Utah Short Sales… are buyers getting bargains?

With all the news of the Utah Short Sales in the news I figured I should do some research to see if it’s really as bad as they say.

I found this in the Herald Tribune in Sarasota, FL and this trend is making it’s way west and California foreclosure boom is making it’s way east… that leaves Utah either protected by our own economy or completely devastated, I guess we’ll find out sooner or later.

SARASOTA –

The foreclosure crisis is clearly giving lenders a massive headache, but it is also providing once-in-a-lifetime buying opportunities for homeowners and investors.

STAFF PHOTO / CHIP LITHERLAND / chip.litherland@heraldtribune.com

During the 12 months ended July 31, lenders issued 7,905 “lis pendens” filings — the first step in a foreclosure — against borrowers who failed to make their mortgage payments in Sarasota County, court records show.

During the same period, the 25 lenders with the most foreclosures in Sarasota resold 918 properties that they had seized from borrowers.

“These properties are selling at deep discounts from what they sold for at the height of the boom,” said Margaret Amador, a Sarasota-based short-sale and foreclosure specialist.

The Herald-Tribune looked at 66 of 135 foreclosure sales that Deutsche Bank has completed since January and determined that those properties sold on average for 44 percent less than Deutsche Bank was owed by the previous owners.

James Slocum, for example, bought a house at 2210 McTague St. in North Port for $251,9000 in December 2005 and borrowed $226,700 to finance the deal. Deutsche Bank foreclosed on the loan in June 2007 and won a $246,576 judgment the following month.

Deutsche Bank then sold the three-bedroom two-bath house to Matthew White in December 2007 for $138,500, or 44 percent less than the giant German bank was owed.

Similarly, Timothy Delvescovo bought a condominium at the Dolphin Tower in Sarasota in January 2006 for $387,500 and initially obtained two mortgages for exactly that amount. Seven months later, Delvescovo refinanced, obtaining a $498,750 loan.

Deutsche Bank foreclosed in May 2007 and won a $533,849 final judgment in September. The bank then sold the property to Alexey Golubov for $300,000 in March. Once again, the price was 44 percent less than the bank was owed.

The Herald-Tribune examined Deutsche Bank sales closely because the German powerhouse had more foreclosures filings in Sarasota than any other mortgage lender, a total of 833 since August 2007, court records show.

Deutsche Bank is further up the foreclosure list than local heavyweights like Bank of America, SunTrust and Wachovia because it got into the region’s housing boom late, said Ken Thomas, a Miami-based economist who specializes in analyzing the banking industry.

“Local banks are usually the first ones in a market, and when they see problems building, they are the first ones out,” Thomas said. “Lenders like Deutsche Bank and HSBC were the last ones in and the last ones out.”

Bargains to be had

Al Holmes is one of the people who recently scooped up a property out of foreclosure.

“We bought the house we’re currently living in,” said Holmes, a Sarasota real estate investor and owner of about 20 rental properties. “Under normal conditions we would not have been able to afford it.”

Holmes said he and his wife tried to buy the three-bedroom house off 49th Street in Sarasota through a short sale. They offered $280,000. But Lehman Brothers Bank, which had lent $427,500 to the previous owner, declined the offer.

After the bank seized the house, the Holmes entered a new round of negotiations and ended up paying $315,000. By that time, the bank had put a new roof on the structure and made other improvements, Holmes said.

Court records show that the former owner, Marshall Matthews, paid $475,000 for the house in November 2005, and Lehman ultimately sold the house to Holmes for 26 percent less than it was owed.

Holmes said he would love to buy other foreclosed properties. But as a semi-retired real estate investor in the midst of a credit crunch, it is hard to come up with the capital.

“Two years ago, banks were calling me and begging me to borrow money,” Holmes said. “But I cannot borrow today unless it’s for a private residence.”

John Schaub, a local real estate investor and author of a newly released book, “Building Wealth Buying Foreclosures,” is in a different situation.

“We have bought a number of houses in the past few weeks,” Schaub said. “I buy in specific neighborhoods. When I find a foreclosure I make an offer.”

Schaub said foreclosures are easy to find these days. There is either a sign in front of the house, or the lawn looks like it needs serious mowing. Either way, Schaub goes back and plugs the address into the Zillow.com Web site to find out whether the property is on the market and who to contact.

“There is no point trying to contact the lender,” Schaub said. “It is best to try to find the local Realtor who has listed the property.”

Two local specialists that handle a lot of short sales and foreclosures are Al Dumas of Re/Max Properties and Chip Waterman at Hunt ERA Realty Co.

Amador, who left Coldwell Banker in January, also focuses exclusively on short sales and foreclosures.

She said part of her job involves contacting borrowers on behalf of loss mitigation companies around the country. If the borrowers get behind on their mortgages, Amador tries to help them by explaining their options. If that does not work, Amador assists the lender in selling the property.

“When a lis pendens is filed, that’s when the train has already left the station,” Amador said. “If you are a Realtor, you have to try to outrun that train.”

It is much better for sellers to work out short sales, in which they convince a lender to sell the property for less than is owed, Amador said. Sellers who engage in successful short sales only have to wait two years before applying for an FHA loan to buy another house, Amador said. If the bank forecloses, the homeowner has to wait five years.

“A short sale is the best way out, but you have to find someone who knows what they’re doing,” Amador said. “The problem is that short sales take time and success is not a certainty.”