The Stresses of Buying Distressed Homes

The Stresses of Buying Distressed Homes

Home buyers are finding that the battered real-estate market offers just as many opportunities for headaches as for bargains.

Seth and Crystal Grotzke, both 25 years old, recently bought a bank-owned two-bedroom, two-bathroom townhouse in Edina, Minn., for $110,000—when similar homes in the same development were selling for as much as $131,000. But exactly one day before the scheduled July closing, the Grotzkes learned there was a second, unpaid mortgage. Because of the foul-up, the couple was forced to live in Mr. Grotzke’s boss’s basement for more than a month. They finally closed on Aug. 31.

“We knew there would be title issues, but none that would last for that long,” says Mr. Grotzke, an assistant pastor. He adds that buying a foreclosed property is a way for God to “teach you patience.”

Lots of home buyers are learning about patience these days. In August, nearly a third of overall housing sales were distress sales, according to the National Association of Realtors, up from 18% in March 2008, when it began tracking such sales. The figure includes both foreclosures and so-called short sales, in which the lender agrees to accept less than the full balance of a mortgage in order to unload the property.

Leaving Affordable Mortgage May Become Winning Gambit [Southern California]

Leaving Affordable Mortgage May Become Winning Gambit [Southern California]

Scott Conroy pays the mortgage every month on his one-bedroom condominium in San Diego, even though it’s worth 33 percent less than what he owes and it may take more than a decade to break even.

Homeowners like Conroy who can afford their monthly payments are weighing whether to sell and pay the difference, stick it out until housing prices recover, or walk away. In the U.S., 26 percent of borrowers owe more than their home is worth, said Karen Weaver, global head of securitization research for New York-based Deutsche Bank Securities. In parts of California, Florida and Nevada, it’s as high as 75 percent.

So-called strategic defaults, in which homeowners stop paying their mortgages while remaining current on other debts, rose 128 percent to 588,000 last year, according to Experian PLC, a Dublin-based credit-che

How to Land a Foreclosure House

How to Land a Foreclosure House

Buying a foreclosure home often is appealing to house hunters trying to stretch their dollars. But finding a good one can be a challenge.

“The vast majority of the banks don’t want us to advertise [foreclosure homes] as ‘bank-owned’ because it comes with a negative connotation,” says Ryan Melvin, co-owner of More Realty Group in Las Vegas.

That means there’s no sign on the front lawn indicating that it’s a bank-owned house. And a buyer probably won’t find a property advertised as a foreclosure in marketing materials, says Mr. Melvin, who specializes in real-estate owned properties, or REOs, those that have been reclaimed by a bank, typically after an unsuccessful foreclosure auction.

Be wary of buying into homeowner association

Be wary of buying into homeowner association

It has always been wise to take extra care when buying a house or apartment in a community governed by its owners.

But nowadays, with so many people behind on their mortgage payments, even a fire-sale price from a desperate seller could quickly lose its luster if too many 0f your new neighbors haven’t been paying their share of the cost to operate the community.

If that turns out to be the case, says Richard Swerdlow of Condo.com, a Coconut Grove, Fla., marketplace for condominiums, you could be hit with a big and unexpected assessment, significantly higher dues or possibly both.

“Every day we get e-mails – it’s got to be in thousands – about condo boards that are struggling to pay their bills,” says Swerdlow. “So it’s either make everybody pay more or curtail or even discontinue services.”

Apartment (REIT) Hunting

Apartment (REIT) Hunting

Can the sluggish economy really justify the prices investors are currently paying for stocks? That’s the question on traders’ minds these days, and it certainly applies to real estate companies, which have seen their shares roughly double since the market’s financial crisis nadir in March, easily trumping the S&P 500’s mere 57% gain. There are fewer bargains in real estate investment trusts than before the rally, but REITs that hold apartment towers, hotels and self-storage units provide tempting opportunities, says analyst Mike Salinsky of RBC Capital Markets.

REITs were perilously close to the financial crisis: They own property, depend heavily on debt and cannot retain their earnings. As property values plummeted and banks pulled back on lending, REIT shares nosedived. As the bond and stock markets have reopened to REITs, investor poured back in to the sector. That’s left many investors wondering if they missed their opportunity, and rightly so, says Salinsky.

Most, if not all, apartment, hotel and storage REITs will see sales and profits decline this year and next. Rents are falling faster than prices, so the investment yield on companies’ property portfolios (which is, to some extent, what you get if you buy shares today) is dropping too. Add to that a volatile stock market, and the likelihood of further dividend reductions and the industry’s prospects l

Buying a condominium requires research

Buying a condominium requires research

Condos are a popular choice for first-time buyers as well as homeowners who want to downsize because they tend to be less expensive than single-family residences. Also, they usually require less maintenance.

Condominium owners belong to a homeowners association that collects dues, usually on a monthly basis, to pay the cost of common-area liability insurance and maintenance, as well as to fund a reserve account. Precisely what is covered by HOA dues varies from one condo complex to another.

Before buying a condominium, make sure you read and understand all of the documentation, such as the covenants, conditions and restrictions. The CC&Rs could include restrictions on your use of the property that would affect your decision to buy, like no large dogs or prohibitions against renting.

You should also review the bylaws, the homeowners association budget, a delineation of what is covered by the homeowner dues, a current financial statement for the complex and minutes from association board member meetings. If you have any questions about the documents, contact one of the officers on the board of directors, or ask your real estate agent or attorney.