I think I miss those old days. Back when a foreclosure was a rare, mostly unspoken thing, back when no one knew much about the procedure except for hardened, narrow eyed, real estate vultures. Now, sweet retirees and young first time home buyers, we are all vultures. We have seen the turmoil and we have seen the outcome and we recognize the opportunity.

I knew foreclosures weren’t going to disappear in 2013. There was no magical turning of the calendar to eliminate the need for rapid appreciation on the homes owned by those underwater borrowers. Some appreciation was present in 2013, but if you owe $1MM on a house that’s worth $750k, 5% appreciation over 12 months is no life line at all. The foreclosures continued in 2013, the banks continued to stall many of their efforts on larger volume loans, and the thought that a foreclosure could be avoided because of a modified home loan continued as a theory that would never be proved. Lower interest rates likely helped some owners refinance their loans, but it’s safe to assume that these were never in true danger of foreclosure anyway. Re-setting a 6% mortgage down to 5% doesn’t mean all that much to a homeowner with $200k worth of negative equity.

Lake Geneva proved its resiliency in 2013, and the lakefront and lake access ownership group proved once again that it is a financially conservative contingent. As I looked over the 80+ lakefront and lake access sales on and near Geneva Lake, only three presented as traditionally distressed sales. Two were pure REO sales, those at $240k and $465k, and one lakefront was a short sale, at $1.375MM. Further confounding me and bucking the national trend, the lakefront condo market didn’t have a single REO or short sale registered in the MLS. As I’ve said many times before, this strength surprises me as condo ownership entails mandatory monthly assessments that common sense suggests would further damage the finances of a distressed owner.

These are the sold distressed properties from 2013, but more important than these is the overall trend, and some pricing inconsistencies that I’m seeing become commonplace. While many still perceive an REO listing to be pure value, no matter the actual context, I’m noticing REO properties hitting the market at prices that do not look to me like discounted numbers. Case in point, an REO on Geneva Oaks Trail, one home off the lake. That home is priced near $900k, and failed to sell after spending many months on the market during 2013. Times were an REO would hit the market and the underlying investor (Fannie Mae, more often than not) would reduce the property with strategic frequency until that property sold. The trend now seems to be to price the property at, or even above market, and then let the property soak under that big red bobber until some gullible buyer comes by and thinks, “Foreclosure? Must be a deal!”.

The REO home on Ara Glen that sold last June for $465k closed $6k over the ask. Foreclosures have a tendency to do this, and while it’s unknown what printed sales had multiple offer situations, the very style in which banks negotiate can cause a bit of heartburn for the involved buyers. Traditional offers are made, then countered, then countered and countered and countered again, and perhaps sometime later the deal is put together. An REO property is offered on, then the bank says they’d like you to make your highest and best offer. You’re confused, because your real estate experience has conditioned you to expect a written counter, with a clearly stated, written value. With this request from the bank, you then engage in a troublesome game of deciding just how much you’ll pay for this property. You offered, they told you to pay as much as you can, and by-golly that’s what you did. This is why REO sales many times print over ask, not necessarily because the value is rock solid, but because the process encourages overbidding. Remember in 2012 when someone paid $1.86MM for a lakefront REO that was listed at $1.584? Yeah, me too.

2014 will not be the year that foreclosures cease around Lake Geneva. In fact, I have one lakefront REO property coming to market shortly, so there will be at least one lakefront foreclosure sold early this year. I have the short sale still pending at Conference Point, so assuming that closes sometime before I die, we’ll have that short sale to count. I expect there will be some other foreclosure or short sale on the lake this year. I say that without any brewing proof, but still. Look for another two or three off-water foreclosures, as this slow trickle of foreclosures continues for at least another year. If you think I’m wrong, just remember that the presence of increased volume and even slightly increased values cannot save a homeowner who is seriously underwater.