Targeting Foreclosures: Reality

Recently I’ve had an experience with a home buyer who wanted to purchase an undervalued home in a desirable area. Pretty common in this market, wouldn’t you agree? This home buyer, let’s call him George, decided a foreclosure was his target. No problem. Familiar territory for me as I’ve assisted Wells Fargo, Bank One/Chase, Fidelity, BB&T, Ceturian, Indymac, Goodman Dean among others in disposing of these assets.

Match made in Heaven, right?

It wouldn’t be a blog post if it were.

When George contacted me, he was interested in a foreclosed condo close to Vanderbilt University as an investment property. The list price was $187,000 which, for this fairly new condo complex, 1 bedroom/ 1 bath but third floor with small balcony was an aggressive price already. I gathered info from him before agreeing to show it and having a good knowledge of his financing capabilities felt comfortable we could work together on this condo. After seeing it, he wanted to offer $150,000. Low, I told him but the bank might counter if there were no other offers.

There were other offers. I made it clear “highest and best” offer must be next which means the bank has requested everyone who submitted a bid and is interested should now resubmit the highest amount they are willing to offer and the best closing terms.

I have seen where a bank will choose a lower offer from a cash buyer who can close in 10 days with no contigencies.  HUD, Fannie Mae and other programs have a 10-14 day owner-occupant bid when the home first goes on the market meaning they will only consider offers from a person/couple who are buying the home as a residence.

In this circumstance, George was an investor and while we were out of the “owner-occupant” bid timeframe, our offer was not high enough to gain that property.

Over the following 45-60 days, George’s home-buying focus shifted from the investment realm to that of upgrading his family home. As his agent, I informed him that foreclosures were no longer an option as by doubling his purchase price to $300,000 he now had to sell his current home in order to buy.

Asset managers of foreclosed homes will not accept a contengency based on the sale of a property. They understand financing. They will be respective of inspection of the property–don’t expect repairs but if there is radon or termites or foundation failure, the asset manager “gets it.” There is an out. Sale of a current residence doesn’t even make it to their desk.

George was determined. He lived in a very desirable area that would sell quickly. He emailed me the foreclosed homes he was interested in buying.

I checked tax records. When asked about the second mortgage he recently took out on his home, he said it was for investment on his next purchase. Somehow somewhere education of financing in this market had fallen through the cracks. His second mortgage tipped his current home to an LTV (Loan to Value) ratio that would make it hard to clear in a sale with a profit. So his only option was the investment property at a lower price point.

I sent him to this website for alerts:

Yet George had seen an AMAZING home that was purchased in a HOT neighborhood. The owners just paid $300,000! This gorgeous home was foreclosed. It went to Auction. Somebody else bought it very cheap. He wanted to do the same. He got outbid. Find him another.

I knew from the location that this couldn’t be true. There are areas in Nashville seeing very depressed home prices but anywhere close to Green Hills, Belle Meade and Brentwood, even foreclosed properties, only saw relative depression in price, unless they were flooded in 2010. This number couldn’t happen for a gorgeous home near Granny White Pike. And why was George bidding at auction, even before he met me…he was not a candidate for auction. That’s cash buyer, close in 45 days or less. Oh my.

After looking into the mystery property that sold at auction for so very little, I discovered:

1. He was looking at the purchase price of $300,000 from an obscure website (he sent me the link) for the property in 2006.

2. The home was built in 2007.  (so clearly the price he saw of $300,000 was lot value)

3. It wasn’t one home but two residences…yes, you read that correctly.

The purchase price he saw was vastly outdated from 2006 and that home on the nice lot purchased for $300,000 in 2006 was demolished to build the home in 2007 he currently sees  at a total loan value of $1.2m (from Realtor tax record data).  Now the auction winner did get a deal at just under $450,000 (again tax records) no question but that was for half of the zero-lot-line property that is really a duplex–very common after tear-down in Green Hills.

The auction part will require another blog post. Thats a seperate issue.

Are foreclosures a good buy? Short answer–sometimes. Keep your perspective and make sure you have accurate information. If it seems too good to be true, well, you know.







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