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Every week, another house is auctioned off at the Rockbridge County or Buena Vista courthouse. Most of these foreclosed homes go to lenders who are eager to sell them as quickly as possible, and that can mean new opportunities for families who are in the market to buy. Brian Greene and his wife, Glenna, said the price of foreclosed properties enticed them to buy their first home.
“We looked at several houses and we just wanted a good deal,” Greene said. “It was a good time in the market to buy.”
After renting for 12 years, Greene said they were tired of paying into a property they didn’t own. They needed the extra room, but they didn’t think they could afford it. They began to look at foreclosures in hopes of getting more space for their dollar. The home they found sits on three lots, with two bedrooms and a yard their children can play in.
One out of every 51 homes in the region went through foreclosure since the economic downfall in 2008–more than 300 properties. These numbers are not typical for the area, said Melissa Hennis, sales associate at ERA Premier Partners, and president of the Lexington-Buena Vista-Rockbridge Association of Realtors.
“Three years ago I hardly ever heard of it,” Hennis said. “Maybe one person here or there. But especially in Lexington, there was never a foreclosure.”
Now the market is flooded with Real Estate Owned properties, or REOs. These are properties that went to the lender at the foreclosure sale.
“In the 17 years I’ve been in the business, the only foreclosures you ever saw were trashy little places no one wanted in the first place,” said Scott Baker, the managing broker at J.F. Brown Real Estate Services in Lexington. “Now, all of a sudden, they’re in everybody’s neighborhood.”
From historic homes in downtown Lexington to newer subdivisions in Rockbridge County, foreclosures have hit many neighborhoods, in a wide range of prices. A Lexington property, assessed at nearly $2 million, was foreclosed on last year. The five-bedroom brick Victorian with a separate duplex sold for $650,000 back in late January, according to the listing agent, Stuart Bishop. At the other end of the spectrum is a home in Glasgow assessed at $15,800.
“I think a lot of the stigma’s gone because it’s happened to so many people,” said Dennis Hawes, broker and owner of Home Realty in Buena Vista.
Hawes said he’s always taken foreclosure listings. But now, 80 percent of his properties are strictly foreclosures. Hawes has sold so many of these homes that he has been accepted into the National REO Brokers Association. As a certified REO Specialist, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) contact him directly when they want to sell a house, he says. These government-owned companies are Hawes’ biggest clients and he says they give him more listings than every other bank combined. Nearly one third of the area’s foreclosures since 2008 were Fannie Mae or Freddie Mae properties, court records show.
The condition of foreclosed homes on the market varies. While many have leaks or maybe a few flooring problems, they’re generally in good condition, according to James Grondin, a real estate investor in Rockbridge County who has been buying and renovating foreclosed homes for about eight years.
Greene also found this to be the case for the home he bought. “All the walls were recently painted,” he said. “It had been taken care of, someone had remodeled it. For sitting empty, it was in pretty darn good shape.”
Greene said the bank paid for almost all of the repairs and the closing costs on his home because he planned to live in it. He was also able to take out a first-time homebuyer loan which bundles home insurance, taxes and mortgage into one monthly payment. He now pays $170 less than he used to pay in monthly rent.
Both Greene and Grondin bought properties after they went on the market, not at the foreclosure auction. And that’s the case for most foreclosed properties in the area. Only seven percent went to individuals at courthouse sales in the past four years. Grondin said he used to attend the auctions, but recently stopped going.
“You get a better deal waiting and not going to the courthouse,” he said. “[The banks] go ahead and turn it over to a real estate company because they think they can get more money for it, but usually they can’t.”
With a large number of REOs on the market, he says he has more options.
According to statistics gathered by Hawes, a foreclosure in the Rockbridge County area stays on the market an average of about eight months, and in Buena Vista, five-and-a half months.
Hennis said the longer a foreclosed house is on the market, the more eager the bank will be to unload the financial burden. As a result, she said, those homes are sold below market value. “A banker called me and said ‘I have to sell it now, I don’t care what it sells for,’” Hennis said. “I sold it for $20,000.”
Such sales can drive down prices of other properties in the area, according to Joe Vita, appraiser and owner/broker of Vita & Associates in Lexington. “That will undoubtedly bring the value down,” said Vita. “Because that house I’m appraising is competing with foreclosed properties.”
However, Vita points out that lower sale prices do not have a direct impact on all of the other properties in the market. “They only influence those properties in their own general vicinity or price range,” said Vita. Most of the homes affected, he said, are those under $200,000.
Baker estimates there has been a 30 percent drop in pricing since 2008. And while he’s seen an “uptick in activity” in the past six months or so, “We still have a pretty long road to go,” Baker said. “Our inventory remains pretty high.”
And properties continue to flow onto the market as the rate of foreclosure rises. In the first three months of 2012 the area saw a 15 percent increase in foreclosures compared to the last quarter of 2011, according to court records. This appears in line with national predictions. RealtyTrac.com forecasts a 25 percent increase in foreclosures in 2012.
Vita attributes the potential increase to the recent “robo-signing” scandal. In fall of 2010, the government filed a lawsuit against the nation’s five major mortgage servicers. The banks, which include Wells Fargo and Bank of America, were accused of using unauthorized employees to sign foreclosure documents. In early March, banks settled with the government for $26 billion.
Vita says the suit distracted the banks, causing a back-up of foreclosure proceedings in the system. Now that the issue is resolved, Vita says the backlog will flood the market with REOs once again.
But for buyers like the Greenes, that can mean a home for their family.
“It’s great to finally own something that’s ours that we can take some pride in and fix up,” he said. “Ain’t nothin’ like owning your own home.”
April 11, 2012