Foreclosures way up. Good or bad for investors? - Posted by Ivan

Posted by gerald(tx) on July 12, 2007 at 14:02:15:

Glad you escaped the water damage. It sounded terrible listing to the news.

One thing I have noticed lately. A lot of lenders are not prodding the defaulters along for 8 or 9 months the way they were a couple of years. I’m finding the lenders are giving their workout department one shot. If there is nothing there, it’s off to the trustee sale. Not this fartin’ around of the past.


Foreclosures way up. Good or bad for investors? - Posted by Ivan

Posted by Ivan on July 10, 2007 at 22:28:37:

Hi, I posted in Financing section as well.

I’m sure you’re all following the news about the number of foreclosures. I’m moving to Alabama where foreclosure rates rose 27% over this time last year. AL is now 29th in the number of foreclosures.

Is this good for investors? Will it provide more opportunities to obtain properties “subject to” the mortgage. Or is falling home prices and more bad foreclosure news a warning to stay away for now?

I’d enjoy some opinions and advice. Everything I see on CNN and CNBC is very grim.


in answer to the “loaded question” - Posted by Jarid- Fl

Posted by Jarid- Fl on July 11, 2007 at 17:31:39:

I think if your market is loaded with foreclosures… you better buy right. That means…it might pay to just buy and hold. This storm may take more time than expected to wash out.

If you can make a positive cash-flow of 20% cash-on-cash return…then i say…got for it.

Stil a bit early - Posted by dealmaker

Posted by dealmaker on July 11, 2007 at 06:33:01:

Bankers, like everyone else have short memories. I lived through this in the 80s in Houston. I think we’re about a year away, maybe more, from seeing any noticeable drop in prices. Your neighborhood may be worse though.

Nationwide the average cost (to the lender) of a foreclosure is about $73K, yes SEVENTY THREE THOUSAND. As more of them snap to that they will become a little looser with short sales.

For now the best deals that I can see (looking at several markets around the country) are;

Newbie “investors” who learned about the big profits in “preconstruction” and put big deposits on places that have dropped 25% now that they’re near completion. And,

Builders who are sitting on completed inventory and are getting hammered as their constructio loans turn over each month.

I recently looked at a completed new house, the “investor” had put 10% down, closed and was sitting on a $1700/month P&I, without the cash to landscape or do window coverings.

We’re somewhat interested as our next home, so we’re considering making an offer based on him finishing the yard and windows (he’ll have to do it on credit cards-if they’re not full). I might be able to cut a better deal with the builder, but this is a nice floorplan on the 5th tee box!

Or we can wait, which is what I advise people. Most markets I’ve looked at have DOM going up, listings going up and monthly sales going down. The market we’re looking hard at has 14 months of inventory at current rates! Shweeeet!


Its both good and bad… - Posted by David Krulac

Posted by David Krulac on July 11, 2007 at 04:13:14:

there was an interesting article in the Washington Post a week ago Sat about foreclosures. In the article people complained that there were neighborhoods with multiple foreclousres that were eyesores and being right next door to some body trying to sell a nice house. Secondly the selling prices for the foreclosures will be lower therefore lowering the comps for properties. So if you’re a seller foreclosures could hurt you, if the house next door to the one you want to sell has waist high grass, peeling paint broken windows, junk cars on the property and in general run down and trashy.

But if you’re buyer the increased numbers of foreclosures can mean more opportunities to buy properties at lower prices in all stages of foreclosures and could even mean lower prices and lower seller expectations for non-foreclosure home sellers.

Besides the foreclosure rates other market conditions have turned markets in many areas fron seller’s market to buyer’s market’s. When that happens you gain an advantage being on the buying side and lose some being on the selling side. Just like 2 years ago it was a seller’s market and being a seller was a very profitable place to be, but being a buyer was not so good with multiple offers, and properties selling for more than asking price.

Re: Stil a bit early - Posted by Gene

Posted by Gene on July 11, 2007 at 07:48:17:

>>>>>>>>>>Nationwide the average cost (to the lender) of a foreclosure is about $73K, yes SEVENTY THREE THOUSAND.>>>>>>>>>>>

Where did you get this number from? I don’t disagree with it I am just curious.

In my are foreclosures are thru the roof. Almost all of them are going back to the bank because the owners were so upside down.


Re: Its both good and bad… - Posted by Rich-CA

Posted by Rich-CA on July 11, 2007 at 21:31:54:

If you’re next door to a foreclosure and selling, I would suggest mowing the lawn so its not waist high. It might even be worth the effort for a few other fix ups, just enough so it does not degrade the neighborhood but not enough to really cost.

Re: Its both good and bad… - Posted by Ivan

Posted by Ivan on July 11, 2007 at 09:02:06:

In the area I currently live in - Upstate NY, Poughkeepsie there is a flood of inventory. For sale signs everywhere. Everyone’s trying to sell and the buyers are few. I can’t see any of these sellers making money unless they just hold out for a year or two before they sell.

These sellers are going to have to accept some form of creative financing if they want their price. Even then prices are still dropping.


Re: Stil a bit early - Posted by dealmaker

Posted by dealmaker on July 11, 2007 at 13:44:56:

I heard it on Clark Howard’s radio show a few months ago. I tried researching on his website but couldn’t find the exact number, but I do recall it being + or -$70K.

When you figure in the legals, clerical, getting it “market ready”, keeping up the yard, and the HOLDING PERIOD, it sounds pretty right. Add to that the neighborhood is already, or is going to drop due to the increasing number of foreclosures.

Back in the '80s in Houston I had a couple of friends start businesses doing yard work and mowing (which is a 9 months out of the year thing in Houston)in two cases and another one who set up a side business just to keep the windows clean on all the strip centers that his company was managing for the RTC.

Yeah and eventually the banks are going to have to sell because the RE is a LIABILITY to the lender and the loan was an ASSET. Big change in their position when an asset changes to a liabiltiy overnight.



a year or two? - Posted by Kristine-CA

Posted by Kristine-CA on July 13, 2007 at 08:28:59:

Where do we get these time frames? What’s gonna make Poughkeepsie
come back in 12 months? Not that it won’t…never say never. But what
are the variables that are gonna change in 12 months? Kristine

maybe… - Posted by gerald(tx)

Posted by gerald(tx) on July 11, 2007 at 21:24:41:

$70k kinda of floored me, but I could see that with a high dollar home in one of those judicial foreclosure states where it takes nearly a year to complete the foreclosure process.

I would guess an average house in our state with a fast turnaround foreclosure wouldn’t run over $20k.

I think this relates to our Texas lenders not bending too much on short sales. They can foreclose so fast, then immediately list with a realtor as an REO and get nearly retail.

BTW, how did you fare with all that water in your hometown? Okay, I hope.


Re: Stil a bit early - Posted by Gene

Posted by Gene on July 11, 2007 at 15:31:16:

I would guess that number would also include “opportunity costs”.

Thanks for the reply.

Interesting stuff


Re: maybe… - Posted by Kristine-CAq

Posted by Kristine-CAq on July 12, 2007 at 15:17:56:

A 70K loss doesn’t floor me. I don’t know about the accuracy of that
number, but it sure makes sense where I am. The bulk of loans
foreclosing in my area were subprime 80/20 made in 2005.

On the average 250K house, the lender will be getting nothing on the
2nd, so there’s a 50K loss right there. Add the legal services of the
trustee for foreclosure, the management service for an REO, the
commission to sell and closing costs on the re-sell…adds up fast.
And what about when it sits on the mls with no takers (as they are
doing) because the same investors who didn’t buy it trustee’s sale
aren’t buying it now. REOs are just beginning to show price reductions
on the mls where I am.

I’m not sure how soon the lenders will be working short sales as a
proactive measure, though. Kristine

Cost of foreclosures - Posted by dealmaker

Posted by dealmaker on July 12, 2007 at 01:53:53:

I’m not sure how it broke down on the actual cost of doing it, versus the ancillary stuff-holding, maintaining etc. I asked a local banker this a month or so ago and he said he didn’t think it was as high as $70K but was hard to tell.

I’m sure a lot of it is also driven by price range. We still have some houses here for between $60K-$100K FMV, but also have some $4.5MM, in the same zip code. More of the trustee sales are in the lower price homes. Of course despite the quick trustee sale process, the bankers still typically take 6-8 months of “dire warning” letters before actually doing something.

Personally had no damage, although one of our trash cans is somewhere on the Colorado, probably wedged up against Starke dam, along with several boats, ski doos and a couple of hundred of the big blue roll around trash hoppers that BFI uses in some residential neighborhoods!

Several friends got water in their business, and a couple got water in their houses. Some rail cars got washed partially off their tracks and some RR tracks got washed 10 feet off the rail bed!

Golf courses all look great now though. Thanks for asking.