Imagine bidding on a home cash-in-hand, site-unseen on the steps of the Flathead County courthouse. The competition is likely the lender that foreclosed on the property. But, if you win, you may score your dream home for a fraction of its worth – or inherit a financial nightmare.
For some, this idea isn’t too farfetched: In the last year, the number of foreclosures in Flathead County has increased five-fold, causing more people to consider buying foreclosed properties. Local real estate and title professionals say such investments can yield big rewards, but caution that they aren’t for the uneducated.
“There’s a need for buyers, as well as those going through a foreclosure or short sale, to better understand the process,” Kristi Bruyer, Realtor for Chuck Olson Real Estate, said. “There’s the misconception that it’s always the best deal.”
Last week, Bruyer gathered a group of local professionals, including Jane Foley, a vice president for Glacier Bank, Chris Ohler and Kate Lodgsdon of Insured Title and Paul Clark, principal of Whisper Creek Log Homes, for a free public seminar on the process of foreclosures, short sales and changing trends in the local housing market.
According to the Flathead County clerk and recorder office, the number of trustee deeds, or foreclosed properties, has jumped from 29 in 2007 to 149 so far this year, more than a 400 percent increase.
Maybe even more surprising is the climb in the number of “notices of trustee sales.”
One of the first steps of the foreclosure process, a notice of trustee sale doesn’t necessarily mean a home goes all the way to foreclosure – some homeowners recover before the process is complete, while others recover only to receive another notice later in the year and are repeated in the statistics.
Still, since it means a loan is in default, the notice is a good indicator of how many homeowners are struggling with their payments.
The number of notices of trustee sale has nearly tripled in Flathead County in the last year from 156 total in 2007 to 452 by Dec. 18 of this year. There were 50 notices here in the last month alone.
Short sales, local professionals say, are also on the rise. A short sale occurs when a homeowner isn’t able to sell their property at a price high enough to cover their loan. For example, someone who had a $200,000 loan but could only sell their home for $190,000 would be “short-selling” their loan by $10,000 – a loss lenders would have to agree on in exchange for the lesser return.
“We didn’t even hear the word six months ago,” Lodgson said. “So many of the Realtors we instruct had never even done a short sale.”
The main cause for the rise in short sales is likely two-fold, the panel said: The decline in market values could have drastically dropped the home’s appraised value, or the homeowner received an unfeasibly high loan to begin with.
In any case, those going through a short sale or foreclosure need to be aware of changing lender laws, Foley said. Both will now affect a seller’s credit for four years, instead of just two.
“It’s one of the pieces with this market that’s being tightened down,” she said.
Also, those who sell their properties at a short sale should know they’d be taxed on the short sale amount as income on their taxes.
For those looking to buy foreclosures, the seminar’s panel had plenty of cautionary tales. Since a piece of property isn’t officially sold until the winning bid at the county courthouse, a buyer can’t inspect it until after its purchased. Often there are unexpected – and unwelcome – surprises.
One home had been stripped of its furnace, light fixtures and even its kitchen sink before it was vacated. In another, the former owners had started a fire in the living room because they were without heat.
Jim Marty of Pro-Check Home Inspection showed pictures of faulty wiring, crumbling foundations, and crawl spaces filled with everything from mold to weeds to water. A $2 million house in Whitefish was so poorly constructed that the plumbing from the toilet ran uphill and a door lock was installed backwards.
“A lot of times people get angry, too, when they’re losing a house,” Marty said. “One man had poured a concrete slurry mixture down all the drains.”
While a home inspector can’t enter the home, Bruyer said hiring one to assess it from outside was “worth its weight in gold.”
Buyers should also make sure the property is free of liens by checking with a local title company or searching records at the county clerk and recorders office and district court. If the lender foreclosing on the property is the primary lender, then subsequent lenders are generally taken care of. But if it were say the tertiary lender, the new owner would assume responsibility for the first two liens.
“One woman bought a house at a trustee sale and found out the IRS had an $18,000 lien against the property,” Lodgeston said. “She thinks she’s going to have to pay it.”
Foreclosures that have already been purchased by the bank and short sales are usually listed with a Realtor and mostly follow a typical buying process. There’s the benefit, the panel said, of not having to make quick decisions at the courthouse and viewing the house first. Buyers should be prepared, though, to spend a little more time in the negotiating process.
“These types of sales can vary drastically from case to case,” Bruyer said. “I encourage people to use their local resources and not try to jump into it themselves.”
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