While driving through mostly rural eastern Connecticut yesterday, Sue and I noticed more than a few signs on phone poles, “Foreclosure? We buy houses” followed by a phone number.
There must be some serious hurting going on there… and it’s not an area that had a big run up in prices either.
Not to be contrary, but the people who put those signs up are banking that the market is going to improve. They are looking for property to invest in at cheap prices. I know people who do this, and actually took a class from one of them on how it works. If they have a good sense of the market, they can do very well. If they’re timing’s off, they get hosed.
The way it typically works is, the buyer assumes the mortgage from the seller (even if it’s not assumable), pays it current (which makes the lender happy), and takes title to the property. He/she also gives the seller some cash. The seller protects their credit, gets some cash to move with, and avoids a potential tax liability for debt foregiveness which would occur of the bank sold the house for less than is owed. (Isn’t that a kicker? You’ve just lost your house in foreclosure and the IRS hits you with a tax bill for your trouble! If you’re insovlent, you may be able to avoid the liability, but still…) Depending on the integrity of the buyer, this may be a fair deal for the seller. Or not.
In this scenario, the buyer controls the deal. The presence of these signs means there’s money to be invested in real estate in your area from people who think the tide is about to change.
Well, in the best scenario, the in-trouble owner walks away with intact credit and a little money left over. It could also be they are desperate, get a very low offer on the house and still have debt when it’s over.
A friend in LA put his home on the market at 670k recently, and immediately got an offer for 550k, so someone was looking to exploit road kill (he quickly turned it down and ended up getting 660k.)
Given that millions of ARMs are about to reset higher, it looks more like the pain is just starting rather than ending.
What struck me about the signs though was that they were in a working class rural area that probably hasn’t had much appreciation in prices at all. Yet many homeowners were clearly in trouble.
It is certainly an example of someone with money taking advantage of someone who doesn’t– sometimes to mutual benefit, but not always. Yet it’s a positive sign for the market, because if the buyer didn’t think his purchase would appreciate, he’d keep the money in the bank (or put it in stocks). It doesn’t mean the buyer is correct, but it does mean that’s his/her thinking. Nobody wants to get saddled with a property albatross they can’t afford to sell!