Foreclosure market offers home-buying opportunities
In March, Gottschalk bought a bank-owned foreclosure, a two-bedroom, farm-style house on East Holmes Street in the Courthouse Hill Historic District. Despite sitting vacant for a year, Gottschalk said, the place was in good shape inside. It had no mold problems and needed no serious renovations.
Gottschalk paid $90,000 for her house—well below the home’s current assessed value of $158,000. She financed it with a Federal Housing Administration loan through a mortgage broker.
Gottschalk’s experience is part of an emerging trend in local home sales: the foreclosure market. Last year, one in five single-family home sales in Janesville was linked to foreclosure, according to South Central Wisconsin Multiple Listing Service.
Gottschalk said she knew before she bought the house that it would need all new appliances because the former owners had stripped them out prior to losing the house in foreclosure.
She also knew from an inspection that the central air conditioning and furnace needed to be replaced. Add to that some needed roof work, and repairs and replacements at Gottschalk’s house could wind up costing her $20,000 over the next year.
Factoring in her expenses with the current market, Gottschalk figures if she sold the house now, she’d break even. She’s fine with that, in part because she plans to own the home long term. She likes her new house, and feels she got a good deal.
For local investors, the current foreclosure market provides a chance to snap up distressed properties at bargain prices—some of them far below market value.
The same deals could be available for intrepid first- or second-time homebuyers. But there are caveats, local experts say.
The condition of foreclosed properties can vary widely. So can lending conditions for mortgages and for improvements on foreclosed homes.
Gottschalk, a local agent with Prudential Community Realty, has this advice for inexperienced homebuyers with scant knowledge of the foreclosure market: “You have to be careful, and you’ve got to educate yourself.”
What you see …
Sherri Stumpf, President of Blackhawk Community Credit Union in Janesville, said the main thing to remember about bank-owned foreclosures—properties bought by lenders after unsuccessful foreclosure auctions—is that they’re basically sold in “as is” condition.
“What you see is what you get,” she said. “If you think about it from the financial institution’s standpoint, we’re already out,” Stumpf said.
Stumpf said many lenders will only give loans for foreclosed properties that are in move-in condition.
She said banks that own foreclosed properties generally offer mortgages on listings that are in reasonably good shape. If the buyer can secure a loan for repairs, it often comes with strings attached: they’re required to hire certified contractors.
Stumpf said bank-owned properties that need a lot of work often are sold to investors who have cash up front.
The “sold as is” factor applies especially to homes sold at foreclosure auctions, but those sales are different.
At auctions, buyers—mostly investors—come ready to pay cash on the spot. They typically pay no less than what the mortgage holder will be bidding: the unpaid balance of the foreclosed loan.
Gottschalk says inexperienced homebuyers should think twice about trying to score at a foreclosure auction.
“In my experience, the foreclosure auctions seem more for investors. It’s not for the average person,” she said.
In any case, buyers should investigate in advance whether a property being sold at a foreclosure auction has unpaid taxes or liens against it. Both issues could stand in the way of owning the property free and clear.
On the other hand, bank-owned foreclosures have all back taxes and other costs paid, guaranteeing the buyer a clear title.
Get an inspection
Before negotiating purchase of a bank-owned foreclosed property, buyers should get a thorough home inspection by someone who is familiar with foreclosures.
Many foreclosed properties sit empty for months pending sale or while the foreclosure process plays out. During that time, some banks shut off utilities and in the late fall winterize the properties. The properties can develop problems common to long-term vacancy.
Gary Getchel, who runs Home Pro Inspection Service in Milton, routinely inspects local foreclosed properties. He said some of the properties are in great shape, but he said others need between $1,000 and $10,000 in repairs, rehabilitation or appliance replacement.
The most common problem in foreclosed properties, Getchel said, is water damage and interior mold from roof or exterior leaks. In older foreclosed homes that have been improperly winterized, the pipes can get clogged with rust.
In some cases, former owners have stripped out appliances and other items, such as central air conditioning units.
Sometimes foreclosed properties get broken into or vandalized.
“We’ve seen a few (foreclosed) houses in Janesville and Beloit where people have gotten in through the windows and taken copper (pipes),” said Getchel.
Some have intentional damage or neglect by former owners who were frustrated over losing their home. That could mean holes knocked in walls or cabinets and pipes ripped out.
Getchel sees damage like that only about 5 percent of the time, but he said it can lead to $20,000 or more in repairs for a new owner.
Do your homework
Foreclosed properties and owner-occupied properties can look similar from the curb or from listings on the Internet, and can be priced similarly.
But Gottschalk said buyers can learn by asking realtors if a listing is a foreclosure and whether it’s bank-owned.
She said banks and realtors won’t make disclosures on the condition of a foreclosed home, but homebuyers often can learn from a realtor details such as the age of its roof or furnace, or how long it’s sat on the market.
People can use their own eyes, too, said Stumpf.
If the property’s sat vacant through at least one winter, looks overgrown or untended or it’s been vandalized, that could yield clues on the property’s condition inside.