Over the past few months lenders have been conducting heavily advertised auctions of hundreds of foreclosed houses where opening bids have been about a third to a half of the value prior to the recent down-draft. Not everybody who has spent the time and money to obtain lists of these houses and to do due diligence has made out very well. Some of the properties were over-valued. Some were in poor condition, having been vacant for a long time. Some were in declining areas. Some were of poor quality. That’s not the worst of it:
When the auctions were completed, the lenders had the say over whether or not the final bid would be accepted. Many people who had paid out a lot of cash, or signed loan papers, returned home to discover weeks later that their bids had been rejected. Although their money was returned, it had been tied up not only for the balance of the auction where it could have been used to purchase other properties, but had also kept them out of the market for several weeks.
I view these auctions as trial balloons in which only a relatively tiny percentage of a lenders REO inventory is being offered to gauge the response of investors to the prices at which large numbers of houses can be sold. With foreclosures continuing to mount, and with the peak of the current sub-prime defaults projected to be in mid to late 2008, unless a house can be bought at very low percentages of true market value, it may pay to wait and sit on the sidelines a few more months.
Just to whet your appetite; in the 1970s I was able to use $100 bills buy hundreds of houses subject to existing financing from owners who hadn’t defaulted on their loans, but who wanted to move on. Within a day or so of obtaining a deed, I wholesaled 90% of the these houses, often for less than $1000 per house; but when the smoke cleared, I’d continued to make money instead of sitting on my hands waiting for the market to firm up.
In the 1980s, I ventured forth to Texas where I was able to buy defaulted loans for as little as 10 cents on the dollar, then get a deed from a relieved owner in return for complete relief from debt. I bought the loan on a 390 unit apartment building at an average cost of $775 per unit. The RTC was offering $1000,000 plus packages of mortgages for less than 2% of stated value.
In the 1990s, when Clinton’s base closings upset the California housing market, I was able to trade time shares for high rise office condominiums with defaulted loans that I paid off at discount.
The 2000s have to yet to ring in with their bargains, and when they do, I think this may eclipse all of those terrific bargain days of the past three decades, so take this time to liquidate troubled properties and amass cash. Even if you suffer some losses, you may be able to use the cash to buy back in a fraction of what you could sell for today.
