Foreclosure: the very mention of it causes emotion. People losing their homes; lending institutions under distress; economic indicators moving downward; communities and the people who live in them losing property value.
On the other hand, for people who have lost their homes in the recent flurry of fires in San Diego County, the repossessed home and foreclosure market may be a viable alternative to renting for several years while homes and communities undergo reconstruction, said Gregg Neuman of Neuman & Neuman Prudential California Realty.
"People tend to underestimate how long it takes to rebuild a home, much less a neighborhood," said Neuman, who has sold San Diego real estate since 1981. "An 18- to 24-month estimate would be a very quick turnaround. Three years or more would be more realistic. It's important to consider this kind of time span when planning ahead."
The good news, said Neuman, is that buyers in this market are not competing with those that in 2003 had to deal with a roaring market. "A few years ago it was typical to have multiple offers on a property, many of which were higher than the asking price," he said. "Today, sellers are fortunate to have one or two good offers after several months on the market if the home is priced appropriately. And in the foreclosure market, the lenders who hold the property are anxious to sale."
People who have lived in the San Diego community for many years, along with real estate professionals and analysts, recognize that the current downswing in the housing market is cyclical. "It's happened before," Neuman said, "corrected itself, rose and corrected itself once more." In the end, people who buy property in San Diego benefit significantly over time, he added.
"Everyone who bought after the 1995 Normal Heights fire and the 2003 Cedar fire all made money when they resold," he said.
"Patience can be tough for people who lost their homes in the fires. It's hard for all people interested in residential property with all the daily news about the decline in home values. Have we hit bottom? It's hard to say. But there are still key advantages to buying rather than renting."
Neuman stressed two key points: (1) Renters receive few tax deductions, and (2) renters earn no equity buildup.
"While fire victims may need to wait years for their home and community to be rebuilt, the current market is ideal for them to recover some equity," said Neuman.
It's important to remember, he said, that foreclosures -- while unfortunate for the homeowner who must cede the property -- remain only a small fraction of the San Diego County housing picture.
"Many people who can no longer afford their mortgages only qualified for those mortgages in the first place because lending institutions dramatically relaxed their standards," said Neuman. "Many other homeowners who entered the market with these loans have managed to meet the financial requirements. Others have become renters again. Vacancy rates in San Diego, in fact, are below 3 percent."
The good news, and potentially the very situation that will help lift San Diego from its distressed marketplace, is that the volume of foreclosures on the market also means opportunity for families who have previously been unable to get that first home or have income now to purchase.
Neuman noted that repossessed homes come in all shapes and sizes, and at all prices. "Some of the homes are in perfect condition," he said, "while others need small repairs." Either way, investing in repossessed homes makes a lot of sense because you may save approximately 10 percent to 15 percent or more on the market price of the property.
Most of the foreclosure homes listed are now owned by banks, private lenders, HUD and other financial establishments. Neuman explained that the filing of a notice of default on a home is actually the initial step toward foreclosure. There is always a pre-foreclosure period during which the homeowner can either cure the back late payments or pay the loan off in full and retain the home. Even after foreclosure in some cases there is a period of up to one year in which an owner can redeem the loan and get the home back. Most people are unable to pay during this period or are unaware of the different options available. As a result a prime property becomes a part of the increasing number of bank foreclosures for sale.
The process of foreclosure or pre-foreclosure helps a third party to get a home at a bargain price.
"If you want to buy a good home then you should look out for bank-owned foreclosures for sale," he said. With these homes you have time to investigate them physically, have inspections and be assured that the title has no surprises. "You can also check some of the best homes or properties in the pre-foreclosure period. You will have to approach the homeowner/borrower and make the proposal of buying the property outright. If the homeowner/borrower sells you the property then they will avoid having a foreclosure on their credit history. At the same time, you may get the property at a good bargain price."
If the homeowner is unable to pay the loan by the end of the pre-foreclosure period, the property is put up for a public auction where potential buyers can bid on it. These are known as Court House auctions and buyers can pay in cash or by check depending on the laws of a particular auction. There are times when a buyer may not get the appropriate time to even do a background research on the property. It's important to remember that a public auction eliminates the direct dealing with the borrower. Public auctions often offer the best bargain, but are also fraught with risks for the unsophisticated buyer.
Ellman is founder of Beck Ellman Heald Public Relations.