In large markets, a buyer could be forgiven for not fully understanding the foreclosure scene. If you’re a buyer in Miami it would be understandable if you would make a real estate decision based on what you think to be the reality of the foreclosure situation, even if your opinion was wrong. Large markets are confusing, overwhelming really, and when sorting out the inventory between REO, short sale, and actual sheriff’s sales, it’s nearly impossible to make anything but an educated guess. But what if you’re a buyer in Small Town, USA, population 126? Should you have the same difficulty understanding the foreclosure cycles and both REO and the so-called shadow inventory lurking in that market? Do I need to say no?
Lake Geneva might not be Small Town, USA, but it’s more small town than it is Miami, and as a result the foreclosure scene is fairly complicated to understand, at least on the surface. Delve a little deeper into the known inventory, obtain an understanding of recent sheriff’s sales (representing shadow inventory), and survey the current lis pendens filings, and you can gain a comprehension of the market at such a deep level that national sites like realtytrac and foreclosurenet would gladly invite you to their headquarters and implore you to share your knowledge with their staff. Or, you could just save yourself the trouble and read what I write here about Lake Geneva foreclosures and gain insight into a market that I know better than anyone. You heard me realtytrac.
Some agents, at times, have been keen on saying that Lake Geneva is different. That our market is somehow immune to the struggles that have rendered lesser markets defeated. When this new foreclosure cycle presented itself towards the tail end of 2008, I must admit that I didn’t fully understand it either. But times change, and markets move, and Realtors must adapt. The foreclosure scene as it affects the Lake Geneva vacation home market today is very different from even three years ago, but it’s still fairly easy to understand. This week I checked lis pendens filings for the past two months, reviewed scheduled sheriff’s sales, and will combine what I know of current REO inventory to give you what is the most comprehensive, if concise, review of the distressed Lake Geneva vacation home market.
Front and center today is the sale at 1020 South Lakeshore Drive in Fontana. This home is the home I’ve discussed at great length, both speculatively and with prospective buyers. It was a home that was most recently listed for $2.499MM. The property was set to sell as a short sale, when a series of events let to the property selling at sheriff’s sale. In this sale there is a lesson for everyone, and it relates to sheriff’s sales. I attend sheriff’s sales with relative frequency, but I rarely attend them to buy. Instead, if there is a property I’m interested in, I’ll go to the sale to see if anyone else shows up to buy it. If someone does, so be it. But I’m really going to the sale to “protect” my interest in that property. If I’m willing to pay what the bank’s opening bid will be, I’ll bring a check. That way, if another buyer is on the scene, I can outbid them to protect my interest in the property. But what happens if another buyer isn’t at the sheriff’s sale? Will I still pull out a check that I really shouldn’t be writing? Nope.
See, a sheriff’s sale is the vehicle whereby a bank moves one step closer to assuming ownership of the home. If I understand banks, which I do in theory, they generally cut a much steeper discount off of current value when they go to sell the property as REO. In other words, the deal on distressed property is usually at it’s best when the bank has already become the owner. There are exceptions to this wait and see scenario, but the primary exception is the emergence of other buyers. If a property is going to sell via short sale, and there are two buyers interested, there’s no way that property can be waited out and ultimately purchased as REO because someone is going to buy it first. This was the case with the short sale on North Lakeshore Drive in Fontana listed in the $1.4MMs. That property had two offers on it before ultimately going under contract to one of the buyers, so a wait and see approach on that deal would have left you sitting in the suburbs on Memorial Day while the new owner of that home read a book on your pier.
The situation with 1020 South Lakeshore might have been different, and it might have paid to wait and purchase that home as REO. Instead, the rumor is that a buyer purchased it at the sheriff’s sale, which is a nearly unheard of event. The rumored price is reasonable, but I’ll bet it ends up being a couple hundred grand heavy compared to what the REO price would have been. I’m aware I may not be making any sense to you right now.
I can’t see any other distressed sales on the lake at the moment, now that both of these aforementioned homes are under contract and scheduled to close. I didn’t see any lis pendens on the lakefront either. There is the one REO vacant lot in the South Shore Club, but that property is closing to a buyer of mine this month. Wait till you see the price. Actually, you won’t have to see the price, because you’ll probably hear the collective groan let out by the other owners at the SSC once this sale is finalized. Sorry, SSC, but you know where I think your value is. Oh, and with the REO single family sale and the upcoming REO vacant lot sale, it’s looking like I’ve been right all along. The rest of the South Shore Club looks solid, with new construction humming along at a steady clip and no other lis pendens out there that I’m aware of.
There is a foreclosure brewing at Abbey Springs, and I’ll bet you won’t hear about that anywhere but right here. There are a couple of foreclosures cooking in Country Club Estates, and a REO property on the market in Indian Hills. There is a foreclosure percolating in Cedar Point Park, and at least one simmering in Somerset. There is a bank owned property in the Harbor Watch Condominiums ready to be consumed by the right buyer as well. It should be noted, as I tend to note often, the Harbor Watch looks to be the only bank owned lakefront condominium listed, and I see just one other lis pendens affecting a lakefront condo at the moment. This condo market might be suffering a bit of illiquidity, but it’s certainly not being cooked by the fire of foreclosure that has swept other high end condominium communities elsewhere. See what I did here? I used a lot of cooking terms in this paragraph. Thanks for not noticing. I really have to stop watching those Best Thing I Ever Ate shows before bedtime.
Geneva National has a few REO properties, and a few lis pendens, but that activity is to be expected. There are slugs of foreclosures affecting the Grand Geneva timeshares, even though each month more and more people buy more and more of them. It’s insanity really, and if only those people understand what a wretched idea timeshares really are we might be able to break this cycle of buyers paying retail on the same day other buyers are defaulting on their loans. Buy timeshares on Ebay if you’re dying to be part of a fee intensive, rotating vacation club.
While the foreclosure numbers and lis pendens filings in Walworth County look to be holding steady at these elevated numbers, the distressed sales affecting the Lake Geneva vacation home market remain sparse. A quick note to the sellers who are increasingly negotiating as if it’s 2006 again, and this goes for sellers everywhere, not just in Lake Geneva: If you’re aware of an upcoming foreclosure of a property similar to yours in a similar market segment, AND you’re thinking of selling sometime in the next year or so, what should you do? Should you wait for the foreclosure to go through the lis pendens stage, then the sheriff’s sale, and then wait for it to hit the open market as REO some 9-12 months after the initial lis pendens filing? No you should not. If you’re selling, watch the foreclosure market and do your best to get out in front of any pending trouble. Pay attention to what your neighbors are doing. Make sure they’re paying their mortgage (best not to knock on their door and ask, just check the interwebs). Defensive selling is the smartest sort of selling, well, aside from the selling in the selling high and buying low scenario. Once your $1MM house is surrounded by $500k REO sales, there’s a good chance you’re not living in a $1MM house any longer. Just a thought.