I’m really sounding like a broken record, but given the inquiries that I get on the foreclosure subject, it’s still a timely issue. The Lake Geneva foreclosure scene continues unchanged, and if anything, it appears that foreclosure filings are slowing in Walworth County. The city of Delavan leads the pack, with Elkhorn, Whitewater, Pell Lake, and the Lake Como area filling in the foreclosure activity for Walworth County. Homes with lakerights to Geneva involved in foreclosure proceedings are limited right now to two homes in Country Club Estates, and one in Indian Hills. Again, strange as it may be, one of the homes in Country Club that is heading towards foreclosure isn’t even on the open market. Apparently, that owner-for-now hasn’t applied my three step plan to avoiding foreclosure (step 1 is listing your home on the open market, but step 3 is the real bit of sage advice- buy lottery tickets until you win).
Remember that the sheriff sale isn’t really something that the average investor should attend. Why not? Because you have to recall the capitalist manifesto on the foreclosure process and focus on the engine that’s driving this phenomenon. The outstanding notes on the homes that are involved in foreclosure are almost always higher than the actual value of the home, thus the foreclosure. Foreclosures are largely happening because of a lack of positive equity, so let’s take a look at a hypothetical home that’s heading to auction. If there’s a home that should be worth roughly $200k, but in order for it to be a steal you’d have to buy it for $140k, the mortgage on that home would likely be $210k. At these foreclosure auctions, the plaintiff (the bank) sets the opening bid number, which is a price that includes the outstanding loan balance, as well as any penalties and interest that have accrued. Let’s say that $210k note has swelled to $220k by the time all the frosting is added. Why would you go to auction to buy a home that you think is worth $140k, when the bank is going to want $220k for it at auction? So if you’re not buying it at auction, what are you supposed to do? You know I love it when you ask…
You wait out the bank. See, the bank begins a several month long process that is rife with procedural folly and wasted money. Once the bank is a proud new owner of a run down home that isn’t worth 60% of what they were owed on it, they usually will have an appraisal done. Then a BPO (broker price opinion), where a guy like me might tell them what I think the home is worth (I’m always low). Then they punt the file around their office for a couple months, and finally list the home with what is usually an out of town REO broker who snaps one lousy picture of the home and provides an MLS description that rambles about special disclosures and addendums needed, but usually forgets to mention anything positive about the house. Then, and only then, do you pounce on this house.
In review… Watch a foreclosure in process (or have Dave Curry watch it for you). Wait until the foreclosure goes to auction. Let the bank fumble and bumble the property for a couple months, all the while keeping a shrewd eye on the process. Make sure Dave Curry alerts you when the property hits the market as an REO property. Have Dave Curry negotiate the pants off of the bank for you. Congratulate yourself for your vision and decisiveness in securing a property at the perfect price. Consult with Dave Curry as to what it is you should do with the house- renovate/rent/resale? With your right hand, reach around your left shoulder and pat yourself on the back, while at the same time reaching over with your left hand and simultaneously pat Dave Curry on his back (if there’s any room left).