Lake Geneva Foreclosure Update

Lake Geneva Foreclosure Update

Once upon a time, foreclosures were like small little puppies, the cute sort that wander down lonely streets at dusk hoping for a kind stranger who might take them in and clean them, feed them, love them. These puppies would trickle down these streets, never in great numbers, and they had a tendency to never wander for long before someone with a warm smile and a few extra blankets would offer them a place to stay. I fell for a foreclosure like this back in early 2009, back when foreclosures were still a sort of anomaly. Back when they were still few and far between. Still cute. I saw one wander down a street one night, and I knew I could give it the love and attention it needed, so I let it hop in the front seat of my car.

And then, these puppies were no longer scarce. They were everywhere. There weren’t enough of us kind strangers to house them all, and soon they were overrunning our neighborhood walls like so many zombies in that trailer for that movie that I have yet to see. We did our best to fight them, to keep their infectious diseases far from us, but our resistance was futile. They were everywhere. In nice neighborhoods and bad ones. They were in small subdivisions and large ones. They were in south side neighborhoods and in north shore enclaves. They were among us, everywhere, always, without end. These sweet exceptions from the early 2000s had become the rule.

Today, foreclosures have changed. They are among us, but there are no longer so many of them that we must beat them back with large sticks and flames. Their numbers have fallen to where we can manage them now. Fannie Mae has bolstered the price of many of their foreclosures to the extent that an REO property, in many cases, no longer represents some rare pricing opportunity. Foreclosures, once the darling of bargain hunters everywhere, are more and more being priced just like any other non-distressed sale. The era of stealing REO properties, as it relates to Lake Geneva, may indeed be over. Thank God.

I scanned the Lis Pendens filings this morning, because I care, and I didn’t see anything alarming. In fact, I saw fewer LP filings in Geneva National than I expected, and I saw nothing around the lake with the exception of some possible trouble over in Somerset. I saw little else. I perused the Sheriff’s Sale candidates and found a few of interest- one in Glenwood Springs (off water), one in the Abbey Villas, some here and there but mostly nothing. Elkhorn and Pell Lake seem to remain plagued by foreclosure trouble, but the cold reality of my life is that these foreclosure troubles mean nothing to our Lake Geneva vacation home market, so while they are unfortunate and difficult for those affected, they do not affect those who are vested in the Lake Geneva market.

Home prices are on the rise around the lake, even if marginally and slowly, it is obvious to me that certain segments are indeed appreciating. These value increases- the first in six years- should buoy some faltering owners. A 5% value gain won’t save someone who is 20% under water, but if an owner is hovering somewhere around neutral equity, a 5% gain may be the difference between giving in to the financial pressure and fighting it off. If a home is worth $400k and an owner is having trouble paying a $400k mortgage on that home, a $20k price gain may allow a sale without going short, and it may also provide some hope that future price gains will ward off the miserable feeling that is negative, or even neutral, equity.

For buyers, the absence of foreclosure opportunities is not a bad thing. It was nice to pick off a few cheap foreclosures over the past few years, and several buyers benefited from over-extended sellers who washed out. However, with the REO holders firming their prices to be more in line with non-distressed offerings, I’d argue that these REO properties offer little in terms of market-beating value. If a seller owes nothing on a $400k cottage, and he’s owned it for 30 years, this is an owner who may be willing to sell at a steep discount. If an REO holding bank has the same property that they acquired via foreclosure, that property may hit the market at $379k and then negotiate only a few percent off of that price. In other words, foreclosures are lame and we shouldn’t be focused on buying them anymore.

Next time you see a cute little foreclosure puppy wandering down your street some night, chances are you should just throw a stick at it and tell it to scram.

Come see me at my open house in the South Shore Club on Saturday. I’ll be there from 12-3 pm. It’ll be fun.

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