosure auction notice said that a cash deposit not more than 5% of the amount of the bid or $750, whichever is greater would be required at the time of the sale. If an upset bid is filed within 10 days then the offer will be made to one who bids the highest.

With such a giant like Brook Valley Country Club facing the anvil at an auction the question that rises to the forefront is the reason for this turmoil on the socio-economic front in general right across the country. Experts and analysts are huddling together with explanations but no magic solution has been found as yet. The prime blame is being made on the sub-prime market, which made easy money within everyone’s reach. When interests rose, so did delinquencies, foreclosures and auctions. The government is trying remedial measures. One has to wait and watch.

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There are so many investors in the fray that classes and courses are being held to show them the ins and outs of foreclosure auctions. Bobby Gaines is the Director of one such unit teaching novices about tricks of the foreclosure game. The classes have become extremely popular with packed lecture halls. Future dates are all booked up.

Foreclosure sales are also termed distressed sales. By this legal step the mortgagor loses all his rights to redeem the property. The rules of foreclosure differ from state to state. In Georgia the lists are published in newspapers four consecutive weeks prior to the sale with relevant details like location, date, debt amount, names, deed book, page of security deed etc. Here it is a non-judicial process and is speedy since it does not require the signature of either judges or other officials.

Gaines explains about three types of opportunities investors have. These are pre and post foreclosure sales and REO or Real Estate Owned sales. It is best to opt for the pre-foreclosure sales because of less competition and more properties available for comparison. There is the possibility of closing directly with the attorney and less initial cash payment. The sellers are keen to sell off and avoid the stigma of foreclosure. On the negative side, junior liens are not wiped out. Real estate agents are the best advisors on pre-foreclosure sales.

A foreclosure sale in the courthouse wipes out junior liens. The opening bid is inclusive of total debt, late fees, penalties and legal fees. Certified cheques have to be kept ready.

REO’s are not courthouse sales. Banks and lending houses avoid it because the federal authorities frown on it. They are not many to pick and choose from and are listed by insurance agents. A regular attorney can complete it and the units are bought on the basis of as-where-is.

The investor should consider the problem of repairs and hire professionals for appraisals. The Internet is unreliable for title searches. Other real estate, legal and insurance, tax etc professionals should be taken into confidence to make the best bargains with equity.

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For a new comer trying to carve a niche in the real estate business the Sheriff’s auction can be challenging. The amount has to be paid in cash or certified cheque right there and then. In the other kind of auction there is the option of going for mortgage financing.

Ralph Roberts has founded a brokerage firm in Detroit area and co-authored a book dealing with foreclosure investments – ‘Foreclosure Investing for Dummies’. He suggests that the buyer should first do a lot of research on the property well ahead of the auction date. This should include a visit to the city hall to hunt public records in the building department to find out first hand if there have been any violations of building rules.

A check out on the property if possible will answer queries about vacancy and if it is in an acute run down condition. There is the clause of ‘reserve’ to be seen to. It is the minimum price the seller is willing to agree. But until the bid is done nobody will know about it. In an ‘absolute’ auction the highest price is sure to win. It will not be unwise to spend about $350 or so to engage a valuer to appraise the property. Having gone through these steps the potential buyer should now think clearly about what is the maximum price he or she is willing to offer. Having reached the number it is necessary to stick to it without vacillating.

Roberts also advises the buyer to opt for a buyer-broker agreement with a property agent who will give advice about the auction operation in return for a commission. The latter is about 3% of the purchase value.

Despite this groundwork the presence of someone known and trustworthy will help during the actual time of the auction so that the buyer does not lose his cool and bids for more than what was initially planned.

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The strident appeal has come straight from President Bush and also from Federal Reserve chairperson, Ben Bernanke. They assured of standing beside those who had been trapped into teaser loans. Bush spoke of a plan to permit government housing administration to try to help besieged borrowers keep home fires burning. It is not just a mere coincidence that the joint statement is made a day ahead of a hearing of sub-prime collapse before US House Financial Services Committee.

Foreclosure figures are alarming. These point to worse days ahead. Nearly 1.3 million sub-prime mortgages is about to reset to higher rates this year. In the following year another 1.2 million will follow suit. It is the combination of high interest rate and low property value that has caught house owners unawares. Late payments and or debts rose to more than 14% during the first quarter of 2007 – making it the highest in four years. In July this year the number of foreclosures across the country doubled from what it was last July.

Sub-prime mortgage agents themselves are in trouble and many have been forced to down shutters as credit supply from investors has begun to dry up. Many jumbo lenders are desperately trying to contact borrowers for their own interests. For the lender foreclosure procedures are time and money consuming. Idle property is dead weight. They want money to trickle in. Generous options about refinancing and modifying rates are being made with Wall Street averse to real estate business.

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The detailed picture is not the same everywhere. According to experts a tendency to be noticed is that 90% of the owners with loans of $250,000 or less are worst affected. As yet the giant loans are sitting pretty. This is the picture in North Texas. Foreclosure listing sleuths are tracking details of more than a dozen Texan Counties came to this conclusion. This has been the tendency during the last three or four years. It is not that the low priced houses are more in number. During the first nine months of this year nearly 31,000 units valued around $4.5 billion are up for sale by the lenders. It reads a 12% rise in numbers and 19% in value during the same time period in the previous year – 2006. This year the loans that are being foreclosed started its loan history in 2003.

In Dallas Forth Worth the house loans were in the kitty of the nation’s giant mortgage firms – Fannie Mae and Freddie Mac. Less than 2,000 of the foreclosed units (6% of the total) came from house owners defaulting on the equity loans of their properties. Specialists opine that the effect on real estate is not that bad as anticipated. These still represent a fraction of the market.

Of the foreclosure units only about 1% during the first nine months of 2007 were for properties worth more than $500,000. But soon the picture might change for the worse with lenders asking for more interest. It might very well cause the number of the big loans sliding into foreclosures to rise. There is much talk and speculation about these jumbo loans. Builders are putting their heads together and trying to find out which way the wind is blowing.

Via

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It is apprehended that nearly 1.7 million houses will soon be tainted with foreclosure. The affected will be desperate trying to save their home and hearth. In the melee they will catch on to anything – even a straw. Here lies the danger. The wolf will knock wearing grandmother’s clothes. Beware!

The bureaus are flooded with complaints from foreclosure victims who reached out to questionable foreclosure rescue companies. The whole thing is another scam. In the last three years there have been 111 complaints.

The usual mode of approach is that these crooks first make contact over phone or mail. Sometimes they make themselves available on the web where they make tall claims about refinancing loans and stopping foreclosure procedures. The bait is that they promise to return fees if the services are not properly delivered. Desperate sufferers had paid as much as $1,300 only to come up against a blank wall – no redress and no refund.

Better Business Bureau gives the following tips to foreclosure victims. They should immediately contact BBB over phone or through Internet and ask for a Reliability Report, which is free. Without this report no payment should be made to anyone plying a lifeboat.

The other option is to check the rescuers credentials with the office of the Attorney General. In general one should be cautious about the personal approach like a handwritten note popping out of the mailbox or under the front door. The language will be gushing and flowery about help being at your doorstep. The tone is that only your interest is on their minds!

The best thing is to directly approach the lender. Negotiate with the mortgage company.

A legal document should never be signed under duress. Especially be cautious about trusting smart talkers and signing away your property rights. Before putting your name on the dotted line consult a family member/friend, lawyer or financial expert. Give them time to scrutinize the paper.

If the feeling persists that the ‘rescue’ team has duped the victim, do not hesitate or delay but immediately contact BBB or any recognized government body. The authorities are alert about these roving wolves baring fangs underneath granny’s bonnet.

Via

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