This article on slate.com puts forth the notion that banks are afraid to foreclosure on delinquent homeowners. The author makes the argument that foreclosures cause a hit to the bank's balance sheet and create bad PR, so banks would rather let mortgagees miss more and more payments than take their houses back. Lower foreclosures also helps keep the bank's stock price high.
I'm not sure I agree with this. As the author states, in Louisiana and other hurricane-damaged areas, it does seem to make sense not to foreclose. But everywhere else? I can't see it. Banks balance sheets contain entries for non-performing and under-performing loans, so the balance sheet still takes a hit. (And this is not even considering the lack of income non-payment of loans causes the bank, which also shows up on the balance sheets.) If investors see lots of underperforming loans on the books, I think questions are going to be raised about the bank's business practices: Why is the bank lending to deadbeats? Why is the bank continuing to lose money on these loans rather than cut their losses? Now, I do think banks have a bit of wiggle room here. Because of the hurricanes, they can claim higher than normal amounts of non-performing loans and get away with it, which allows them to hold off on foreclosures across the nation and not just in disaster areas, since they most likely aren't going to break out the loans by state in the financial reports. But this is a temporary reprieve and dragging it out will only delay the inevitable. Indeed, it will make it worse as each month that goes by without a payment is that much more money the bank has lost.
It also appears that current data does not support the author's conclusions. The article is based on data up to the second quarter of 2005 - data that is several months old. As I mentioned before, foreclosures have actually increased nationwide in the last couple of months. (And interestingly, that article attributes part of the rise to increases in foreclosures in hurricane disaster areas - exactly the opposite of what the Slate article predicts.)
Offer Turned Down
I guess the agent was not able to convince his seller to take my offer. I never heard back from him and my offer expired at 4 PM yesterday. If the seller is really strapped for cash, and based on the agent's suggestion of a 7 day escrow and non-refundable deposit, I think he is, I may hear back from them. Then again, it might just be that the agent wants to sell this property more than the seller - he works for "Scottsdale Luxury Properties" and this thing is anything but a luxury property! Oh well. On to the next one!
Offer Possibly Accepted
Got a call from the agent for Property C. He is going to take my offer to his client and he thinks his client will accept it. He wanted to know if I could close in 7 days. I have no problem with that, but I had to check with my escrow company if they could move that fast. He also wanted to know if I would make my $1,000 earnest money deposit non-refundable upon contract acceptance. I agreed to that. The agent said the guy needs money and this would sweeten the offer, given that it was already $40,000 below the asking price.
I called up the escrow officer I used for the sale of my last property, since she was so helpful. She definitely remembered me :-) and said there was no problem closing in 7 days.
So now I'm just waiting to hear back from the seller. And of course, I have the usual self-doubts now: should I have offered less, what if the house is a disaster, etc. I've called my agent to request some comps to see if her values are in line with my values. It's a bit scary now, given the current price declining environment. I suppose if I get cold feet, I can back out at the counter-offer. The seller will need to write a counter to change the COE date and make the deposit non-refundable. I told the agent those changes were ok, so if I do back out, it will probably piss him off, but better that than be stuck with a bad deal.
I called up the escrow officer I used for the sale of my last property, since she was so helpful. She definitely remembered me :-) and said there was no problem closing in 7 days.
So now I'm just waiting to hear back from the seller. And of course, I have the usual self-doubts now: should I have offered less, what if the house is a disaster, etc. I've called my agent to request some comps to see if her values are in line with my values. It's a bit scary now, given the current price declining environment. I suppose if I get cold feet, I can back out at the counter-offer. The seller will need to write a counter to change the COE date and make the deposit non-refundable. I told the agent those changes were ok, so if I do back out, it will probably piss him off, but better that than be stuck with a bad deal.
Back Into The Swing Of Things
With the holidays approaching, I felt I really needed to at least get some offers out there. I figure there probably aren't too many people buying houses this time of year, so I'd have a better chance at getting my lowball offers accepted. I've had this thought in the back of my mind since before Thanksgiving, but I just been so busy. Even though I'm still really busy, I managed to make some time for research yesterday..
I spent a couple of hours searching the MLS for motivated sellers. I came across several properties and narrowed the list down to three. I then called the agents and got some information about each property.
Property A was a small house in Mesa. The listing said the seller was motivated, but after talking to the listing agent, I didn't get that feeling. I can't pick out any one thing that made me feel that way. It was just a feeling. Anyway, the property was at the upper end of my price range, so I passed on it.
Property B was a house in Phoenix. The listing said the owner had passed away and a son was selling the house. It was being sold "as-is" and the owner knew there was a leak in the roof, but would not fix it. This sounded good, so I called the agent and was told the property was actually owned by three sons (which I already knew from a property records search) and that they had a couple of offers already. The agent was meeting with all three sons that afternoon. I didn't have a chance to write up an offer and fax it in and was planning on doing that this morning. Just for the heck of it, I looked up the property again this morning to see if the sons had accepted any of the offers. The status is no longer "available", but "TOM," which I believe stands for Taken Off Market. I haven't spoken to the agent yet, but I'm guessing the sons did not accept any of the offers and took the property off the market for some reason. Perhaps they want to wait a bit before selling, perhaps there are estate issues. I don't know. I'm going to go ahead and fax in my offer anyway. Maybe it will generate a phone call from the agent with some more details. Given that three people are involved and they have already received a couple offers, I don't expect my offer to be accepted.
Property C was a small house in south Phoenix. Again, the listing said the owner was motivated and to bring all offers. The agent told me the owner currently lives in Show Low and is at the property only occasionally. A records search shows he bought the property in 1995 for about $46,000. The agent said he's put in new electrical, new plumbing, and one year ago, he put in a new roof. The picture shows the outside to be in ok shape, but you can tell it's vacant. I figured with the owner living 150+ miles out of town, he's probably well motivated. I faxed an offer yesterday afternoon that was about $40,000 under the list price, but, as always, I included a cover sheet pointing out the positives of my offer: all cash, quick closing, and pointed out that I was not using an agent, so the seller will save X dollars in commission (where X is 3% of my offer). No response yet.
I also talked to a Realtor about getting daily MLS listings emailed to me. His website allows you to set that up yourself, but the only criteria I could specify was price range and cities. He called me up after receiving my request and I told him what I was looking for and that I was hoping to get a listing of properties that used certain keywords in the listing agent's comments field. He said he thought he could do that and would set me up. I see this morning I've gotten two emails from him, but I haven't checked them out yet, so I don't know how successful he was.
I spent a couple of hours searching the MLS for motivated sellers. I came across several properties and narrowed the list down to three. I then called the agents and got some information about each property.
Property A was a small house in Mesa. The listing said the seller was motivated, but after talking to the listing agent, I didn't get that feeling. I can't pick out any one thing that made me feel that way. It was just a feeling. Anyway, the property was at the upper end of my price range, so I passed on it.
Property B was a house in Phoenix. The listing said the owner had passed away and a son was selling the house. It was being sold "as-is" and the owner knew there was a leak in the roof, but would not fix it. This sounded good, so I called the agent and was told the property was actually owned by three sons (which I already knew from a property records search) and that they had a couple of offers already. The agent was meeting with all three sons that afternoon. I didn't have a chance to write up an offer and fax it in and was planning on doing that this morning. Just for the heck of it, I looked up the property again this morning to see if the sons had accepted any of the offers. The status is no longer "available", but "TOM," which I believe stands for Taken Off Market. I haven't spoken to the agent yet, but I'm guessing the sons did not accept any of the offers and took the property off the market for some reason. Perhaps they want to wait a bit before selling, perhaps there are estate issues. I don't know. I'm going to go ahead and fax in my offer anyway. Maybe it will generate a phone call from the agent with some more details. Given that three people are involved and they have already received a couple offers, I don't expect my offer to be accepted.
Property C was a small house in south Phoenix. Again, the listing said the owner was motivated and to bring all offers. The agent told me the owner currently lives in Show Low and is at the property only occasionally. A records search shows he bought the property in 1995 for about $46,000. The agent said he's put in new electrical, new plumbing, and one year ago, he put in a new roof. The picture shows the outside to be in ok shape, but you can tell it's vacant. I figured with the owner living 150+ miles out of town, he's probably well motivated. I faxed an offer yesterday afternoon that was about $40,000 under the list price, but, as always, I included a cover sheet pointing out the positives of my offer: all cash, quick closing, and pointed out that I was not using an agent, so the seller will save X dollars in commission (where X is 3% of my offer). No response yet.
I also talked to a Realtor about getting daily MLS listings emailed to me. His website allows you to set that up yourself, but the only criteria I could specify was price range and cities. He called me up after receiving my request and I told him what I was looking for and that I was hoping to get a listing of properties that used certain keywords in the listing agent's comments field. He said he thought he could do that and would set me up. I see this morning I've gotten two emails from him, but I haven't checked them out yet, so I don't know how successful he was.
Foreclosures Increasing Nationwide
I found a news article on The Creative Investor from RealtyTrac which states nationally, foreclosures were up almost 19% in October over the previous month. At that rate, 1 in every 1,422 households in the nation has entered foreclosure. The states with the largest number of foreclosures were New Jersey, Texas, and New Mexico. Here in Arizona, the foreclosure rate actually dropped by 6.9%.
What surprises me is the Arizona statistic. Actually, in looking at the data state by state, 25 states had a decrease in the number of foreclosures. So half the states in the country experienced a decrease in foreclosures, but the increased numbers in the other states more than made up for them. I would have expected increases in more states. As interest rates rise, it seems inevitable that those with variable rate mortgages will fall behind. However, there is some lag between the interest rate increase and mortgages going into default, since the mortgage company will usually give the home owner a couple of months of being late before starting foreclosure proceedings. Expect more increases in the future and prepare yourself for the opportunities they present!
What surprises me is the Arizona statistic. Actually, in looking at the data state by state, 25 states had a decrease in the number of foreclosures. So half the states in the country experienced a decrease in foreclosures, but the increased numbers in the other states more than made up for them. I would have expected increases in more states. As interest rates rise, it seems inevitable that those with variable rate mortgages will fall behind. However, there is some lag between the interest rate increase and mortgages going into default, since the mortgage company will usually give the home owner a couple of months of being late before starting foreclosure proceedings. Expect more increases in the future and prepare yourself for the opportunities they present!
