Posted about 2 months ago

Common Traits I See With Foreclosure Listings

In the first half of 2020, foreclosure rates plummeted by 44% from last year and 54% from the same time period 2 years ago. Foreclosure starts are the lowest since 2nd half of 2005. I wouldn't get too overjoyed with these stats, as foreclosure rates seem to be at their lowest right before the s%!t hits the fan. Check out this graph.

Normal 1596162412 Us Historical Fc Activity And Rates Graph2019

There was some debate from another one of my blog posts when I said rookie investors should avoid investing right now and I thought the market was near or at its peak. As an REO agent, I wanted to go over some of the things my foreclosure listings had in common and hopefully you can avoid whether you are purchasing for an investment or for your personal residence.

  • Homes bought during the height of the market. 
  • Seen it time and time again, foreclosure listings I had that were purchased in New Jersey were from the years of 2007 to 2009. It takes a long period of time to foreclose in the Garden State combined with a foreclosure moratorium that took place at one point, I saw plenty of foreclosures that were purchased during that time period that I listed in the years of 2015-2019. Impossible to predict the exact height of the market, but I bet we are damn near close to it now.
  • Homes that did not conform to the neighborhood
  • 2,800 square foot homes in a typical 1,400 square foot home neighborhood, 2 bedroom homes in a 3-4 bedroom area, homes with awkward floor plans, condos over-improved with high end finishes & appliances, McMansions in a first time home buyer type of community, and so on.
  • Homes that had external inadequacies
  • Examples: Houses next to gas stations, located on main roads, have flood zone settings, near noisy railroad lines, next to commercial properties, etc. Homes with these type of negatives don't retain their home values nor increase in value as quickly as homes without an external inadequacy. Things that home buyers overlooked in a hot market, suddenly become giant obstacles to selling when it becomes a buyer's market and home purchasers can be picky about what they buy.
  • Cashing out of all the equity
  • During the last housing bubble, homeowners treated their house like an ATM, cashing out their equity. They used it for vacations, paying off credit card debt, and maybe some home improvements. Then when the market went down hill, they were suddenly under water. Banks made it tough to get their loan modified, some tried to do a short sale, and others got foreclosed on. Just a reminder, you can't do loan modifications on an investment property unless it was some kind of private loan.
  • They had an adjustment rate mortgage
  • I still come across homebuyers using an adjustable rate mortgage. Why would you use an adjustable rate mortgage when we are at historical lows? It has no where to go but up.

I hope this helps you avoid foreclosure. It is interesting to see how this market will play out with all the factors at play now between COVID-19, high unemployment, small businesses closing, schools closed, unemployment running out, landlords not being able to get rent from their tenants, police being defunded, and a presidential election.

Photo credit: People photo created by yanalya -