Foreclosures Sell at Biggest Discount Since 2005 as Demand Slumps

It is the last month of 2010 and about 3 years since the housing economy collapsed.  We are in full swing of a great recession and the housing market has not recovered.   I believe we are still in a downtrend with prices still sliding.  For those of you who have sat out the market that is a good thing because bank REOs are abundant and inventory will continue to grow.   That in turn will drive prices down into more affordable deals and an overall better value.

Bloomberg:

U.S. homes in the foreclosure process sold for about 32 percent less than non-distressed properties in the third quarter, the biggest discount in five years, as buyer demand slumped, according to RealtyTrac Inc.

The average discount for bank-owned real estate, residences in default or those scheduled for auction rose from 29 percent a year earlier, RealtyTrac said in a report today. A quarter of all U.S. transactions involved those types of homes, according to the Irvine, California-based data seller.

Sales of foreclosure properties plunged 31 percent as the end of a buyer tax credit reduced purchases overall, RealtyTrac said. The decline came before loan servicers including Bank of America Corp. and JPMorgan Chase & Co. halted some home seizures amid claims that employees processed thousands of documents without verifying them, a practice known as robo-signing.

Banks and foreclosures

A new hiccup for banks have come up in regards to how they have been handling their foreclosures and REOs. This video summarizes the issues.

Another Jim the Realtor video look before you buy

Tinting windows

OK, got another project finished. This was an easier one to do and I am glad I got it done. I watched numerous videos on youtube before trying it. This one is simple and explains it well.



I still wound up messing up the first tint and with the help of my wife successfully installed it the second time.

Two more Jim the Realtor videos

I actually enjoy watching Jim the Realtor videos because he is frank about his assessments. Also, he shows stuff home buyers would be interested in. Just like these 2 videos.

Another Jim the Realtor video

I like to follow Jim the Realtor because he seems to be one of the few agents who can make a living and be honest about what he does. Check out his latest video:

Jim the Realtor video 02.16.2010

One thing I like about Jim the Realtor is he puts out great videos of properties and gives his honest assessments on the price points.



He is in the San Diego county and lots of the houses in his videos are in great neighborhoods. Many of them are bank REOs.

More Bank REOs on the horizon

During the process of searching and bidding on bank REOs, I felt like the banks and real agents were not being truthful. They always tried to build this fake sense of demand. A property that has been listed for 6 months with no offers would all of a sudden get a lot of demand when I inquired about it.

I could understand if it was just one property, but it seemed like the housing market bottomed by the way everyone was talking to me. They all made me feel like I missed the train. At the same time, the news headlines were indicating the housing inventories were rising. What a disconnect, right?

So if you are looking for a bank REO just keep at it. It does require a lot of patience, follow up and dealing with people lying to you all the time. Again, inventories are expected to continue to increase.

Wall Street Journal:

More waves of foreclosures will keep downward pressure on home prices in parts of the U.S. over the next several years, two new studies project.

The studies—by John Burns Real Estate Consulting Inc. and Standard & Poor's Financial Services LLC—both conclude that most efforts to modify loans with easier terms will delay, not prevent, the loss of homes to foreclosure.

The Treasury Department is expected to give its latest update this week on government efforts to avert foreclosures.

The John Burns study estimates that five million houses and condominiums on which mortgages are now delinquent will go through foreclosure or related procedures that put them on the market over the next few years. That would represent the bulk of the estimated 7.7 million households behind on their mortgage payments.

This "shadow inventory" of homes expected to hit the market is enough to last about 10 months, based on the average sales rate over the past decade, the Irvine, Calif., firm says.

The problem is largely concentrated in Arizona, California, Florida and Nevada. The shadow inventory is equivalent to 27 months of sales in Orlando, 24 months in Miami and 18 months in Las Vegas, the study estimates.

Over the past nine months, home prices as measured by the S&P/Case-Shiller index have increased modestly after a three-year plunge. That is largely because efforts to avert foreclosures have slowed the flow of foreclosed homes onto the market, temporarily constricting supply.

John Burns, chief executive of the consulting firm, said investor demand for foreclosed homes remained strong. Thus, he said, prices were likely to be about level over the next few years, despite the looming foreclosure supply, if the economy continued to recover and mortgage interest rates didn't rise sharply. But if the economy slumped anew and interest rates jumped, he said, "that's going to cause prices to fall further."

The S&P study also says that the "overhang" of foreclosed homes expected to go on the market points to lower home prices.

Some borrowers are catching up on payments after having their loan terms modified, but S&P says current trends suggest that 70% of such borrowers eventually will redefault.

House Hunters Running out of room video

House Hunters is a good informative show that lets you look at the buying experience of others. They basically explore many homes and show the highlight the best 3 choices. I think you will find it enjoyable to watch.

My First Place videos

I think there are a lot of things to be learned from these shows on TV. Fortunately, they have made them available to watch online. Even though these are not Bank REOs, they still go through the same process of expectations and frustrations of the house purchase.

Watch, learn, and enjoy.

Banks have Big REOs too

Most people think that bank REOs are all run down little shacks that need to be fixed up. Maybe in the old days that may have been true. In California, even mansions can become bank REOs.

Check out this Jim the Realtor video:

A monument to the bubble excess - this was built as a personal residence with the intention of turning it into a drug and alcohol rehab facility, but didn't bother with getting a conditional-use permit first. Then she pitched it as an investment opportunity, but got shut down for offering unqualified securities. According to an article in the NY Times, she spent $13 million building this house, only to lose it to foreclosure. Today's list price? $2.7 million.

The process of foreclosures becoming bank REOs

How do these homes become bank REOs? I know with all this stuff on the news headlines, it is assumed everyone know. The truth is there are different processes of how a bank takes possession of real property that is secured by a mortgage or trust deed.

This site How Stuff Works covers the process in a simple way.

Once you fall three months behind, things get serious. This is typically when most lenders will begin the foreclosure process in one of two ways: judicial sale, which requires that the process go through the court system, or power of sale, which can be carried out entirely ­by the mortgage holder.

All states allow judicial sale, while only 29 allow power of sale. If your state allows power of sale, the loan papers will usually have a clause that says this method will be used. Power of sale is typically faster than the judicial route. Let's look at both methods.

Judicial sale:

• The mortgage lender will file suit with the court system.
• You'll receive a letter from the court demanding payment.
• Typically, you'll have 30 days to respond with payment to avoid foreclosure.
• At the end of the payment period, a judgment will be entered and the lender can request sale of the property by auction.
• The auction is carried out by the sheriff's office, usually several months after the judgment.
• Once the property is sold, you're served with an eviction notice by the sheriff's office, and you must vacate your former home immediately.

Power of sale:

• The mortgage lender will serve you with papers demanding payment.
• After an established waiting period, a deed of trust is drawn up that temporarily conveys the property to a trustee.
• The trustee will sell the house at public auction for the lender.
• Many times, these foreclosures are subject to judicial review to make sure everything was carried out legally.
• There is usually a requirement for the lender to post a public notice of sale for the auction.

Both types of foreclosure require that any other involved parties be notified of the proceedings. For instance, if the homeowner took out another loan against the house with a third party, that lender must be contacted and its loan amount must be paid from the auction's proceeds. If the third-party lender isn't paid, it can apply the mortgage to the new property owner. Many times, the lender will actually buy the property back and attempt to sell it through the real estate market at a later date.

There can also be deficiency judgments made against the borrower if the sale of the property doesn't satisfy the amount of the loan. The entire difference between the two can be required, although some states only require that difference between the fair value of the property and the loan amount be paid.

There's one more type of foreclosure that's almost completely obsolete, called strict foreclosure. In these cases, once judgment is made on the lawsuit, the property is automatically assumed by the mortgage holder. Only Connecticut and Vermont still allow this practice [source: Realty Trac].