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].

Bidding on Bank REOs on the Court Steps

This is one of the ways to buy on a bank REO that I have not tried or attempted to do. They literally hold auctions on trustee sales at the court house steps. There are many people who bid and buy this way.

Jim the Realtor has a few videos from an investor Adam who does bid and buy on a regular basis and shares his insights. According to Adam, he has successfully bid and won on 7 properties. This is very good information and I think Jim asks some great questions for anyone who has thought of trying to buy through this process.



Jim TV Adam Part 1



Jim TV Adam Part 2




Jim TV Adam Part 3

Bank REOs from a real estate agent's point of view

Jim the realtor has a bunch of youtube videos of bank REOs that are about to hit the court steps for auction. If you listen to him in the video, he will give you the stats like square footage, opening bid, etc. Enjoy.

HOAs that default or go bankrupt

When we searched for a bank REO, a concern was the home owners' association (HOA) being in default. The HOA basically covers the exterior common areas as well as security for guards. I looked this up on the internet and really couldn't find any information.

One reason why this HOA was a concern is lenders were not lending on many condo and planned communities that had HOA in default or arrears. The banks did some kind of preliminary report that showed how many condos are owner occupied vs rented as well as how many properties had notice of defaults(NODs) filed or already bank owned (REO). Most of this information is not readily available online, so you don't learn about this until after an offer is made.

We did visit some condos and master planned communities and you could physically see the maintenance wasn't being done. I just found this video and this is what inspired me to revisit this issue on HOAs.



Where did the Billions in Bank Bailouts Go? - Sand, Dirt, Fines & Ghost towns

Newport Lofts in Las Vegas

During my search for my first bank REO, my wife made a special trip out to Las Vegas to check out this highrise bank REO. It was the first one owned by the bank at that time. I think the prices were in the $180,000 range for a studio on a high floor for a resale and brand new lofts at the time were still in the $300,000 range.

One day while looking at my regular real estate sites I check out, this bank REO came to market at $131,000 and I thought this is a steal. I called the real estate agent up and set up an appointment to be there in 2 days and to sign a contract after looking at it. When we arrived that day, the real estate agent told us that an offer was already made and it went to escrow. My wife and I were suspicious but also very disappointed.

This is what the condo loft looked at.



My dream loft stolen

There was a second loft that went to the bank about a month later and that also had an offer on it before we could look at it. We did look at 3 other lofts during our initial trip and thought they were great.

I look back now and think my wife and I got lucky because we found something much better in a great location. That building never sold out and the flipper who bought the condo loft wasn't able to rent it out and has it up for resale. At that time that was a crazy price. Now most of those lofts are about just above $100,000 with a few that are listed just below at $85,000. We would have probably had a paper loss of about $50,000 in one year.

Other issues that have come up are the HOAs there might increase or could possibly go bankrupt because the building looks to be less than 20% sold or occupied. I heard the actual building went back to the bank. Then I read the bank filed for bankruptcy. Anyways, sometimes blessings are in disguise.

I hope that helps you in your search.

Where are the Bank REOs

I have always suspected the banks were withholding bank REOs for accounting purposes. I ran into this video and it makes things more clear now. Check it out with these local agents explaining why the change.



Las Vegas Real Estate Update-Where are all of the bank owned properties?

Getting your first Bank Reo is now more competitive

The $8,000 tax credit is set to expire soon. So I think this is causing a frenzy for people to get a bank REO like yesterday. There are still a ton of bank foreclosures out there, but this is creating some high demand.

Check out the article below from someone else's personal experience in finding a Bank REO. They weren't successful in getting a bank REO and the frustration forced them to get out of the race. They decided in the end to buy a brand new home from a builder.

Lunacy in Las Vegas Housing

But back to Katie. Her Realtor, who is also an old friend, emailed Katie the following warnings before her arrival on the Vegas strip:

- This market is crazy and many things are just not going to make any sense.

- I can guarantee you 99.99% of the listings emailed to you will no longer be available by the time you get here.

- Properties are selling in the blink of an eye.

- Properties are getting multiple offers within a few days of being on the market, the most offers I’ve heard a house had recently was 44 offers (I know, crazy).

- This market is crazy and many things are just not going to make any sense.

- 40% of all transactions are cash purchases, which makes it harder for the buyers who are financing to get their offers accepted.

- We have 1/2 the inventory we had a year ago and 4 times as many buyers as we did a year ago.

- Chances are we will have to submit several offers to have the chance of getting 1 accepted.

- This market is crazy and many things are just not going to make any sense.

- You will probably leave not knowing if you have a house or not because banks take 2 to 3 weeks to respond, because this market is crazy… you know the rest.

I'm guessing you noted the crazy part. Katie is looking in the $150-200,000 price range. Despite the warnings, Katie was completely unprepared for what she found. In seven days, she saw 50 homes. All but one were foreclosures.

But here's the crazy part:

"We went to a home that had been on the market for one day, and the key was stolen out of the lock box. Our Realtor said immediately, 'You want this home.' She told us another Realtor had stolen the key because they wanted their client to get it. So what did my Realtor do? She broke in. And sure enough this was the home we fell in love with. It was on for $132,000 so we decided to be really aggressive and offered $160,000, plus we had government backing on our loan. Well our Realtor called that night and said, 'You're not going to get the home. They got 30 offers and half are cash offers, so the bank is not even going to look at you.' The banks just want the cash to unload these places."

My first bank REO and laminate flooring

I just came back to post another post and noticed the pictures of my laminate floors are gone of my previous blog post. I decided to repost them and hopefully I will have done a proper job this time.

The floors are excellent. I still enjoy the appearance of dark wood floors. The only thing that needs to be finished up is the molding at the base of the base boards. Once that is done the job will be complete.

On a side note, when we purchased this bank REO it did come with the appliances. All stainless steel appliances as you can see in the picture.










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Laminate floors installed

It's amazing how wood floors can make a difference in our new home. I love the way it looks and it turned out well. We purchased the laminate wood floors online and it was delivered in a pallet. I was overwhelmed when we first got it. It was 1800 pounds and they could not bring it to our floor, so I wound up opening up the pallet in the garage and carrying each box up with the help of our 4 wheel dolly. Thank goodness.

The wood laminate we used was dark striped, ac 5 rating, and the dimensions were plank size 50 23/32″ (1288.29mm) x 7 3/4″ (196.34mm) x 15/32″ (12mm) . With the flash it looks light sometimes but the color is closer to espresso or wenge.