Looking for a foreclosure discount

Over the last year and a half, some have talked about an impending foreclosure apocalypse.  Home price run up aside, some home buyers have decided to wait for foreclosure inventory to hit the market to get a property at a foreclosure discount.  

foreclosure discount
Homebuyers have opportunities

Although some expect something akin to 2007-2008 foreclosure crisis, they may be disappointed.  Experts don’t expect a repeat of the last foreclosure crisis for a number of reasons, including the fact that home equity positions of homeowners are much different today than they were the last time.  Additionally, although home sale prices may be moderating, it’s expected that future home price appreciation is still be positive. 

Let’s take a look at foreclosure data compiled by Attom Data. The July 22nd press release (Top 10 U.S. Counties with Highest Foreclosure Rates in June 2022; attomdata.com)  indicates that, “there were a total of 90,139 U.S. properties with foreclosure filings in Q2 2022. That figure was up 15 percent from the previous quarter and up 165 percent from a year ago. The report noted that national foreclosure activity total in Q2 2022 was 68 percent below the pre-recession average of 278,912 per quarter from Q1 2006 to Q3 2007 – making Q2 2022 the 23rd consecutive quarter with foreclosure activity below the pre-recession average.”

So basically, foreclosures have increased. However, the number of foreclosures is nowhere near the amount prior to the great recession.  Even though the number of foreclosures will likely not impact the overall housing market, there are buyers looking for the foreclosure discount. 

If you’re looking for a foreclosure discount, read the recent research by Ralph B. Siebert published in the Journal of Real Estate Research (2022, Vol. 44 Issue 1, p1-28).  The study revealed where deeper discounts may be found when buying a foreclosed property.  Siebert’s analysis indicated that discounted foreclosed property depends on the metro and/or regional housing market where the house is located, as well as the home’s value position relative to the market segment. 

Siebert’s study included transactions in Florida and Indiana from 2000 to 2020.  His results indicated that foreclosure discounts were higher in Indiana than Florida.  Also, Indiana foreclosed homes in the lesser value segment lost the most value, whereas similar value segments of foreclosed homes in Florida did not lose as much.  He also found other differences that resulted in higher discounts as well. 

If you’re looking for foreclose discounts, consider the comparing market locations and value segments.  Buyer beware, however, it’s likely that the home will likely need repair and/or renovation.  So, although the acquisition of the property may be at a discount, the cost of bringing it up to your standard may be costly.  Do due-diligence, and consult with licensed real estate professionals to assist in making home buying decisions.

By Dan Krell
Copyright © 2022

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Boomerang buyers return – qualifying after foreclosure or short sale


There is homeownership after a foreclosure or short sale. Home owners, who lost their homes to foreclosure or short sale during the housing downturn and recession, are apparently returning to the housing market in increasing numbers, such that their home buying activity is attracting economists’ attention.

Ken Fears, the National Association of Realtors® Director of Regional Economics and Housing Finance, wrote for the NAR Economist’s Outlook Blog (Return Buyers Prefer Safe, Affordable Financing; economistsoutlook.blogs.realtor.org; June 25, 2015) about the research and numbers associated with home buyers who previously lost a home. These “boomerang buyers” accounted for about 8% of home sales during 2014. Considering that there were about 9.3 million home owners who lost their homes between 2006 and 2014, the estimated 350,000 boomerang home buyer sales during 2014 may be just the beginning of the “homecoming.”

If you are a boomerang buyer, there may be a home in your future. Conventional, FHA, and VA mortgage underwriting guidelines have typically allowed for foreclosure, short sale, or bankruptcy with re-established credit and a waiting period. However, easing mortgage requirements may make it easier for you to qualify for a mortgage.

Fannie Mae underwritting guidelines (fanniemae.com) require you to wait at least seven years after a foreclosure, which is typically measured from the reported foreclosure completion date. If you had a short sale, the waiting period is four years. However, if you had a bankruptcy, you’ll have to wait four years after a chapter 7 bankruptcy is discharged; and two years after a chapter 13 is discharged (but four years if the chapter 13 is dismissed). However, if you had multiple bankruptcies within a seven year period, a five year waiting period from the most recent discharge or dismissal date is required.

FHA (hud.gov) has changed significantly in recent years. Besides reducing waiting periods due to extenuating circumstances, there are various caveats that may further reduce your waiting period. Nevertheless, the typical waiting periods include: three years after a foreclosure, two years after a chapter 7 bankruptcy discharge, and one year if you are current on a chapter 13 payment plan. The waiting period after a short sale is differentiated depending if the loan was in default: if the loan was not in default at the time of the short sale and your previous 12 months payments were timely, you may be eligible for a FHA mortgage without waiting; however if the loan was in default prior to short sale, you will have to wait three years.

If you are eligible for VA financing (benefits.va.gov), you will have to wait two years after a foreclosure, short sale, and chapter 7 bankruptcy (one year into a chapter 13 payment plan with court approval). However, if your foreclosure or short sale was on a VA mortgage, then your eligibility amount may be reduced.

Waiting periods may be significantly reduced if you can document that your foreclosure, bankruptcy, or short sale resulted from extenuating circumstances. However, such applications are subject to underwriter discretion; and not all lenders grant such exemptions.

If you are a boomerang home buyer, it is crucial that you consult with a lender before embarking on the home buying process. Besides guidance on mortgage eligibility, your lender can help you determine the appropriate mortgage for your circumstances. And as your lender will tell you, timelines and qualifying requirements are subject to change.

By Dan Krell
Copyright © 2015

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Five years ago – was real estate to blame for financial crisis

Real Estate

Five years ago this week Lehman Brothers filed for bankruptcy and almost immediately initiated the financial crisis. What followed in the wake of the Lehman Brothers collapse was a domino effect of financial sector failures which resulted in: a number of bailouts and government takeovers of failing entities; finger pointing and blame for the foreclosure and financial crises; and a number of laws to address the issues that are thought to have contributed to the crisis.

In retrospect, the financial crisis may have been circuitously the result of the foreclosure crisis, which was entering its second year. At the end of 2006, the real estate market was already seeing a major shift from the record breaking seller’s market, to a market that saw inventory climb to record highs. At that time I wrote about how nationwide foreclosures had increased 27%, and how economists were expecting existing home sales to continue at the same levels into 200, which was to initiate a housing recovery.

By the spring of 2007, the experts’ opinion of a short lived foreclosure crisis was not to be realized; and the blame game for the foreclosure crisis was in full swing. Trying to make sense of the foreclosure crisis, almost daily media reports of inflated appraisals and misrepresentation of mortgage terms were popular. At that time there was no way to pinpoint one source for the crisis. While the foreclosure crisis was in full swing, we did not have the perspective to understand all the participants and components that contributed to the resulting Great Recession.

Testimony to the Financial Crisis Inquiry Commission in 2010 included descriptions of the CDO (collateralized debt obligation) market. Financial brokers packaged mortgages into CDOs and sold them worldwide; the returns for these CDOs were so good that the demand was seemingly insatiable. As the demand for CDOs increased, the number of mortgages that were needed also increased. To meet the increasing demand of mortgage production, the temptation to bend the rules and lend to almost anyone seemed to be at the heart of this piece to the crisis; and many of those mortgages were subsequently foreclosed. The fraud seemed to reach in other areas too, including financial rating agencies that graded subprime CDOs as “AAA” to make them more appealing.

To improve accountability and transparency in the financial system, to protect consumers from abusive financial services practices, and to end “too big to fail,” the landmark Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted. The broad and wide sweeping Dodd-Frank legislation created the Consumer Financial Protection Bureau and the idea of the Qualified Residential Mortgage. Although the legislation has been widely acclaimed; there are many who remain critical of the legislation, saying that the markets could be set up for the next crisis.

Only in retrospect we can begin to understand the complexity of the dynamics which brought about the almost collapse of the financial sector through the mortgage markets. And while there have been a number of hearings, books, working papers, and dissertations about the causes and effects of the foreclosure and financial crises, we still seek to condense complex issues into a digestible statement. If a movie is produced about the financial crisis, the slugline might be: “Financial crisis that was a result of fraud that took advantage of a hot real estate market and easy money.”

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By Dan Krell
Copyright © 2013

Disclaimer.  This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice.  Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction.  Using this article without permission is a violation of copyright laws.

Sequestration will affect real estate and housing markets

by Dan Krell

Housing and Sequestraion(Dan Krell © 2013) Remember the “Fiscal Cliff?” Well, after a two month hiatus, sequestration concerns are again entering (if not intrusively) the minds of those who may be affected. And, if you remain indifferent on the matter, you might consider the local economic effect from looming government budget cuts that may begin on March 1st.

On February 14th, HUD Secretary Shaun Donovan provided written testimony to the “Hearing before the Senate Committee on Appropriations on The Impacts of Sequestration” (HUD.gov). Secretary Donovan outlined what he described as the “harmful effects of Sequestration” to not only at-risk populations, but families, communities, and the economy at large, as he concluded, “…Sequestration is just such a self-inflicted wound that would have devastating effects on our economy and on people across the nation.”

As a result, HUD counseling would be limited. According to Secretary Donovan, about 75,000 families would not be able to receive the critical counseling services that include pre-purchase counseling, and foreclosure prevention counseling. According to the Secretary: “…This counseling is crucial for middle class and other families who have been harmed by the housing crisis from which we are still recovering, and are trying to prevent foreclosure, refinance their mortgages, avoid housing scams, and find quality, affordable housing. Studies show that housing counseling plays a crucial role in those 3 efforts. Distressed households who receive counseling are more likely to avoid foreclosure, while families who receive counseling before they purchase a home are less likely to become delinquent on their mortgages.”

FHA has been the workhorse to stabilize the housing market as well as providing the means for affordable home purchases. Those directly affected by sequestration would be home buyers and home owners who are applying for FHA mortgages; as well as those seeking assistance through HAMP and HAFA. In written testimony, Secretary Donovan stated that “…furloughs or other personnel actions may well be required to comply with cuts mandated by sequestration.” As a result, “…The public will suffer as the agency is simply less able to provide information and services in a wide range of areas, such as FHA mortgage insurance and sale of FHA-owned properties.”

Another concern is the possibility of a sharp increase in interest rates. Up until now, home buyers (and those refinancing) have had the benefit of historically low mortgage interest rates. Low mortgage interest rates are one of the reasons why home affordability is also at historic levels. A sharp rise in interest rates combined with FHA mortgage delays could shock the housing and real estate market. The result could be housing activity similar to what we experienced immediately after the financial crisis. Granted, the shock would probably not be as prolonged as what occurred in 2008-2009, but nonetheless significant.

In a region that has been relatively unaffected by unemployment and economic issues due to a strong government workforce, sequestration could essentially put a damper on the local housing recovery. Home buyer activity has already been affected, as those who are concerned about sequestration have either put their home purchase plans on hold, or have changed their housing plans altogether. And of course, over time, the changes to consumer behavior would trickle down to various sectors of the economy.

But don’t worry, although sequestration is set to begin March 1st, budget cuts won’t occur all at once. Unless Congress acts on the matter, you might not immediately feel its effects.

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This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

New laws affect homebuyers and homeowners

homesTwo new laws that went into effect this month will have an effect on home buyers and home owners. One law affects home buyers purchasing foreclosed property, and the other is with regard to the Maryland homestead property tax credit.

First, H.B. 1373 Real Property – Foreclosed Property Registry, which went into effect October 1st, requires that Maryland homes purchased at a foreclosure sale be registered with the State of Maryland. According to the foreclosure registry website a “foreclosure purchaser” must initially register a home within 30 days of the foreclosure sale, and a final registration within 30 days of the recordation of the deed. A “foreclosure purchaser” is defined by H.B. 1373 as being “…the person identified as the purchaser on the report of sale required by Maryland rule 14–305 for a foreclosure sale of residential property.”

You might wonder why a registration is necessary once a foreclosed home is purchased. The registry was an outgrowth of purchased foreclosed homes that remained vacant. Vacant homes are at risk for a variety of problems; and if left vacant and untended for long periods of time can not only become an eyesore, but can risk the health and safety of the immediate neighborhood. Trespassing and infestation is a major concern; the longer a home sits vacant and untended, the probability increases for vandalism, vermin, squatters, and gang activity.

The law is most likely aimed at lenders that purchase back their own foreclosure or bulk purchasers, because at one time it was possible that some of these homes sat untended for long periods of time. In the past, such homes might have been cited for health and safety code violations with the intent to have someone tend to the home. However, since ownership may not have been clear due to the foreclosure process or absence of a point of contact, some of these attempts went unheeded.

For more information or questions about the registry, contact the Maryland Department of Labor, Licensing, and Regulation (www.dllr.state.md.us).

The other law that went into effect this month is H.B. 1081 The Homestead Property Tax Credit Reform Act of 2012. The purpose of the law is to stop the abuse of applying the credit when not applicable. Home owners who are “caught” claiming multiple properties and/or rented properties may have to pay uncollected tax and possibly a penalty.

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But enforcement of this law has been questioned, as was reported by Steve Kilar for the Baltimore Sun in his October 1st article (Homestead Credit Penalty Goes Into Effect This Week). Some are concerned if and how the penalty would be applied to those who are “caught” wrongly receiving the homestead credit. Enforcement may, as was reported, rely on the requirement for the State to prove “willful misrepresentation.”

The effort to weed out those who are undeserving of receiving the homestead credit began several years ago, when in 2007 home owners were required to apply to receive the credit. This application process is culminating to a frenzy of home owners who have not yet reapplied. And according to the Maryland Department of Assessments and Taxation, home owners who have yet to apply/reapply for the homestead credit will have until December 31st to submit the application. If you are unsure if you have applied/reapplied, you can check your status by following the instructions on the SDAT website on the homestead credit).

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This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

By Dan Krell
Copyright © 2012