bostonbubble.com

[admin]

I have heard a lot of people remark that once the bubble bursts they plan to scoop up some foreclosures, presumably because they will be plentiful and cheap (relatively speaking). The thought has crossed my mind as well. However, I have also heard some caveats that could potentially make the process less attractive, if true. I'd like to start an ongoing discussion about how the process works in Boston while simultaneously considering whether it is worth it. I will try to post my research here and I encourage others to do the same.

One thing that I read on the Craigslist forums is that you can't get title insurance on foreclosed properties. That seems like it would increase the risk quite a bit, probably more so than I would be comfortable with. The first question that follows is: is it true that you can't get title insurance on foreclosed properties? If that is indeed true, the second question is: are there ways to work around that? I imagine one option might be to identify properties that are in the process of being foreclosed upon but haven't been foreclosed yet and buy them then. Buying early enough in the process may allow title insurance to be obtained.

I also vaguely remember reading somewhere that banks will generally not sell foreclosed property for less than what is owed on the mortgage. Is that true? That may need to change with today's popularity of interest only, zero down, and negative amortization loans since many of those homes are immediately worth less than the total of the loans. From economics 101, the mortgage is a sunk cost for the lender and as such it doesn't matter whether they can sell the foreclosed property above cost or not - they should sell at the highest price they can get because some money is better than no money. Of course, they aren't legally obligated to act rationally, so perhaps they do succumb to the sunk cost fallacy. In any case, I think this problem could also be avoided by buying properties that are about to be foreclosed upon but haven't been yet. Then it is the original buyer who would need to sell below cost and he may be more motivated than a bank if he is faced with bankruptcy. (Actually, I'm not even sure that banks would be the ones foreclosing anymore since the current process, if I understand correctly, generally involves mortgages being bundled together resold as securities. So maybe this is more of an uncertain question than I anticipated if the the makeup of the lenders who hold the debt has transformed from what it has historically been.)

Another problem with foreclosures is that you need to buy them in cash (I think). That would severely limit the quantity of what most people could buy. Again, this problem could probably be averted by identifying properties in pre-foreclosure so that you can use standard debt channels.

So, my main question now is how do the various stages of the foreclosure process work in Boston? I would be primarily interested in identifying properties early enough before foreclosure so that a sale could be made to avert foreclosure, but I am interested in all the stages as well. Are newspaper listings required when a house is eventually foreclosed? What papers generally have the most listings? Are there auctions, where are they, and how frequent? Is it possible to readily identify properties that are in danger of foreclosure but which are far enough away from foreclosure that they could be resold via normal channels? Perhaps this would be a useful service for people who get slapped with sticker shock once their mortgages convert to their adjustable rates - if they find that they can no longer handle the payments, it may be nice if they had a way out which could avert foreclosure and bankruptcy. The web seems ideal for this.

As an aside, the most prominent front page article of the August 5th Boston Herald was a story on foreclosures in the area. The headline was "OUT ON THE STREET: Bank seizures rattle Hub neighborhoods". I searched for an online version for a little while (though not extensively), but haven't found it online yet. The whole paper felt like it had a bit of a sensationalistic feel to it, but it did have some hard stats which did show the number of foreclosures in the Boston area rising by what sounded like quite a substantial amount. I do a have a print copy, so maybe I'll be able to dig up their source references and reproduce the numbers with slightly less drama.

- admin

[admin]

Here's the Boston Herald article I was referring to:

http://news.bostonherald.com/localRegional/view.bg?articleid=96710

I linked to it from the main page as well since I was able to pull out some non-anecdotal stats. Specifically, it appears that foreclosures in Boston are up 37 percent over the same period in 2004.

- admin

[Eti]

Hi:

Banks will not sell the property for less than what is owed, they will buy it themselves. Here is also another situation, HELOCS or second mortgages. Lets say that the house has a 1st mortgage of $100K and the bank goes to foreclosure, and lets say that the owner also has a second mortgage of $50K ( many people got second mortgages to use like a checking account). In that case the second mortgagee will buy the house and pay off the 1st mortgage because they do not want to lose money. Most of the time the bank that foreclosed cares only about its own debt and does not try to cover the second or third lien holders.

We had a similar situation in one of the banks I worked and the highest bidder at the action would only cover the 1st mortgage so we had to buy the house and resell it.

You may not be able to get mortgage on the house because I do not think you can appraise the house, you also do not see the inside of the house which may require a lot of work.

There are many real estate people out there who track people that defaulted in their mortgage and try to buy these homes for much cheaper. I think it is not a good idea for a regular person to get under such risk, because I do not think you can really get a good deal. Logically speaking if you have only $100K mortgage left on a $300K home you can go ahead and sell the house for less than the appraised value and end up getting a profit. Homes that foreclose usually have high debts on them. Or you can try to get insider information from the real estate professionals and try to find a good deal.