The sub-head, Couple dismiss Realtor’s warning, sees potential in foreclosure, probably made some of my colleagues cringe, but the Commercial Appeal real estate feature last Sunday reported an owner-occupant foreclosure purchase success story.  My clients got a good deal on a solid house, and overcame the obstacles I had warned them about.

Many home buyers feel that foreclosed properties offer the best “deals” in real estate, but few are prepared to deal with those 2 little words, “as-is”.  It is my duty as a representative of home buyers to point out the downside of any property purchase, as well as emphasizing the amenities and advising on value, financing, and the entire purchase process.  I write this post from the point of view of an agent who represents owner-occupants and not investors.

Purchasing a foreclosure is different in many ways from a normal sale.  If you are considering purchasing a foreclosure as an owner-occupant you need a agent who understands the processes for the different types of  foreclosures:  Bank, Fannie Mae, VA, HUD.  They are all handled differently by the sellers.

Some basic points to discuss with your agent:

Financing – Things are simple if you are a cash buyer.  You are not likely to be able to get a standard conventional or FHA mortgage on most foreclosed properties, generally because of condition issues.  There is usually no negotiation on repairs, damage, or missing items, which underwriters require to be remedied before granting a loan.   If you can qualify for an FHA loan, a good alternative is to look into the FHA 203K loan that allows you to finance required repairs and complete them after closing.  Fannie Mae’ Home Path program also has some useful financing alternatives.  Look into financing options BEFORE you start looking at foreclosures or any properties.

Value – Foreclosures often go on the market at prices comparable to recent normal sales.  The longer they are on the market the lower the price and the more negotiable the seller usually becomes.  If you are going to take an “as-is” property and go through the process, your agent needs to give you assurances that, indeed, you are getting a good deal.

The Offer – Different sellers have different processes for submitting offers.   HUD has a blind bidding process with a strict time frame and rules; VA requires using its contract which offers the buyer very few rights.  Agent experience is critical in submitting and following up on offers and guarding your rights.

Inspections – Once you negotiate a contract, you are responsible for all inspections on the property, including turning on utilities and turning them back off per seller specifications.  Be sure and complete all inspections within the time period stated in the sales contract.  Get the best inspectors you can find.  After the inspections, it’s your choice to take it or leave it.

Contractors / Repair people – For a lot of folks, do-it-yourself only goes as far as painting.  Your Realtor should be able to suggest some contractors, plumbers, electricians, etc. work with you as necessary.  It is probably a good idea to get the to have a look during the inspection period to get an idea of costs you might be facing in the future.

To be very honest,  most foreclosure transactions are pretty much of a hassle in one way or another.  So my advice is Be Patient and Be Prepared!

Good luck!

Related articles

• FAQ’s about HUD Properties (realtorkaera.wordpress.com)
• Bargain Hunters Can Make Themselves at Home in Foreclosure Segment of Metro Chicago Real Estate Market, Reports RE/MAX (prweb.com)
• Luxury home foreclosures a deal for well-heeled (planbmortgageblog.com)

Joe Spake is a Memphis, Tennessee based Consultant, Real Estate Broker, and Blogger. Call 901.214.5563 for a consultation or click to make a social connection.
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I try to find articles that paint a true a true picture of the real estate market.  Everyone I talk to about real estate asks what it is going to take to make the market snap back.   I  read a lot of news and commentary, trying to find honest answers to some of the tough questions in real estate today.  The value of home ownership has been undermined by the mortgage debacle, foreclosures, and what appears to be media advocacy of strategic default.

Here are some interesting articles:

Wall Street Journal article Key to Real-Estate Rebound: Solid Economic Growth

“The housing sector, weighed down by a glut of unsold homes, needs job growth to boost demand and curb the flow of delinquent loans into foreclosure.”

This is a comprehensive article about the many factors impacting the housing market: jobs, demand,housing inventory, foreclosures, politics. A must read.

2 Posts from Calculated Risk

Economics blog, Calculated risk excerpts some rather pessimistic stories  about home prices, stressing the “shadow market of un-absorbed foreclosure homes, and goes into much more detail in Delinquencies and Distressed House Sales.

CC License - photo by Jeff Turner

As a residential Broker, my greatest vexation is “un-absorbed” (unsold) foreclosures.  Banks foreclose on properties, then demand that they be sold “as-is”.  It doesn’t matter if the former owners stripped every fixture out of the house and kicked holes in all the walls before they vacated.  So I have a buyer who is qualified for a loan who would like to get a good deal on a house.  They find a foreclosure they like, but are shot down by their mortage banker who will not finance an As-is property, because the appraisers and underwriters always call for repairs.  So the foreclosures sit there; the bank whittles the price until an “investor” buys the property, at a fraction of market value, dragging down the value of comparable properties in the area, and, house by house, converting the neighborhood from an owner-occupied neighborhood to a rental neighborhood.  I can drive you down blocks in Memphis and ask you to pick out the blocks that are mostly owner-occupied or mostly rental, and you will have no problem doing so.

But there is a solution that would make foreclosures available to owner-occupants, save our neighborhoods, and make home ownership desirable again.

My very simple advice to banks on how they can rebuild the housing market, restore the American Dream, and be viewed as heros:

Banks! Change your perspective on your REO properties.  Do appraiser and underwriter required repairs and sell your inventory of houses to the people who really want to live in them, not rent them out or speculate on them.  Encourage owner occupants to make offers and work with them to get the deals done.  You will probably make even MORE money, and people will love you for it.

What’s your opinion, as a banker, homeowner, home buyer or real estate agent?  Please share your comments.

Joe Spake is a Memphis, Tennessee based Consultant, Real Estate Broker, and Blogger. Call 901.214.5563 for a consultation or click to make a social connection.
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The economics of the recession, the decrease in home values in the aftermath of the housing bubble, foreclosures, and the lack of demand have created ghost towns across America.   Even though HUD is pouring billions into the Neighborhood Stabilization Program (NSP),  it’s too late for many neighborhoods.

Blocks are being bulldozed in Detroit. Condo and housing developments sit abandoned in major cities, including Memphis.   Housing development in boom towns like Las Vegas ground  to a halt.  The glut of foreclosures and abandoned properties in communities that were viable 5 years ago is tragic. I think John Prior’s post on housingwire.com hit the nail on the head with the “ghost town” description.  I had really never thought of it that way, but driving through some of the neighborhoods of Memphis, the term seems quite fitting.

Abandoned Horizon Condos accent Memphis skyline

I spent a long on the phone with a loan officer today trying to figure out a way my young, optimistic clients could buy neglected properties as owner-occupants, but there are very few ways to get past the banks’ requirements of “AS-IS” sales.   Yes, people want at least some of those neglected properties, but  mortgage regulations and underwriter paranoia have made them un-buyable.   Un-buyable, that is, until the price drops so low that they are snapped by investors looking to make a profit in this misery, or until the structures become so run down from lack of care that demolition is the only answer.

What’s the answer?  How do we keep our neighborhoods and towns from becoming ghost towns?  Is there something the government could do that would really be effective?   Or maybe the banks who profited from the bubble, the bail out, and are still making record profits?  I would like to see some programs that enhance  home ownership  - sweat equity credits, incentives for purchasing blighted properties, ongoing tax credits for those willing to help reclaim our ghost towns.  The strength of our communities is rooted in home ownership.  Let’s not just say good bye to Our Towns.

Your comments?

Related articles

• A Florida Housing Development Stalls, and the Cows Move In (dailyfinance.com)
• The Human Toll of America’s New Ghost Towns (dailyfinance.com)
• America’s housing bubble still deflating | Dean Baker (guardian.co.uk)

Joe Spake is a Memphis, Tennessee based Consultant, Real Estate Broker, and Blogger. Call 901.214.5563 for a consultation or click to make a social connection.
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RE-POSTED – originally posted October 12, 2010

It  looks like banks are going to stop doing foreclosures for a while.   Jon Stewart’s  (The Daily Show) commentary on what the banks are up to makes about as much sense as anything else I have seen on the subject.

Related articles

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Joe Spake is a Memphis, Tennessee based Consultant, Real Estate Broker, and Blogger. Call 901.214.5563 for a consultation or click to make a social connection.
If you enjoy this blog, please subscribe to the RSS Feed. 

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Once again Memphis has been named the Number 1 city for foreclosure bargains, the Commercial Appeal reports.  This should send new throngs of out-of-town investors scoping the area for new bargains.  I guess Memphis is just a rental house kind of town.  According to the CA article, “He [Jim Reedy of Memphis Investment Properties] also thinks every Memphis subdivision where home values average $80,000 or below will be primarily a rental market.”

How does that make you feel about being a home owner now, or  about your dream of being  a home owner one day?  Obviously, the investor market will eventually make homes in all price ranges primarily rental markets.  So, not only can Memphis be #1 in foreclosure deals, but also #1 in percentage of rental properties.

Home ownership, and home owners who take pride in their communities, even if they are home owners in areas with values less than $80,000,  keep our neighborhoods and communities strong.  Let’s encourage them!

Related articles by Zemanta

• Memphis rated No. 1 for home foreclosure bargains (knoxnews.com)
• 3 reasons we don’t need another home buyer tax credit (memphisrealestatebuzz.com)
• Stable neighborhoods (commercialappeal.com)

Joe Spake is a Memphis, Tennessee based Consultant, Real Estate Broker, and Blogger. Call 901.214.5563 for a consultation or click to make a social connection.
If you enjoy this blog, please subscribe to the RSS Feed. 

If you use Google+, I have just started a brand new business page. Visit it HERE.