Article by JACK DUFFY
see more articles at South Beach Investment Realty press releasesAS the housing market shudders through another year of eroding prices, second-home buyers are finding a silver lining in the hundreds of thousands of foreclosures that now dot popular communities throughout the Sun Belt: bargains.
The sheer volume of foreclosures has pushed such sales from a somewhat arcane sideline into the real estate mainstream. And far from being rundown or neglected, many vacation homes now in foreclosure are just a few years old, with amenities like pools and high-end kitchens that appeal to second-home buyers.
Finding and buying a foreclosed property is easier, too, thanks to a wealth of online tools and a growing familiarity with the process among banks and real estate agents.
“It’s not an incidental thing anymore,” said Ruth Ahlbrand, who, with her husband, John, owns ReMax Central in Las Vegas. The agency has 200 bank-owned properties among its listings and a team of agents who deal in foreclosures and distressed property. “It’s become a business that banks and the real estate industry have invested in to make work more efficiently,” she said.
Las Vegas, which lured second-home buyers during the housing boom with a wave of high-rise condominiums and new developments outside the city, has become something of the ground zero of the phenomenon. In January, nearly 80 percent of residential sales were foreclosures, according to the Greater Las Vegas Association of Realtors. The city’s well-publicized foreclosure bus tours attract second-home buyers not only from around the United States but from Canada and Europe as well.
Susan Milliken and her husband, Bill Golberg, had been monitoring prices in the Las Vegas area from their home in Vancouver, British Columbia, and decided to take the plunge last summer, buying a 1,160-square-foot bank-owned foreclosure in the Sun City Anthem development, just outside Las Vegas, for 0,000.
The two-bedroom, two-bath home, which the couple plan to use a least six months a year when Mr. Golberg, who is 62, retires, had previously sold for 5,000. Ms. Milliken, 54, estimated that the property’s being in foreclosure probably saved them ,000.
“The prices were just so much lower here than in Vancouver,” Ms. Milliken said.
Last year, more than 2.3 million properties in the United States received a default or auction notice, or were seized by lenders, an 81 percent increase from a year earlier, according to RealtyTrac, which collects default data. Of those properties, about 580,000, or a quarter of the total, were in Florida, Arizona and Nevada, prime second-home locations.
And while the market for foreclosed properties has traditionally attracted savvy professional investors, said Randy Paun, a real estate agent in Pensacola, Fla., buyers who plan to keep and use their properties as second homes are becoming more and more common.
“We are seeing many more family buyers going this route,” said Mr. Paun, who said his business was now almost entirely foreclosure related. “Now it’s individual buyers looking for a deal.”
Real estate experts caution that the abundance of foreclosed properties and the ease of finding them online does not guarantee a bargain. Depending on the type of foreclosure, some deals can involve a degree of risk and frustration, especially for the second-home buyer, who may be negotiating the purchase from a different part of the country.
“Ignorance is definitely not bliss when you are buying a foreclosure” said Alexis McGee, president of ForeclosureS.com. “Above all, don’t pay market price,” she said. “There is no point in going to all this trouble if you are going to pay market price.”
The level of difficulty is often determined by the type of foreclosure. Foreclosures generally find buyers in three ways: through a preforeclosure sale; through an auction; or through real estate agents who work for banks to help sell portfolios of seized property.
In a preforeclosure sale, the homeowner is usually in arrears and is trying to sell the property before it is seized by the bank. A buyer who steps in at this stage can often find a bargain but may have to negotiate with an often distraught property owner. And if the price turns out to be less than the bank is owed, called a short sale, the lender must also agree to the deal, which may take 60 to 90 days. A buyer can sit there for two months not knowing whether they’ve bought a house or not,” said Wayne Strickland, sales manager at Kitty Dunes Realty in Kitty Hawk, N.C., who said he received regular inquires from second-home buyers interested in foreclosures on the Outer Banks.
Another type of sale is the bank auction, which Mr. Strickland described as a crap shoot for a second-home buyer. Buyers at bank auctions often lack the ability to do proper inspections, obtain title insurance and in some states must pay the full price of the home on the day of the auction.
“If you are the winning bidder, you’ve bought a house,” Mr. Strickland said. “No backing out.” And if the house you’ve just bought is occupied, you may then have an eviction to deal with.
Houses that don’t sell at auction become known as real estate owned, or R.E.O. properties, and are the most transparent of foreclosure transactions. Buyers can do inspections, and the bank owner must deliver a “clean” title, ensuring there are no outstanding taxes or other liens. A potential drawback is that the buyer is dealing with a bank, not a person, and that bank may be in the process of trying to sell hundreds, even thousands, of other houses.
“Dealing with the bank was one of the most unpleasant experiences I’ve ever had,” said Nadia Nouri, 48, an executive account manager for a technology company in San Jose, Calif., who bought two houses last fall in the Summerlin community of Las Vegas. The houses, each about three years old, previously sold for more than 0,000, and were bought by Ms. Nouri and a business partner, Vance Bishop, 39, for around 0,000 each. One deal was with a private seller, closing in 30 days, and the other was with a bank, taking more than two months.
“You would think that banks would want to get these properties off their books quickly,” she said. “But they are slow and bureaucratic and seem to make everything as difficult as possible.”
Banks say that they are working hard to get deals done but that foreclosures, by their nature, can be complex. “When we get someone who is interested in a property, we often have to get approval from a third party because the mortgage loan has been repackaged on Wall Street and sold to an investor,” said Jumana Bauwens, a spokeswoman for Bank of America, which bought the mortgage lender Countrywide Financial last year.
But with inventories of bank-owned homes expected to top one million by next year, banks are cutting prices more frequently to stay ahead of the rising foreclosure wave.
“If banks don’t price their properties below the market right out of the gate, they have already lost the race,” said David McCarthy, chief executive of Integrated Asset Services, a company based in Denver that helps banks value and sell R.E.O. homes. He said some banks were now cutting prices as often as every 20 days.
Chris Matty, chief marketing officer at ForeclosurePoint.com, said that in markets with large R.E.O. inventories like Phoenix, Las Vegas, San Diego and Miami, banks were now accepting offers at 20 to 30 percent below market value in order to move properties.
And the deals are not only in the Sun Belt. David Odell and his wife, Susan, of Park City, Utah, recently bought two town homes in Park City that were in foreclosure and owned by banks.
“In the Park City market, it is the banks that are creating the floor on prices,” said Mr. Odell, 45, “and they are often willing to take a 30 to 40 percent haircut.”
Previous sale prices for the homes were in the 0,000 to 0,000 range, but the Odells — who run an Internet business devoted to cooking called foodell.com — bought each for around 0,000. In both cases the bank responded to their offer within 24 hours.
Mr. Odell said one house would be used by his parents when they come up from Texas for four months in the summer and would be rented to seasonal ski resort workers in the winter. He hopes to find a long-term tenant for the other.
The decision to start looking at foreclosed properties stemmed in part from his disillusionment with the stock market, Mr. Odell said, but also in part from a realization that the current market for foreclosed homes was very different from its traditional image.
“We all grew up thinking that a foreclosure was a derelict property with all the windows broken and the doors hanging off,” he said. “But that’s not how it is now. These are relatively new properties, and they are in foreclosure because people just extended themselves a bit too far.”
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