So how do I buy a foreclosure? I'm still interested

Here's the deal:

If you really want to buy a foreclosure, and have the guts and the money, vision and heart, you can.

Plan to look and look and look to find the stuff that is good. Most of it is pretty horrifying, or overpriced. Or both.

And have a very strong credit score and a good mortgage broker.


Oh, and you need a good real estate agent. One willing to bring you through stinky and perhaps dangerous places. And then maybe get paid 2.5% of $9,000 for all of this work. Remember --we're paid on commission and 2.5% is a pretty typical payout to a buyer's agent. On $9,000, that's $225... and that's before my boss takes her cut. At those commissions, it's a hard thing for a realtor to do. We spend hours working on purchase agreements, hours searching for property, and worst of all, every hour we spend working on a deal that will pay $225 is every hour we are NOT working on bigger and better things.

But I really want to buy a house for pennies on the dollar!

Okay, fine. Let's find you a house for pennies on the dollar.

They are out there, they certainly are -- but again -- it's not what you think.

I once spent a couple hours talking a client OUT of buying a foreclosure for a rehab "project."

There are many, many homes out there that have been foreclosed and are available for low prices. Here are the current low prices in my nearby neighborhoods:

On the West Side:
403 Curtice Street E, $14,000

In Merriam Park:
1145 Selby Avenue, $43,900

In West 7th:
301 Goodrich, $28,500

In Midway:
1478 Sherburne, $29,900

In the area the MLS calls Crocus Hill:
332 Fisk #3S, $49,900

In Highland:
1774 Norfolk, $69,900

In Dayton's Bluff:
738 Bradley, $7,000

In Frogtown:
512 Edmund, $9,900

On the East Side:
1330 7th St E, $11,000


And you are probably thinking: Wow! I could put one of those babies on my credit card!

You sure could. And then you are looking at thousands and thousands of repair costs to make the home livable. Several of the above homes are slated to be torn down, they are just too far gone.

Just start thinking of the cost to rehab a house...
Roof: $5-$10k
All new wiring: $5-$15k
New pumbing: $10k
Exterior rot/siding repair: $5k
Regrading: $500 with a lot of shoveling
Plaster/drywall repair: $1k-$10k
Flooring:$5k
Paint: $1k-$15k
Kitchens: $10k-$30k
Baths: $5k-$25k

Low end:$48k
High end:$125k

And believe me, any house listed for under $50k is likely to need $125 worth of work.


I have seen many foreclosed houses. I will say the cheapest one I have ever personally seen was about $30,000. At that price, the houses are pretty bad. I can't imagine what they are like at less than that. I have seen more expensive homes than the ones above with extensive mold, with foundations that were collapsing so badly it was a little scary, with environmental hazards, with no plumbing or heating, with no plaster, drywall, or flooring, with smells so horrifying I remember them to this day.

These houses are NOT for the average person to buy and rehab. These homes will take hundreds of hours of repairs, and many of them are too far gone to be repaired. Many of them are not even worth $125,000 when they are remodeled, because of the nearby properties, even if they had the perfect HGTV makeover. Even if Ty from Extreme Home Makeover ripped the top off and added new Kenmore appliances.

Let's pull some highlights from some of the comments on these homes:
- This property is going to be demolished and after the demo this listing will be transferred to a vacant lot listing.
- Category 3 on VBR list. Fire damage throughout. Location near highways and shopping.
- Boarded property. Needs lots of plaster, paint and carpet needed. Needs doors in and out. Property is SOLD As Is. Buyer is responsible for any work orders or repairs for a boarded property.


So what's a category 3? It means the CITY IS PLANNING TO TEAR THE PLACE DOWN. Sometimes investors can post a bond to the city to save the home from demolition, but the costs to rehab a house with "fire damage throughout" usually is prohibitive.
With properties the City of St Paul has declared Category 2 or 3, those homes MUST be brought up to CURRENT code. Since these buildings are older, that may mean MASSIVE retrofitting and repairs.

And where is all of that money coming from -- to make these repairs? Some buyers of Category 2 or 3 property must have cash out of pocket to give to the city as a bond to prove intent to repair the property. There is very little financing out there in the mortgage world to do these kinds of projects.

So -- if you plan to buy one of these houses, go ahead. But I hope you have $100,000 in the bank that you plan to spend on the rehab.

Can I really buy a home for pennies on the dollar? The Infomercial Promises

Well, not really pennies on the dollar. And it's not what you think it is.

I know some of you have seen these articles or infomercials telling people that they can buy foreclosures at the sherrif sale. That is true, but Minnesota has very different rules than other states, making it impractical. The current market also makes this undesirable.

Here's what the infomercials tell you to do:
1. Read the legal notices in the paper and choose a property from the foreclosure notices that you are interested in. And all of the addresses are in legal description, so be up on your legal descriptions. (Such as: Anna E Ramsey's Addition, Lot 10 Block 3. That's in the Lexington Hamline neighborhood.)

2. Then, go to the courthouse and pay the price at the sheriff sale.
Sounds so easy! But here are some problems:
- You need to pay cash. Pretty much then and there.
- It is very unlikely you have seen the interior of the property, as the owners still live there
- The price you will pay is some amount ABOVE the mortgage amount. Many people going into foreclosure today owe more than the house is worth. So you are paying WAY MORE than the house is worth.
- And the big kicker, if the previous items aren't enough: in Minnesota, after the sheriff sale, the owners have 6 more months to live in the property. That's right -- if you buy that property at the sheriff sale, you have just bought a property with tenants that will be living there for free for 6 months. And you cannot control what they will or will not do to the property.

So, good luck with that.

Everybody's Buying a Foreclosure

I think I have had only 2 deals this year that did not involve some kind of foreclosure/short sale/distressed property.

My buyers are pretty good at recognizing a bargain and are willing to go through the agony of it all to end up with a good house.

Last night I was lying in bed thinking about how fewer "normal people" are listing their homes and more and more the selection for buyers is mostly bank-owned property.

I dug through a report put out by the Minneapolis Area Association of Realtors called Foreclosures and Short Sales in the Twin Cities Housing Market. A quote illustrating my point is here:
The market share picture is similar for home sales, with foreclosures and short sales comprising a larger portion of overall sales than they have before. In Q1 2008, 27.6 percent of total residential closed sales were mediated by a financial institution, up substantially from the first quarter of the two years prior. And the number of traditional closed sales fell from 8,896 in Q1 2006 to 4,790 in Q1 2008, while the number of bank mediated sales increased from 324 to 1,828 for the same time period comparison.
So we are talking almost ONE THIRD of all sales in Q1 2008 were foreclosures. That's not ending anytime soon, either.
Read the full report here:

http://www.mplsrealtor.com/downloads/market/Reports_Analysis/Foreclosures-and-Short-Sales-in-the-Twin-Cities-Housing-Market.

I'm seeing lots of bank-owned and soon-to-be bank-owned in Lakeville and Apple Valley, where I have some buyers. This is going to hit the suburbs, and it will be tough, very tough.

And when one third of all listings are foreclosures -- just by mathmatical odds -- a third of all of my sales should be foreclosures. We are all dealing with this, not just the "inner city," or the late-night infomercial watchers. It's here.

Land Ho!

I've been talking with my friend John from Shelter Architecture about how now is a good time to build your dream home in the city.

Here's why -- it's really hard to find a lot in the city. However, the glut of cheap foreclosures could allow someone to tear down an existing house to build a new house. With houses selling for as little as $7,000 in the metro, it's a good time to jump on this. And yes, there are foreclosures in all neighborhoods -- from Bald Eagle Lake and North Oaks to Kenwood and Crocus Hill.

Financing is tight right now, but I think this is a nice opportunity time for a lot of people.


It's also a good time to take a shell of a house and turn it into something new.

Incredibly Lucky

Serendipity seems to strike every once in a while in real estate.

I was in the office making my open houses flyers and the front desk paged me. There was a walk-in customer that wanted to talk to an agent.

I was rushing to get to my opens and I did not have much time to talk. I went away with some doubts -- first time homebuyers, small budget, grand ideas. Not sure this was going anywhere, but I agreed to meet him next week.

I was really busy and scrambled to put together a couple houses to show them. I thought at least I could talk to them more and find out if buying was a possibility for them, or just a dream.

I showed them two houses in their price range - both foreclosures on the West Side. One was a grandpa house that needed a lot of work. The other was a beautiful house that had been overlooked for a long time because it was a foreclosure. It had just been reduced in price, and the buyers loved it. It was in great shape and just needed appliances.

It's unusual to find a beautiful house in a great neighborhood for dirt cheap, and my buyers knew it. They acted quickly, and found out that night that they were approved for $5,000 less than the list price.

We wrote the offer for $5,000 less than the list price -- exactly what the buyer was approved for. The next day I was sick with the flu, and the bank counters with a few thousand over the level the buyers can spend. I was demoralized and I told the list agent we would work with the lender to get my buyers approved to go to the new level, which might be hard. While I slept off the flu, I got an email that the list agent had simply re-submitted our offer and we got it!

I was thrilled. It's so rewarding when you have a buyer with a small budget and you can find them a beautiful house in a good neighborhood. We are all thrilled, I'm excited to see this one close.

Forcing It

This year I have had several closings (all related to distressed properties, go figure) that were pretty brutal. A closing usually takes about an hour and I have had several now that have taken 3 or more hours. Yesterday was a whopper -- I was at the closing office for almost 5 hours.

The property was incredible, in the historic district, and cheap cheap cheap. About 30% less than the previous owner paid a few years ago. It was a real once-in-a-lifetime for the buyer.

My buyer was incredible -- smart and motivated and charming to boot.

The deal was less than incredible. A short sale, with Countrywide, while they were going through a merger with Bank of America. The seller lives in Europe and was hard to reach, and maybe did not want to be reached.

Luckily, the list agent was a gem. She worked really hard on this but she almost gave up on the deal because Countrywide was not approving any short sales during the BOA merger and was giving them the runaround.

About 5 months after we wrote our offer, Countrywide decided to take it. It was a huge effort by the list agent to get Countrywide to accept a big loss. It was a definite relief, but it was not the end of our hurdles.

It was FHA financing, and there is nothing FHA loves more than to require a house to be painted before it is sold, or not allow it to be sold at all. And yes, this big old Victorian needed paint, and fast. The buyer got to work and had it painted in less than 3 days. I was shocked and stunned, and knew this closing had a chance to happen.

Yesterday at the closing table we were missing a few elements, but the buyer began signing anyway. As he signed the last few papers, we still did not have an email or phone call back from Countrywide with final approval on our numbers.

We let the buyer go and I got on the phone. I called the number we had. I called other Countrywide numbers I found online. I could not reach the "only person" that would be allowed to approve this sale. We had to have it wrapped up in 48 hours or the entire deal would be lost. It was high stakes and I was not going to let it fall apart.

Finally I checked Countrywide's SEC filings and called the number that connected me to the office where the executives are. I was connected through to one of the VP's admins and she was more than happy to stop coloring spreadsheets and pulled a few strings for me. After more than two and a half hours on the phone, Countrywide approved the sale.

I think it took six days off my life, this closing. It's kind of a miracle it happened at all -- the list agent filled me in on some details that I did not know before that make it clear this is a real miracle.

I had champagne on the buyer's new deck last night with his friends and family. It was very rewarding to have this one done. As I was going to sleep that night, all of my adrenaline came rushing through and my heart was just palpitating. I had spent so long keeping a cool head that it all fell on me right then. I don't think anyone other than other realtors know what we go through to keep it together sometimes.

Blinkers

You know how they put blinkers on horses so they aren't distracted by the carnage going on around them?

I think that's how lots of realtors are feeling, like we wish we had blinkers on.

I need a little attitude adjustment. Need to light the real estate candle, tidy up my desk, and focus on the good stuff that's going on. And, there is a lot of good stuff. Maybe it's just January that's getting to me.

Signs of recovery

Last week we had the big Edina Expo -- a big conference at the Xcel Center for all of the Edina agents.

We had an economist there talk about the state of the market and the possibility for recovery. He believes we will see better conditions for home sellers and stabilizing prices near to the end of this year.

He also shared the elements that he says will tell us that the market is turning and the bottom is past:

1. The number of new listings is less than previous months and less than the same month last year. This will signal two things: Sellers have realized now is NOT a good time and the foreclosure new listings are decreasing.

2. Days on market is decreasing. This means houses are selling more quickly and there is more demand.

3. The listing price and the sold price are closer to each other. This will signal that buyer have less bargaining power.

We have seen none of these things yet. I am thinking of running these stats in just my neighborhood. I do know we had fewer listings in my neighborhood in 2007 than 2006. I'll keep you updated as to the results.

What is "subprime" anyway?

The news media sure does love talking about the "subprime mortgage mess."

But it seems some of the talking heads don't really know what they are talking about.

There are a few things going on in the mortgage mess. Here's part of the story:

1. Subprime. Subprime borrowers are people that had credit scores and/or debt to income ratios that were less than would qualify them for mortgage programs and rates that people with average to good credit would get. Most of the subprime borrowers got into morgages with tough terms, some had adjustable rates, and some of the borrowers were given more mortgage than they could actually afford. Some of these borrowers did not have enough money to pay the first payment.

2. Adjustable rates. Many homeowners, some of them subprime and some of them good credit borrowers, took advantage of the very low teaser rates that the Adjustable Rate Mortgages offered. These mortgages all have different rules on how and when the rates adjust up, but the monthly payment difference from the first cheap payment to the subsequent adjusted payments are usually pretty steep. Lots of borrowers assumed that property values would continue to increase, and they would be able to refinance out of the now-adjusted loan. However, some ARM borrowers bought at the height of the market, and the house is not worth what they paid for it, making it impossible to refinance.

Both of these scenarios have lead to the foreclosure mess. It is not just subprime borrowers getting foreclosed, but lots of people. Of course, those people that are most economically vunerable are the most affected. I am seeing foreclosures in virtually every neighborhood, in the city, in the suburbs, in the gated communities.

Waiting for the Bank

The thing about the current market is there are a lot of short sales (homeowners trying to save themselves from foreclosure by selling the house) and bank-owned properties.

Dealing with the banks can be a time-consuming process. Banks are only open business hours and don't keep Realtor hours. The short sale responses can take a month or more, and the bank-owned properties can be really quick or really slow. And all of the bank departments are really really busy now, and I think some of them are even hiring temps to deal with all of the foreclosure work.

Right now I have a handful of purchase agreements from buyers out there that all need signatures from the bank. I'm just waiting! I am not good at waiting, but there is NOTHING I can do.

It's tough for buyers to purchase this property. They usually have some kind of condition problem (somewhere between needs new carpet to needs new everything) and they are usually sold as-is. And then to have to wait for answers to the offers is excruciating.

Keep your fingers crossed that these offers come through for me, will ya?

Why Doesn't Someone Just Buy Up All of the $50,000 Houses on the East Side?

One of my colleagues asked me this earlier this week.

I told him it's because there are $50,000 houses on the West Side, and in Midway, and all over town.

I've just seen so many bottom-dollar houses lately. Good stuff, even, good condition. Just foreclosed, and needs to get sold. For me to see a house that is shockingly cheap I think it has to be under $50,000.

The Declining Market is VERY Localized

So about a month back I applied for a HELOC (home equity line of credit).

When they ran my address through "the system" my ghetto address came back tagged as declining market and the bank wasn't too excited to give me tons of cash. It turned out okay in the end, but this declining market stuff is B.S.

So I had a buyer looking at a house one mile over and 3 blocks south of me... basically my old neighborhood. This owner is selling the house for $100k less than he bought it for in 2002. When talking to the mortgage guys about it, they checked it for declining market status: Nope! it's fine! No declining market there!

Seriously, this is such B.S.

Let the Suing Begin

As you all know the foreclosure thing has really gotten out of hand. Foreclosures have even *gasp* hit the suburbs. Being good Americans and having a government that holds a loose grasp on business, when things get out of hand, we sue.

So the city of Baltimore has begun to sue Wells Fargo over "reverse redlining" -- a fancy way to say Wells Fargo is alleged to have given loans with the harshest terms to those in the poorest (read: blackest) neighborhoods. The city of Baltimore (as well as cities across the nation) must now deal with the fallout of having lots and lots of vacant homes to deal with. The city must inspect, maintain, and protect these homes. Sometimes they are set on fire, and there's no one to cut the lawn.

The cost to the other homeowners on the block is terrible. Lowered home prices on your block mean lower home prices for your own house -- as well as dealing with vacant houses that are never maintained and are a break in and fire risk.

Additionally, Fannie Mae and Freddie Mac (quasi-governmental agencies that buy mortgages from Wells Fargo, Countrywide, US Bank, etc.) has announced new guidelines for lending. They are saying that if you are in a declining value area you may not be able to get a 100% loan as you have in the past. The funny thing is that no one can figure out what these declining areas are. Will the correspond with the poorest neighborhoods in town? Will they also correspond with the most ethnic neighborhoods in town? Will this lead to a Baltimore-style lawsuit?
Realtors are pretty up in arms over this. We are taught to be unendingly fair in our treatment of neighborhoods, and this announcement rubbed us all the wrong way. It will be interesting to see where it leads.

This time it's real

We now have data showing prices nationwide dipping 0.4%.
The Office of Federal Housing Enterprise Oversight has published these numbers. The 0.4% price drop is a comparison of prices in July-September 2007 vs. July-September 2008.
There's a story on the front of the Star Tribune if you want the down and dirty.


Yun, the big economist for NAR (National Association of Realtors) remains optimistic. He anticipates no more "major" price drops. Remember, he's the one that kept saying "Slow market? What slow market? The market is great!" Marketwatch has a nice article ripping Yun on this one.

But, all real estate is local.
I am seeing sellers begin to give up. Lots and lots and lots of foreclosures and pre-foreclosures. Lots of sellers will be taking their houses of the market in the next few weeks before Christmas, because it's so slow and showing your house is a hassle.
The houses that remain on the market are great bargains, for the most part. Anyone trying to sell their house this month are dead serious about selling. I think my current buyers will be getting great deals.

The condo market is pretty much desperate.
Certain neighborhoods have a lot of foreclosures, which is pushing down prices. Those that need to sell have slashed prices back to 2002 and still aren't selling.

How do we come back out of this?
Incomes needs to rise, and home prices need to remain steady.

The 80/20 gets 86'ed

Word on the street is that Wells Fargo is no longer offering the 80/20 loans that many first time buyers use.
(For those of you that don't know what an 80/20 is: It is a first mortgage that pays for 80% of the house and a second mortgage that pays for the other 20% of the hosue. It is used to avoid paying the pesky mortgage insurance.)

That's not such good news. Getting a mortgage is getting harder. Other lenders are still offering 80/20s, so that's still a possibility, but options are drying up.

I think one of the reasons Wells Fargo stopped offering this is that it is actually a pretty risky kind of loan. They are financing the house 100%.
If the buyer goes into foreclosure, the first mortgage gets paid off first and the second mortgage gets extinguished. So all banks that do second mortgages take a risk-- the loan is tied to the property, but if the first mortgage goes bad, they take the house and the second mortgage is left with nothing.

How did we get here? Well, they started doing 80/20s in the past 5-10 years. They started doing them because who in the heck can save up $40,000 as a downpayment on a $200,000 house? No one.

It just gets worse

After all of the reading and thinking I have been doing on this real estate market over the past few months, I really believe the strong buyers' market (=crappy sellers' market) will be with us for the next few years, at least 2 years.
Our bigboss manager Barb came by today and was in a meeting with Warren Buffet, the one the ultimately owns Edina Realty. I am proud to say Warren is of the same mind I am - we're going to be in this mud for at least 2 more years.

Today marketwatch.com had another good article. Some excerpts:
The index hit its lowest level since September 2001, and pending sales were 16.1% below their year-earlier level. The July data reflect trends before August's mortgage meltdown.

House prices are down 3.2% in the past year, the biggest decline ever recorded in the 20-year history of the Case-Shiller home price index. See full story. A year ago, home prices were rising at a 7.5% pace nationally. At the Federal Reserve meeting in Jackson Hole, Wyo., Robert Shiller, chief economist at MacroMarkets LLC, said 50% declines in home prices in some regions were entirely possible.

See entire article here:
http://www.marketwatch.com/news/story/july-pending-home-sales-index/story.aspx?guid=%7B0C7A07E0%2DD437%2D4B42%2D8FE2%2D45570D5F1145%7D


I mean, I know that prices are dropping -- I can see that happen --but 50%!?!
Fifty-freakin' percent???

I do know that some areas are really hard hit by foreclosures -- see the Star Tribune's foreclosure map -- and in those areas, real, normal people sellers need to compete with the "everything must go" mentality of banks holding real estate. But will those areas drop 50%?!?!

All I can tell you is if you've got the change in your pocket, and the guts to do some real estate investing, step up to the plate buddy, because you're up to the plate and the pitcher isn't so hot. There are lots of ridiculously well-priced properties to be had, all conditions, all areas. And rental prices are coming up. All of the foreclosed subprime borrowers need to live somewhere, and it's gonna be in a rental.


So, I really think we have about 2 more years of a rocky ride. I know I am busy, and I am going to be hanging in there. But I think we will see a lot of realtors just getting out of the business.

Foreclosure bail-out

You may recall a few posts ago when I wrote that the government and the banks need to get together to solve this foreclosure problem.

The government listened. I love it when the government listens to me!


The government is working out a deal that will help subprime lenders refinance. These are homeowners that have mortgages that are going to adjust -- the rate will rise from, say, 6% to, maybe, 8% or 10% and really crank up the monthly payment.

But, of course, there is a hitch. I think the program will only be available to homeowners that are current with their payments. I must say that most people don't really realize they are in trouble until they have missed a payment or two. I don't think that a lot of people will go and search out this program before they are in trouble. Keep in mind -- these are people with bad credit and probably don't understand a lot about how the financial world works. Not to mention whenever most of us are in financial trouble we hit the denial stage first. When you're in denial, you're not looking for a bail-out program.

I read a really nice article that McClatchy put out on this topic.
The article says this program will help, at most, 21% of the subprime borrowers that will need help. The article estimates about 480,000 homeowners could be helped by the program, but 2.2 million homeowners will be affected by the subprime meltdown.

Read that again: 2.2 million homeowners affected.

Here's the article:
http://www.startribune.com/535/story/1395756.html

While I think this is a good start, I also think it is a case of good intentions by the government that won't seriously help.

I think the psychology of the homeowners affected -- people with bad credit, people that probably don't have a good understanding about how credit and loans work, people that have been burned by loans before -- these are not people that tend to be organized and proactive in their financial lives. They're not people with financial advisors, or even good family role models.

If the program excludes anyone that has missed a payment -- that's too bad. I think many homeowners will be in denial about the problems they face until they start missing payments.

I would like to see the government work directly with the lenders to refinance the mortgages. Have the lenders and the government work out a deal to OFFER the homeowners a refinance option BEFORE the mortgage adjusts. But -- I really don't think that will happen.

"Full-Blown Recession"

Dude, that is a huge statement.

Mark Zandi, chief economist at Moody's Economy.com, says that housing is in a "full-blown recession."

Listen to this interview at Marketwatch.com:
http://www.marketwatch.com/tvradio/player.asp?guid={7AE3CA10-3E79-4840-87A0-6FDC5F3862FA}


Zandi is reacting to the National Assn of Realtor's report, which came out today.
The report's overall message is that sales are very slow and prices are down. You can read about it in the Star Trib:
http://www.startribune.com/535/story/1384888.html

Zandi has some good points, but I don't agree with him on everything.
He says on of the reasons we have such a big backlog of homes on the market is because of the number of foreclosures (agreed). But, here's where we disagree: he believes that the number of foreclosures will slow down, and the market will catch up. I actually believe we will see more foreclosures in the next year or two. If the market picks up, it will have to be in spite of high numbers of foreclosed properties on the market.

I believe foreclosures are because of the ARM financing and refinancing, and I don't think all of the ARMs that were sold have kicked in at the high rates yet. We've got a couple more years.

In the Zandi interview they say foreclosures represent about 7% of the market. I will tell you that some neighborhoods have more than than. St. Paul's North End is hit hard, North Minneapolis, St. Paul's East Side....
The Strib has a very well done map of foreclosures you can access from the front page of the Strib site.


I also published a post a while back about how foreclosures weren't such a great deal. The Strib did a story on another angle of that -- it takes eons for the banks to respond to your offers on foreclosed properties.
http://www.startribune.com/417/story/1384058.html

The foreclosures are throwing this market for a real loop.
If you are an owner of a 3 bed, 1 bath, 1500 square feet, and you think your house is worth about $250,000, but the foreclosed 3 bed, 1 bath, 1500 square feet with no appliances and smashed walls goes for $180,000 --- well, your $250,000 price will get close scrutiny.

The good news that everyone keeps missing in all of this is that it is a fabulous time to buy property. There are tons of options out there, and prices are amazing.

But to stop the bleeding in the foreclosed properties, both the government and the banks are going to have to step up. People got sold into products that were inappropriate for their financial situation (ARMs, etc.). The bank should be willing to refinance these mortgages and spare everyone the work and money that a foreclosure costs everyone. Certainly, there are some people who are actual deadbeats that aren't paying the bills -- but there are others that got suckered into a mortgage product they don't understand. Like 78 year old ladies and Hmong single moms that don't speak very good English. Those are the people that need a bail-out -- they were sold inappropriate products. I wish the damn mortgage brokers that sold them the products were held accountable and were required to fix those situations.

A concerted effort between banks and government could do a world of good -- but I don't think that will happen.

In the mean time, happy shopping.

Foreclosures

A lot of people ask me about foreclosures. They want a "good deal."

From today's Strib article about Invest St Paul:

The city experienced more than 1,100 foreclosures from January through July and currently has 1,200 vacant buildings.

There have been so many foreclosures that the Sheriff has had to hire extra staff to complete all of the paperwork. (Yes, the Sheriff is actually the one that "sells" the property back to the bank.)

Here's the interesting thing about the foreclosures out there today: many of them are priced above market value, because the previous owner bought the home when the market was high and supported the price. Prices have fallen in some neighborhoods. Also, when people are foreclosed, they don't leave the property in a very good condition. That affects the sale price.

I did see one foreclosure that had the tub, toilet, tile, switchplates, lighting fixtures and other pieces removed from the house. It was pretty ridiculous -- the switchplates?? Those babies are 30 cents each at Home Depot.

I've also watched a foreclosure listing in my neighborhood drop the price by over 38 percent. The previous owner paid over 50 percent more than the property is currently listed at. And the thing won't sell. It's not a high-priced house, either -- 38 percent is more than $100,000 in this case. And it is still priced too high for the market to absorb it -- no one will buy it for almost half off of what someone paid for it a few years ago.

So, no, not all foreclosures are a "good deal."

It can also be difficult to purchase a foreclosure, which I will talk about later. If you really were getting a good deal it might be worth the work it would take to purchase the property, but so many of them are overpriced right now. You're better off to look at other things that don't require negotiation with a bank.