I can no longer count the number of times my phone rings and a customer asks me if I have any foreclosures to show him. Some perceive a foreclosure to mean the opportunity to purchase a house that they would not be able to afford under ordinary circumstances. In reality, foreclosure does not equal bargain.
Many years ago, a foreclosure on the market would mean that buyers were hovering, like vultures flying over their prey, just waiting for the opportunity to swoop in and grab that “free meal.” A lender now stuck with an unwanted house was happy to sell it at a bargain price to a ready and able buyer, just to be able to get the house off the red in its books. There were always “finds” available for someone with ready cash and the ability to close quickly. For the lenders involved, the key to this way of doing business was that their priority was always to protect their investors by recouping the full mortgage amounts due on those properties. Beyond that, they were disinterested in how much the houses sold for.
Today’s foreclosure market has taken a different turn. The lenders holding these properties are not of the same mind and spirit they were in prior years regarding getting these properties off their books as well as selling them for less than their appraised market values.
Due to the drop in real-estate values, many lenders today are finding they have properties whose values may have dropped below the mortgage amounts currently owed to the lenders, leaving those lenders with a quandary. What are they prepared to accept as offers from buyers interested in those foreclosed properties, as opposed to holding on to those properties until such time as they can recoup the mortgage monies due on them? This new lender dilemma (called a “short sale”) creates a situation whereby lenders try to get the most they can, but, based on current market value, may have to settle for less than the full amount still owed.
By its very nature, a short-sale situation does not necessarily create the atmosphere for getting a bargain, although a buyer might get a slight reduction in price (at least in the Five Towns area), due to the common conditions that go together with a typical foreclosure process. What do those conditions consist of? A foreclosed property for sale by the bank is usually offered with no representations made on the property. This can mean a host of things. No representation means that you get what you see — if it works, fine; if it doesn’t, it’s your problem. The bank does not want to know or be responsible for anything that does not work, is not finished, is broken, etc., on that property. Lenders will not give representation on whether work done on a property by a previous owner was done to code or even properly, nor will they represent if there are any open permits or certificates of completion on any construction. They will not even represent if a certificate of occupancy exists on the property. The foreclosure sale is basically a “buyer beware” situation.
I have even been involved in deals with new-construction foreclosures whereby the builder did not follow the architectural plans approved by the building department, and built homes that exceeded the size of the approved plans. The lenders obviously gave no representation, and the buyers who purchased these homes in foreclosure sales either had to apply for variances and file new architectural drawings, or hire builders to demolish the parts of the house that did not comply and rebuild those areas of the houses to conform to code — all very expensive additions to what they paid for those foreclosures. In the end, those became overpaid nightmare foreclosure sales (my own term).
What is the moral to these foreclosure tales? Unless you are a sophisticated buyer with deep pockets, foreclosure is not for you in this economic environment. It can end up costing you much more in money and aggravation than buying an available home for sale on the regular market. Does this mean that you should avoid foreclosure sales? Not necessarily, but it does mean that you must go in with your eyes wide open and be meticulous about checking everything out before you move ahead.
Anessa Cohen lives in Cedarhurst and is a licensed real-estate broker (Anessa V Cohen Realty) and a licensed N.Y.S. loan officer (FM Home Loans) with over 20 years of experience offering full-service residential, commercial, and management real-estate services as well as mortgage services. She can be reached at 516-569-5007 or via her website, www.AVCrealty.com. Readers are encouraged to send questions or comments to anessa@AVCrealty.com.