Foreclosure Update: Inventory Shrinking, Prices Rising?

Foreclosure Update: Inventory Shrinking, Prices Rising?

Here’s just a quick update about the Los Angeles foreclosure climate, for any investors who have been looking to start buying properties from Trustee Sale or are currently wondering why business is winding down.

(Note: Verdugo Properties is fully equipped and prepared to assist in the purchase of properties from foreclosure auctions, so long as the investment requirements are met. As seasoned experts, we’re constantly researching and tracking foreclosures in Glendale/Burbank/San Fernando Valley in order to provide our clients with the highest level of market knowledge and advisory services. Contact me for details.)

Currently, it seems as though the available selection of properties that actually make it to sale is shrinking day by day. It has become commonplace to track a property for months as it is postponed or cancelled over and over again. This ends up frustrating many investors and auction agents who make a living buying and selling properties from Trustee Sale. So what’s the big idea?

As major banks continue to beef up their loan modification efforts in order to keep homeowners in their homes, many homeowners in default are breathing a sigh of relief knowing that they have some time to bring their loans current. Not too long ago, it was common to strongly consider bankruptcy, short sales or even just walking away from the property altogether. Loan mod and bankruptcy specialists (usually attorneys) charged an arm and a leg and real estate agents stalked homeowners in default like vultures. Now, the very first option banks suggest to distressed borrowers is to be considered for the various different loan modification programs.

If the borrower agrees, the banks’ loss mitigation departments will request that the foreclosures be cancelled (or more commonly, postponed) in order for the borrower’s file to be underwritten and approved. Then, the borrower has a three month trial period. Should the borrower fail to pay during the trial period, they’re considered for several OTHER workout options. All the while, the same property is being announced and postponed continuously at the steps of the courthouse.

Just off the top of my head, I estimate we research and focus on anywhere from 25-28 properties a day (in the Glendale/Burbank/SFV areas) that are announced for Trustee Sale. By the end of the day, we’re lucky if we see ONE OR TWO of those actually come available for bid. This obviously is a clear sign that supply is drying up. As supply decreases and demand increases, naturally, the price of these once “steal of a deal” properties are coming closer and closer to being on par with the mainstream real estate market in regards to rising prices.

The rise of final selling prices at the auctions means rising prices in the general real estate market, because a lot of these homes end up being flipped for profit by investors. That’s great news in regards to the recovery of the market, however it’s extremely bad news for the people who are heavily involved in the business of flipping foreclosure homes…at least for the long run.

As home prices continue to rise, properties that were once under water will begin to see some positive equity, thus giving them the opportunity to refinance out of unfavorable loans and take advantage of the current interest rates. Also, homeowners who would have been forced to consider a short sale because of their financial circumstances can now take advantage and possibly sell for a profit, giving them money to invest on an albeit smaller but more affordable home.

All of this translates to fewer and fewer lucrative opportunities at the foreclosure auctions in the coming year. Unless there’s another massive wave of defaults, I don’t expect to see this window of opportunity to flip foreclosures for profits as high as 20% last very long. I strongly encourage those of you who have been sitting on the sidelines to reach out to an expert and see if it’s a good time for you to enter the foreclosure market, while it’s still lucrative. If not, there are always attractive multifamily deals once buying a home becomes “cool” again. 😉

– George Avakian

*Note: Anybody who uses a blog post from the internet as the basis of their investment strategy is asking for trouble. PLEASE, consult with an expert, if you aren’t one. If you simply don’t like talking to pushy brokers, e-mail us and we’ll point you towards someone who can give objective advice.*



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