Foreclosures, Foreclosures, Foreclosures!!!

FORECLOSURE. For most of us the word Foreclosure means a home, condo, or property that can be purchased for mere pennies on the dollar. Although that might have been true in the past, the foreclosure market is vastly different today than the foreclosure market of years past. Allow me to explain.

Foreclosures, in the traditional sense, have always been the result of someone who has fallen on extremely difficult and unfortunate times; i.e. loss of job/business, divorce, death, etc. However, years ago the lending requirements for home purchase were much more strict then they are today. A 30-year mortgage, 5-10% down payment, interest only loans, etc were almost unheard of . To purchase a home you often needed 25%-30% down with only a 10-15 year term. Because of this there was much more equity in a home when foreclosed on and the bank could sell it for significantly less and still make money.

Fast forward to the modern era. A vast portion of foreclosures today are the result of people that got into exotic loans; i.e. interest only, reverse amortization, 100% financing, etc. Because of these exotic mortgages banks do not have the equity in foreclosures they once did. Without any equity a foreclosed property does not have the 'wiggle room' in price that many people think. As a result banks are less inclined to let these foreclosures go for a 10, 20, 30% loss.

Another point to consider is some banks are currently flooded with foreclosures, often understaffed. As a result the time it takes to get a response from the Seller, i.e. the bank, is significantly delayed, often for weeks. Buyers are left to ponder while their Earnest Deposits are tied up. Foreclosures are often distressed and in need of extensive work to make them habitable. In some cases foreclosures have the baggage of liens and back taxes.

So remember, the next time you see the word FORECLOSURE and start to get excited you might not be getting the deal you thought. If you enjoyed reading this blog and would like further information on foreclosures in the Hilton Head/Bluffton area contact Pete Popovich at 843.338.6737. Don't forget to log on next week for our blog on Short Sales.