Use caution with foreclosures

The number of Americans who are delinquent on their mortgages (which are loans that are behind a monthly payment or more) and the inventory of homes in foreclosure are below pre-recession levels, according to the Mortgage Bankers Association.

Delinquent home loans decreased to 6.39% in the fourth quarter of 2013, which is an improvement from 7.09% reported for the fourth quarter of 2012.  The inventory of foreclosed homes dropped to its lowest level in five years. The backlog of foreclosure inventory also decreased since 2008 while the number of loans in the foreclosure process was the lowest since about six years ago.

The majority of delinquent loans (75%) were made by banks in 2007 or earlier. The rate of delinquent loans made after 2007 was consistent with historical levels.

The reduction in the foreclosure rate is attributed to improvement of the economy and unemployment, the tightening of lending policies, better ensuring borrowers can afford loans, and increasing home prices in many areas of the country. Nationwide prices in December were more than 8% higher than in the previous year.

Slightly more than 11.4% of loans were underwater last October. That seems like a big number, but this was 7.6% less than at the beginning of 2012, according to Blacknight Financial Services. The improvement of foreclosures is not consistent across the country. There are some areas that lag others because of the correlation of foreclosures to economic changes specific to markets.

The states with the highest number of foreclosures are those where banks must get court approval to foreclose. Connecticut is one of these 22 judicial states.

Realtors are seeing properties owned by banks after a law date or foreclosure scattered around Greenwich. Buyers, however, need to be cautious in considering these properties. They are often sold “as is,” which can be a challenge for buyers once they take it on. If the home is not in a condition to live in, a purchaser requiring a mortgage may not get one.

The home may have problems being appraised. There may “costs to cure” the home or simply make it fit for living. Unless the bank is willing to have a buyer, at his or her own risk, fix the home to make it livable before close, the buyer will not secure a mortgage.

Also, the bank and its designated agent may not know of or disclose material defects. The home might have open permits that the buyer will be responsible for closing, and this could represent significant costs. For example, there might be underground oil tanks requiring costly removal and remediation. The home might have had prior offers but failed inspections with costly issues remaining to be fixed. The bank’s real estate agent may not know the history of the property. The agent for the bank ideally wants a cash buyer who will quickly take it off the bank’s inventory.

Unfortunately, the buyer (paying cash or having a mortgage) may be assuming costly risks.

Former owners or tenants may have been in the home for years during the process of foreclosure, without maintaining or making necessary repairs, causing serious problems. Some homeowners facing foreclosure damage the home before leaving.

This is definitely a case where the buyer must beware. Buyers should conduct thorough inspections and do their homework regarding these properties. Banks have also been holding out for market prices on homes as prices have improved, so buyers may not get the discounts they expect.

 

Mary Ann Clark is a Realtor with Coldwell Banker at 177 West Putnam Avenue in Greenwich. Questions or comments may be emailed to [email protected]   

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