Investors Are Turning Away From Foreclosure Auctions
December 29th, 2008
The majority of investors are turning away from foreclosure auctions. During ordinary times investing in foreclosure is risky. Today it is ten times more hazardous to bid in a foreclosure court auction.
First condition is that there must be ready cash in hand. The bidders have to put down 10% as soon as they win. The balance will have to be cleared within 30 days.
The biggest problem is that the buyer is not sure about what is being bought. Nobody has the permission to enter the houses that are up for auction and thoroughly check its condition. Only after having bought it does expensive surprises pop up. This is not surprising since the previous owners either usually vandalize the unit out of frustration or they did not have the means to see to its maintenance. Repossessed houses lying vacant attract criminals who comb through and strip it apart.
Joel Friedberg is an attorney. He said, “Headaches are really the problem in this business.” He quips that there are about one hundred ways of losing money on foreclosure purchases. The trick is to avoid ninety-nine of these. Louis Zazzarino deals in real estate and like Friedberg he has had bitter experience about buying units in foreclosure auctions. During the boom time investors quickly bought and sold but those days have become history.
In October this year there were 2.059 foreclosure posting in Westchester County – a 14.8% increase year over year. Many mortgages made in 2004 are about to reset and this will cause another flood of foreclosures in 2009.
But investors keep returning to foreclosure auctions on the hope that banks might suddenly take a “haircut” – agree to a bid that is much lower than what has been advertised. Earlier this year Zazzarino had benefited from one such deal. The loan was for $500,000 but the bank let go of this commercial property for $220,000. The unit required expensive repairs but fortunately for him, Zazzarino was able to sell it for a profit quickly.
Investors are shying away from places where there are too many foreclosed houses concentrated. They reason is that in such a locality with a surfeit of houses it will be difficult to find buyers. Mount Vernon is one of these places. During the hey days, most of the houses were either financed or refinanced at a value well above its real worth.
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- The Sin City of Las Vegas Is Now Becoming the Foreclosure City of Tents
- Afro-Americans Are Suffering the Most for this Foreclosure Crisis
- Congressional Panel Is Worried About Misuse of Funds Meant for Foreclosure Prevention
- Increase in Foreclosure Activity is Leading to More Homelessness
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