April 2009

Bidding wars on foreclosures? What does the future hold? Investors want to know!

Yes, according to the Wall Street Journal and local brokers, bidding wars are breaking out over REO properties. Certainly there is a lot of money on the sidelines, and investors are getting ready to snatch up the best deals. Some investors are aggressively pursing deals right now. However, the New York Times reported on 4/22/09 that “Fannie Mae, like many banks, is inundated with foreclosed properties. In recent weeks, banks have begun accelerating foreclosures again, after having held off while waiting to find out which homeowners would be eligible for the Obama administration’s assistance program.” So, these multiple-offer situations may be a result of (1) banks deliberately underpricing properties (shades of the go-go days!) ; (2) the simple fact that a lot of distressed inventory has been kept from the market over the last few months; and/or (3) investors who write up dozens of offers on REOs, hoping that the bank will take the bait on at least one — thus inundating sellers with “multiple offers” — although few serious ones.

An observation: a few weeks ago, I found a very nice looking property in North Hollywood while I was working an open house on the same block. The property looked like it had been extensively rehabbed in the not-too-distant past. It may have been someone’s flip. To make a long story short, it was vacant, and had been broken into and vandalized on the inside. From what I could see, it was mostly cosmetic damage, so I thought it might make a good property for one of my investor clients. So, I jumped on my computer to see who owned it. The answer was: WaMu now known as Chase, and it was an expired listing. Since I have a personal relationship with Chase, I thought I’d have a go at trying to get the listing, or at least find out what they intended to do with the property. The result, after many phone calls and emails — I could not get anyone to give me an answer. So the property is still languishing there, waiting for some more vandalism, or perhaps some squatters to move in. What a shame!

On a similar note, I heard a story (about relatives of my friends) who stopped paying their mortgage last year. Figuring it was only a matter of time before foreclosure, they moved out into a rental. After a few months went by, one of their old neighbors told them that nothing had been going on at their “old” house. So, they promptly moved back in where they have been living mortgage- and rent-free since then.

What’s the lesson here? If these stories are evidence of a larger trend, we will see a lot more inventory and even better prices over the next year. You should get your ducks in a row now, and start investigating interesting markets so that you will know a great deal when you see it.