What's Happening in the Foreclosure Market Today?
Joshua D.Pro Member
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votesHey all . . . I had a few questions that I was looking for your insight on. Please feel free to share your thoughts on the various subjects.
1 - Are you seeing a settling of prices in foreclosures (REOs) right now?
2 - Are banks letting their inventory loose or hoarding it?
3 - What types of properties are showing up at courthouse auctions these days? Are most of the homes so far underwater or lien-ridden that they are not buyable in auction format?
4 - Where are the best foreclosure bargains? (Or are there any?)
I hope to hear your feedback!
we are seeing Lehigh acres SFR built 2002 and newer that can be bought and made move in ready for an adjusted basis of 50 to 55K
Cape Coral 70K
We now have SWFL SFR's that cash flow
Thanks to all the lemmings and their bankers... LOL
Josh,
I'll take a shot at this.
1) What I'm seeing right now are many investors overvaluing the REO's with so much hype around REO's there are many less savvy investors driving up prices often (unsubstantiated).
Especially in the bulk sector. For every $1 of property out there, there is $20 chasing it.
2) Most of the institutions are in a holding pattern waiting to see what is going to happen with the PPIP program. (So Hording) Realty Trac reports some 40+% of REO's are not listed or being offered in bulk sale. (Don't want to flood the market and further reduce values)
3) As far as the courthouse I can really only speak for San Antonio. Mostly single family very few commercial being auctioned here. As all liens are wiped out in foreclosure that is not a problem still, there are a number with 1st liens so high that they are not a good buy. Banks are actually purchasing many of the homes back at auction!? Which for me raises some questions.
4) I would say that every market has good bargains my trick is know all the trustees and attorneys so don't tell anyone but, what you do is buddy up with the Attorneys and trustees and purchase the note prior to the auction for the best deals. That's why many of the best homes I used to research didn't ever end up on the steps ie. why they are pulled from the auction.
Hope I helped add some value here.
Best, Lee
Thanks guys. Lee - I definitely appreciate your thoughts . . . very helpful info!
Anyone else have any thoughts?
I am starting to see the lenders discount the opening bid at trustee sales so they don't have to take it back as an REO. Some of these have been good buys. I saw a good article from foreclosurer radar that explained the moratoriums on foreclosures and why we should see a flood of new inventory this summer. the consensus from asset managers i talk to is that some lenders will dump invetory, some will trickle.
IMO,
Many of the banks were holding at least a portion of their inventory till the summer months anyway Regardless of any Moratorium on foreclosures (when most sales are).
So that instead of getting low ball offers on props that have been on the market all winter they can say well this has only been on the market for a few weeks.
Not too sure what you mean by a settling, as every situtation is different. I have seen places worth $120K go for $60K (I bought one,) and I have seen REOs going for near FMV. So I can't comment really on this as I don't know what you are truly asking.
Banks hoarding property? Does that really happen? Lenders are in the money lending business, not in the RE business, so why would they want inventory, when they can't lend on it? If anything, the lenders are hoarding the cash that the government is providing them, and being tight-fisted in lending it out. Basically, the more the lender has in inventory the less they have in liquid funds. I don't really know how to explain this simply, as you need to understand (even at a simplistic level) how lenders operate. Hmm, to put it simply:
1. Depositor deposits their money.
2. Bank uses the deposits to go to the Federal Reserve to get a loan.
3. Federal Reserve gives bank a loan (up to 12x deposits)
4. Bank lends it out to borrowers
5. Borrowers pay back the loan.
6. Bank pays off the Federal Reserve loan (keeps a little as profit, has the ability to pay back the depositor their deposit.)
Now if step #5 fails, you can see that the bank can't pay back the Federal Reserve note, and doesn't have money to pay the depositor... uhoh!!! Now if there is a small percentage of defaulted notes, the bank can cover the defaults with the extra $$ from the performing assets, not a big deal. If A LOT default, we have what we have now!
Hope that helps.
Not all the time, sure I see some that are way overleveraged, but I see quite a few that are within reason. The only thing is that you need $$ and ready access to it. I don't like to put myself in that situation. It is far better to get the houses pre-auction, but that's my opinion.
Well before it gets to auction (short answer) by looking at the public records for NODs/Lis Pends. Then you can talk with the homeowner and either help them out of their situation or work with the lender to get the property for a good price.
There is my input, any questions/comments?
Later!
Michael Suess
The REI Training Warehouse, LLC
Michael Suess,
In my area, the foreclosure situation really hasn't changed in the past two years. The vast majority of foreclosures are so upside down that the bank takes them back at the auction. For all practical purposes, it's a waste of time going to the auctions (unless you check the liens first on the computer). It's quite rare in this area to see a house being foreclosed upon that isn't upside down.
A large number of REOs are being horded, but that is often by government agencies (like HUD). I personally know of several that were foreclosed on two years ago and were never offered for sale. I'm not seeing smaller community banks hoarding their property, but they are still following the same script - starting out with the price at retail and lowering it every month or so.
A couple thoughts. I'm in SO. Texas and have been VERY active in the courthouse foreclosure acquisition. It is first tuesday of each month and I'll be at the May 5th one in my county.
I've found several items contrary to info posted by Mikeoh and Lee.
To Lee on his #2-In my area the banks are not selling in bulk or listing the properties. That is true, BUT that doesn;t take into account the many buyers like me. I go directly to the banks AFTER they pay too much at sale and I buy them for less. There are many buyers like me at every auction that know the banks and do this.
Lee #3- There are many banks foreclosing in my area that DO bid less than the amount owed. I've bought quite a few at sale that were significantly less than amounts owed. In that case it doesn't matter how high the lien is.
Lee#4- These same banks that you say are paying too much at sale are the SAME bank you're going to try to buy the note at a discount prior to the sale?? Makes no sense. Example- 150K home with a 140K note. Bank has decided to pay the 140K at auction. Why on earth would they want to sell you the note for less than the 140 if they won't bid less than the 140 and possibly have a buyer pay 120K. If they'll sell you the note for 120K, then this lender has already decided to only bid to 120K at the sale. It is the same bottom line to them. The net they want will be the same to note buyer as to the house buyer, in my experiences.
I agree with other points by Lee.
to Mike oh- paragraph 1
In my area it is FAR from a waste of time going to the auctions. I've personally bout a lot of homes ther, many were "upside down" and the lender simply bid less than note. Some are very motivated. Obviously, you'll want to check records for child support(and dates), any judgements (IRS liens will kill you if you don't know about them), any other judgements and of course property taxes. Our area hasn't seen much change in prices at foreclosure which is great.
paragraph 2- Again, just because a property is foreclosed and not "offered for sale" doesn't necessarily mean the lender still has it. I buy many homes directly from the banks before they list them.
This is the new trend in our county and completely crooked in my mind. Trustee names the property and asks for bids. If no opening bids, the bank bids ONE DOLLAR!! They then state they have a low and high bid. You ask "what is the high bid" and the trustee says 80K. So, no one bids more than the original 1 dollar. Lender gets house for 1 dollar and then can go after borrower for a deficiency judgement!!! I don't know how this is legal, but they're doing it here in s tx.
Any BP members want to see this in action, come watch me buy properties at the May sale. Good luck in all your purchases, just be careful you've researched the homes COMPLETELY. I could tell you some horror stories. It is not easy and I have 4 people working on the investigations prior to the sale.
I think most of the info in this thread was very good, and I doubt Mike Seuss was trying to talk down to the 32,000 members. My guess is that at least half didn't really understand banks procedures, so I didn't feel slighted. I always enjoy comments from Lee and Mike oh. They are very involved in their markets. Rich
To Mike oh
Rich,
Thanks for the compliment.
I agree with that statement I just wanted to say 1 let me put it simply would have been enough. The half of the members who don't understand should not feel like they are so "simple". People come here to learn and stay here because we don't make them feel that way.
Rich I'd agree with that statement. I was referencing the question in terms of the bulk of real estate not being offered nationally. Wouldn't you agree that there is some price controlling going on by not listing "more distressed assets" on a national level?
True I've seen this as well. However I'd venture to wonder why they are taking less on properties you feel are a good buy? My guess is that the investor who purchased the note from the institution had specified what he would take. Most likely as the home was over leveraged by a HELOC or home equity loan and the investor had already recouped his initial investment. I believe that makes sense if the person had been in the home for about 10 yrs. Do you have any input on that?
I didn't say that is what happens every time Rich. I think it has more to do with the investor who purchased the note from the Bank than with the bank itself in many not all instances. The idea there is to not let the deals you purchase get to auction buy purchasing the note prior to.
Exactly the question is why let it get to the steps where I might have to bid against you on it!
Lee- there is a big difference here in TX, the death penalty state!! It is also the death penalty state in real estate. Foreclosure notices are posted on April 14, for example. The sale is the first tuesday of every month, May 5th. I've invited BP members to come watch. I'll be there buying.
You have a TOTAL of 21 days before your property is gone. Not a lot of time to negotiate a short sale or a note purchase with the bank,imo.
Rich,
I'm in San Antonio, Texas! :D
So I'm pretty familiar with Texas policy nothing like Michigan where there is a six month redemption period! Yea even after the sheriffs sale you can live in the home six months without a payment before they can come chuck you lazy *ss and your crap right to the side of the road!
As far as working short sales I have ways of getting them pulled from the auction (tie um up). No it's not easy they loose you Authorization to release info twice a week and give you one hell of a run around but good notes and being professional pays off.
As far as the note purchase that's why you buddy up with the trustees and attorneys. Monitor the legal news and have a subscription to the Foreclosure listing service.
Rich next time your down hear in S.A. maybe we could have a cup of coffee or a beer your choice?
All the Best, Lee
Lee, and vice versa. If you want to ever come to the HOT area of tx, come on down. I don't drink coffee or alcohol(Mormon) but I do drink flavored water! I had a gastric bypass 15 years ago, no pretty much just water. Rich.
p.s. I have a couple long term owner financed homes in San Antonio.
Rich,
I sent you an e-mail from my Pleasant realty account.
Let's see if we can put something that benefits everyone together!
All the Best, Lee
The banking system is in a systemic faluire. They are hoarding properties. They can not take the writedowns needed to fix the problem. In 2005 I extrapolate the the multiples of money was about 65 to 1 with the off sheet stuff. These guys have quit being bankers and are fee brokers trying to keep a job.
I'm in Toronto, Canada and foreclosures (called power of sale here) haven't really started to increase much yet. Our housing bubble is delayed 2 years compared to US...
Rich would you care to expand on this comment:
>Again, just because a property is foreclosed and not "offered for sale" doesn't necessarily mean the lender still has it. I buy many homes directly from the banks before they list them.<
I am curious as to how you do this.
FWIW in our area the banks are sitting on a lot of inventory! Especially with spring hitting the grass in some of the lawns is getting pretty ridiculous. LOL The home builders IMO are the ones really pushing prices down just to keep busy or complete neighborhoods.
Thank you,
I am interested in this simplistic synopsis of the banking system.
1. Depositor deposits their money.
2. Bank uses the deposits to go to the Federal Reserve to get a loan.
3. Federal Reserve gives bank a loan (up to 12x deposits)
4. Bank lends it out to borrowers
5. Borrowers pay back the loan.
6. Bank pays off the Federal Reserve loan (keeps a little as profit, has the ability to pay back the depositor their deposit.)
From what I remember the way things were supposed to work the banks lend out the money of their depositors to earn interest.
They are required to keep a percentage of those deposits on hand at all times. When the deposits are going to go below that percentage they then go to the FDIC and get a loan.
They do not simply get a loan of XXX times the deposits just because they have deposits. This was done to prevent a bank from becomming "insolvent" because of a "run on the bank".
Please correct the memory as this has obvoiusly changed since I looked into it several, several, several years ago.
Adrian,
I deal personally with banks in Tx. In my area, FNB handles their own foreclosures for 90 days WITHOUT listing them. Each FNB has 90 days to sell their own foreclosed homes. They have a poster in the lobby with pics and price etc for everyone to see. If it is NOT sold within the 90 days, it becomes listed by a centralized agent and the commission comes out of the income derived by that branch. Motivation to sell...
Lonestar bank sells their foreclosures from a centralized location. Ismael Martinez is the seller and does a great job.
Other banks have their own methods. I know of NO bank in TX that is "hoarding" properties. That would be stupid for them. Less money to loan and more reserves required. Not in their best interest and they aren't doing it here.
Most of the institutions are in a holding pattern waiting to see what is going to happen with the PPIP program. (So Hording) Realty Trac reports some 40+% of REO's are not listed or being offered in bulk sale. (Don't want to flood the market and further reduce values)