With the state of the current economy, there is a lot of attention being paid to the volume of foreclosures as well as shortsales. These are two different situations that are often confused. I thought it would be helpful to clarify what they are.
A foreclosure is a bank-owned property (also referred to as an REO property). The process of foreclosing on a delinquent home owner has been completed and the bank has the full title to the property and the right to sell that property. A quick look at foreclosures.com shows the very sobering statistic that in Lake Oswego right now there are 90 bank-owned properties, there are 17 properties in pre-foreclosure (behind in their house payments) and 587 properties scheduled for auction. When a home owner falls behind in his or her house payments, there is a multi-month process where the homeowner is notified of the delinquency. The final step of the forclosure is public auction where the mortgage holder takes the property back for the amount of money that is owed on it. Bear in mind that the process takes about nine months. Many of the people currently delinquent or scheduled for auction will find a way to either bring their payments up to date, renegoiate the terms of their loan, or sell the property. So not all of the homes currently delinquent will become bank owned. I’d also like to put these numbers in perspective. Lake Oswego has a population of about 35,000 people. With an average of 2.3 people per household, that is about 15,000 households. And with 694 households either in pre-foreclosure or already bank owned, that is about 5% of the households. Yep, that is sobering.
A shortsale is a house that has a market value of less than what is owed on it and the home owner is attempting to negotiate with their mortgage holder to take a discounted amount so that the property can be sold at current market value. In this instance, the sale of the home will require a third-party approval (the bank), and may or may not happen. The process to get this third party approval can take months (I worked with one that took 6 months), so if you are wanting a home that is a shortsale, be prepared to be patient and realize that the approval may or may not occur.
I am often asked how a buyer can find foreclosure and shortsale properties. The reality is that 99% of them are listed with Realtors and made available on the RMLS. People who are in distress and trying to sell their home as a shortsale hire Realtors. And banks with bank-owned properties hire Realtors to sell their inventory of foreclosures. You don’t need to buy a secret publication or pay for a special list. These properties are available to the public on the RMLS and any Realtor can gather information on them to help assist you with finding that great deal.
Having said that, I have two areas of caution. First, a foreclosure is a much better prospect for purchase if you have a time-line you are trying to accomplish. A foreclosed property that is listed for sale can be purchased within a normal transaction period of 30 to 60 days. Whereas a shortsale can take months and then may not occur at all. Second, when you buy a foreclosure it really is buyer beware. Banks make no representations about the condition of the property and often have their own sale agreements with extensive waivers to protect them from any future liablity. In both circumstances you should be able to make your offer subject to a home inspection.
OK, I have a third thought. Be aware that people who loose their homes are people in financial distress. They go through an extended period where they have no resources to make their house payment much less fix the leaky roof or remodel the ancient kitchen. So be prepared to see houses that are dirty and in need of repair. In addiiton, it is not uncommon for these houses to be stripped of appliances and fixtures. Not all foresclosures and shortsales are project properties, but many are.
So you are looking for the great deal? Sure, check out the foreclosures and the short sales, but don’t close your mind to the good old homeowner who needs to move and is motivated. These people will also often sell at great prices, close in a reasonable time frame, and maybe even vaccume the carpet and polish the granite on their way out. To make the most of the market, look at the entire market.
Thank you for trying to clarify a complex and difficult situation, which is sobering as you say.
I’m not sure you were entirely successful, in that most of these loans (the 587) are ‘scheduled for auction’, and I still can’t see from what you wrote what that really means. If a loan is just delinquent, for example, does the lender immediately schedule it for auction, or does the nine month period leading up to the auction only start after the bank’s repossession process becomes irreversible. It makes a huge difference; in the first case many of those 587 might never become a bank sale, whereas in the second case they would.
My guess would be that ‘scheduled for auction’ is an indeterminate category, in which some of the loans are just behind and may end up being ‘cured’ or renegotiated, in some other cases the bank really is foreclosing but hasn’t got title yet, and in others they may have title but just haven’t got the property ready for sale yet.
Still 5% is huge, especially if I think about that as 1 in 20 meaning for example one child in every one of my own kids’ elementary school classes.
It might even be more than 1 per class, as households with kids will average more than one per family, and families with children may on average have more financial difficulties than either people of their own generation with no kids, or people a generation older.
As we talk about the financial crisis at home we have encouraged our own children to be sensitive to what may be going on in the families of other children around them.
In order to know the exact details, you would probably have to dig out the loan papers and read them thoroughly. But I do think it is possible to draw some general conclusions.
It is my understanding that most delinquent homeowners can avoid loosing their house to foreclosure right up until the moment of the auction. They would do this by paying the loan off or successfully renegotiating the loan. So I am hopeful that many of those 587 will be able to save their homes and avoid auction. The point at which it is irreversable is when the bank takes title to the house. I checked the foreclosure.com website several months ago and the numbers were about the same as they are now. Some of the big lenders, like Countrywide, have put a hold on foreclosure processing while they wait to see what sort of proposals are put forth by the government. So some of these houses scheduled for auction have been in that position for awhile.
In terms of the time line. The 9 months I referenced were month one when the first house payment is not made to month nine when the auction takes place and the house must be vacated.
What is so hard in this is that it is like a big snow ball. Most lenders will not take partial payments. So in month one when the first payment is missed, and then month two rolls around, the lender wants two full payments to bring the loan current and won’t accept the first month’s payment without also receiving the second month’s payment. Add to that penalties and interest and you can see how the hole grows deeper and deeper, very quickly.
It is really heart wrenching. These are real people with children and pets and contributions that they make to our community. I think it’s important that as we go through the day we make an extra effort to cut each other some slack. We just have no idea the burdens that people are carrying.