Buying a Foreclosure
After years of steadily rising, home prices are starting to come down nationwide, while the foreclosure rate is rising dramatically. Most major cities are experiencing a glut of foreclosures in all price ranges driving prices down incrementally every month.
The foreclosure market in Pagosa is quite different from most of the nationwide trends. More than 50% of our upper end homes ($800,000 and above) are second homes (sometimes third and forth homes) for owners. Many of these were cash purchases or purchased with loan to value ratios of 50% or less. This part of the market therefore is quite stable in terms of foreclosure issues however there are an abundance "non-desperate" sellers in this price range (more on that later). The fulltime residents in this upper price category typically come to Pagosa with financial stability and thus also have reasonable loan to value ratios. Our best guess after doing extensive research on loan records in the county courthouse is that 10% of our upper end owners may have "over-borrowed" or "over-leveraged" themselves with 2nd mortgages and are facing difficulty in sustaining their loan payments. As of July 14th, 2010, there are only 3 homes in foreclosure over $750,000. There are 66 total foreclosures listed as REO/Bank Owned in Archuleta County currently in our MLS. REO stands for Real Estate Owned property & basically means the bank/lender has taken possession of the home and listed (most often) with a broker. There are another 20+ homes going to auction in the next 60 days meaning the banks will be taking ownership and evicting the previous owners for non-payment of liens (mortgages).
A majority of the current foreclosures are in the $250,000 - $500,000 range. Most of these homes are in reasonable shape however many have deferred maintenance as people struggled to make payments and could not attend to the basic needs of upkeep a home in a mountain environment. In the major cities, you may have heard about homes stripped of everything down to the carpet & toilets as well as home vandalized due to angry owners being evicted. Thankfully, Pagosa has experienced very little of this. Mostly what potential foreclosure buyers find are homes in need of painting, staining, carpet cleaning (or replacement), perhaps deck repairs due to unattended snow load & certainly landscape clean-up. Most of this is deferred TLC and relatively easy to amend. This being said, the "savings" on foreclosed homes in Pagosa is not that significant. A buyer may find an equal value in a re-sale home listed at an aggressive price by a seller who realizes that they have to meticulously care for their home in order to sell in the current "Buyer's Market" conditions as well as be seen as the best "value" in the market. The current foreclosures in Pagosa Springs may sell at 6-15% below current market value of re-sales, but most likely that savings will be spent in repairs and restoring the items neglected as well as additional costs mentioned further on in this article. It is time well spent looking at both foreclosures and re-sales. With the market knowledge of the team members at The Source, we are well prepared to help you with that process and help you truly find the best values in the area at the various price ranges. See "Best Buys This Week" for our list of favorites in several price ranges & categories. This list represents not only some of our current listings but also listings of other brokers in our area that we feel are the area's best values.
What about foreclosure homes listed under $250,000?
Many of these foreclosures are new homeowners who had built little or no equity in their property; therefore, the amount the lender is trying to recover may be close to the full market value of the house. Often a home listed in this price range has debt that far exceeds the asking price. Often banks are unwilling to go significantly lower than list price.
There are a handful of partially completed homes in various price ranges that are currently in the foreclosure pool of homes for sale. These homes are typically "Dried-in" but lack drywall and fixtures. This can be a great purchase opportunity for a cash buyer. Most banks will not provide any financing on uncompleted homes.
Mike Heraty at The Pagosa Source has been in the real estate industry over 30 years and through many up and down cycles. Mike's market knowledge and bank negotiations during the 80's S&L crisis have given him extensive experience in helping buyers purchase both foreclosure homes as well as homes available for short sale. Mike cautions novices to the foreclosure market to be aware of all the "land mines" involved.
Let's discuss what a few of these "land mines" can be.
An extensive title search is pertinent. You could end up thinking you've just bought a home by paying off a $100,000 mortgage only to find out that was just the second mortgage and you have to pay another $200,000 to take ownership. Suddenly that great buy isn't such a good deal. You also have to be aware of any liens on the property because you're going to be responsible for those as well. The team members at The Source spend on average 40-50 hours/week researching current & upcoming foreclosures & their related liens. We currently have a staff member assigned 25-35 hours/week just on this research so we can determine the best values in these foreclosures. This same team member is researching all homes not formerly foreclosed upon but in default of their loans. A database has been created listing the current liens on the properties as well as photos of the home, surrounding areas & views. These homes could potentially enter the market as foreclosures in the next 30 - 90 days. Some of these homes could be potential "Short Sale" homes not listed in MLS but available immediately for purchase. For a definition of what constitutes a "Short Sale", see our "Short Sale" web page. Some of these owners will "cure" their defaulted loan through "Redemption" or "Loan Modification", however, this process is extremely bureaucratic and very few "up-side down" home owners have been successful at modifying their loans in the Pagosa Springs and Durango areas.
To find out more about these homes in our "Pre-Foreclosure" database, call Mike Heraty at 970-264-7000.
More about liens: Another possible complication is something mentioned earlier, a "lien." A lien is a legal claim against a home. There's a fairly good possibility that someone who can't make mortgage payments may owe money elsewhere. Common liens stem from unpaid taxes -- either property taxes or income taxes -- in which case the federal, state or local government could have a claim against the foreclosed property. Other liens include unpaid contractors or loans borrowed against the property. These liens remain intact until the money is paid which means that you will have to pay off the liens on the foreclosed property you are buying, even though it wasn't your water heater the plumber repaired, and even though you're not the one who didn't pay the property taxes the last few years. This is why extensive title research ahead of completing a purchase is necessary. This being said, if you wait to make a formal offer so that you can do this research, you risk losing the opportunity to purchase the home as someone else may tie the property up ahead of you completing your research. This is where our preemptive pre-foreclosure database becomes an invaluable asset for a potential buyer.
Another land mine can also be that, foreclosure homes are sold "as is" which means that the 6-15% percent you just saved on the purchase price can easily be eaten up by unforeseen expenses such as repairs not immediately apparent. Pagosa Springs & Durango are fortunate to have access to several highly qualified, experienced and bonded inspectors; plan on spending $300 - $500 on a complete inspection. The team members at The Pagosa Source can provide a list of these inspectors for you to contact. We will also coordinate the scheduling and access issues with these inspections as well as review the extensive reports with you thoroughly so will feel confident about any existing or potentially upcoming issues that you will need to budget for.