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Foreclosures!

Technology brings more competition to foreclosures

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Part 1: Managing for a real estate downturn
Tuesday, August 17, 2004

By Glenn Roberts Jr.
Inman News

Editor's note: With experts predicting foreclosures to rise in the next year, many in the industry already have new strategies in place for how they'll manage this market change. This three-part series explores new technologies in play for lenders, investors and real estate agents who work with foreclosed properties.

Warren Adams, a Realtor at Security Pacific Real Estate in Fair Oaks, Calif., said the "technology" he once used to track pending foreclosures consisted of a pile of newspapers and a pair of scissors. The Internet has changed that.

"When I started doing this I was cutting out notices of trustee sales and putting them on my desk. It was a real time-consuming process," said Adams, who specializes in buying foreclosed properties at trustee sales and marketing the properties for banks. "The days of walking down to the county recorder's office and (then) going to the trustee sale are kind of a thing of the past," said Adams.

Now, Adams subscribes to an Internet-based service to learn about pending foreclosures. "Being current is everything. I can see what sales are coming up today. Within a matter of minutes I can do most of my homework online to determine if it's even worth looking at a property," Adams said, and sometimes an in-person visit is the last thing on his list when considering a property.

Though technology has placed foreclosure information at the fingertips of more agents and consumers, foreclosure can still be a time-consuming and costly process, and foreclosure specialists warn that not all foreclosed properties are a great deal, and not all foreclosure information that you find online is timely and accurate.

Warren Adams, Security Pacific Real Estate
While property auctions still take place on the steps of the local courthouse, technology has injected more competition into the foreclosures industry, Adams said. "There is a lot more competition because there are a lot more people who are computer savvy," Adams said. "With everything going to the Internet there are a lot more people who are looking at the properties." And a short supply of for-sale homes in some markets, coupled with rising home prices is drawing more attention to foreclosures. "So many people are looking at trustee sales because there is no other inventory out there." Five years ago, Adams said he had about 100 listings. These days, he has about five.

Have you seen an increase in foreclosures or troubled homeowners in your market? Take a survey.

Foreclosures are a specialty in the real estate business, and "most average Realtors do not get into it because of the support that you need to maintain this kind of business," said Adams, who focuses on the listing of REO (real estate-owned) properties owned by mortgage lenders. "There are a lot of new agents, and a lot of agents do not know how an REO works. A lot of people think with an REO they're going to get a good deal. They don't realize what they're getting."

Foreclosure process varies state to state

Process can take 104-125 days in California, more than 1 year in New York

The property foreclosure process can vary widely from state to state. Foreclosures.com, a real estate investment advisory company that focuses on distressed properties, offers information to consumers about foreclosure processes. Following is a summary of foreclosure processes in California and New York:

California Foreclosure Process

1. The property owner fails to make a loan payment, and the lender or trustee for the lender files a notice of default with the county.

2. Ninety days later, the lender or trustee for the lender files a notice of trustee sale with the county – distributed to the borrower and the public – stating that the lender will sell the property at public auction within two to five weeks.

3. At the trustee sale or auction, bidders are required to have cash or cashiers checks for the bid amount.

4. If no bids are received for the minimum amount set by the lender, the property reverts to the lender. The trustee must then file a trustee's deed to convey title to the lender. The property then becomes an REO (real estate-owned by lender) property and can be purchased directly from the lender.

New York Foreclosure Process

1. Foreclosure by lawsuit, or judicial foreclosure, is the typical method of foreclosure in New York. Judicial foreclosure begins when the lender files a lawsuit against the borrower and any person who has a claim to the ownership or a possession interest. In this process, a notice of a pending lawsuit is filed, the outcome of which affects title.

2. If the borrower fails to answer, the court will appoint a referee to calculate a figure for the foreclosure. The court may then sign a judgment of foreclosure and sale. If the borrower defends against the lawsuit, then the court will determine the merits of the defense. If the lender wins, a judgment of foreclosure and sale is awarded.

3. It typically takes 12-18 months after the issuance of the notice of pending lawsuit for the property to move through the court system and reach the auction block. Throughout this period prospective buyers can contact the homeowner directly to acquire the property.

4. Typically the foreclosure sale is advertised for four to six weeks. The sale is made by public auction to the highest bidder. At the auction, the successfully bidder is required to make a 10 percent down payment, usually in a certified check made payable to the referee, and must close within 30 days. Should the successful bidder fail to close within 30 days they forfeit their 10 percent down payment.

5. The lender can also bid on the property. The lender must distribute the proceeds according to the terms of the judgment signed by the judge. The referee will normally hold any surplus money.

6. If no one at the auction bids the lender's minimum bid, also called the upset price, the property reverts back to the lender. The referee executes a deed conveying ownership of the property back to the lender. The property then becomes an REO property. Most lenders farm this inventory of homes out to local real estate brokers for sale.

7. If the mortgage contains an express covenant to pay, the lender may seek a deficiency judgment against the borrower if the court ordered sale does not produce sufficient funds. The lender can ask the court for a deficiency judgment for the amount left unpaid after the foreclosure sale. The motion for the deficiency judgment must be made within 90 days after the foreclosure sale. The court must determine the market value and credit the greater of the market value or the foreclosure sales price against what remains unpaid on the loan.

8. There is no redemption period following this foreclosure process.

Source: Foreclosures.com

Each lender tends to have different systems and processes in which they dispose of REO properties, Warren said, and there is definitely a learning curve for agents who are new to foreclosures.

The foreclosures market will undoubtedly start to pick up as the housing boom subsides, Warren said. "There will be a lot of foreclosures coming up in the near future," he predicted. "Too many people stretched their necks as far as they could because prices had gone up. They had no choice. It's going to come back and haunt them."

Technology can have a downside, as some Web sites have sprung up that charge money for foreclosures information that is not kept current. Warren said he saw a listing on one Web site for a foreclosed property that he sold nine months ago. "That is a huge problem. I get a lot of calls on properties that are long gone."

Lynn Murphy Dickerscheid, Star One Realtors
Lynn Murphy Dickerscheid, a Realtor for Star One Realtors in Hamilton, Ohio, said she also has found Web sites that did not deliver current information on foreclosures. "They will sell you this and all they're hooking you up to is the listings," she said. "They're selling you their public information. It's not information to me – it's ridiculous. If you want to know where homes are for sale, call a Realtor."

While technology can be helpful in marketing foreclosure properties and prospecting for foreclosures online, Dickerscheid said that the business is otherwise largely unaffected by technology. "I wouldn't say technology has anything to do with it. I don't think it has impacted the foreclosure market at all," she said. Working on foreclosure listings "can be a headache," Dickerscheid also noted, as the commissions can be slim. She said that for one recent listing, she suffered through a flea-infested walk-through on a property that offered a very low commission.

Outsourcing is a recent technology trend in the foreclosures arena, said Richard W. Bronstein, president and owner of R.W. Bronstein Corp. & WNY Metro Bronstein in Buffalo, N.Y. Bronstein is a real estate broker, auctioneer and appraiser who has spent about 46 years in the real estate business and handles several types of foreclosures. Some companies that manage foreclosed properties "are using servicing companies from India" these days, he said, and "we're finding the wrong lockboxes and missing keys or missing lockboxes" on some properties, he said.

The Internet is most valuable as a communications tool, Bronstein said, and he said that the best way to shop for foreclosures is to subscribe to a printed publication, the Law Journal. Foreclosure listings on some Web sites can be misleading, he said. "One of the biggest national (Web sites) tends to have sold properties in there forever." On the other hand, Bronstein said that the Web has brought consumers to his company.

Real estate transactions involving foreclosed properties can take a long time to carry out, Bronstein said, and technology has not had much impact on that. In New York it tends to take 45 to 60 days to conclude a transaction, he said. New York state system for handling foreclosures "is archaic and costly," he said.

Bronstein said he recommends that prospective buyers of foreclosed properties work closely with an agent. And "you should never buy property without seeing it," he said.

Robert Vitelli, Better Homes New Jersey
Like other foreclosure specialists, Robert Vitelli of Better Homes New Jersey, VRI Realtors, said Web sites that list foreclosures can be a mixed bag. "Most of it is bad information," he said. And while "anybody with a computer can do their own research off of the Internet and find foreclosed homes on their own, still the best way to go is through an agent," he said.

MLS services are a valuable tool in locating foreclosures, and Vitelli said he has found a select group of Internet sites that he surfs for foreclosures. Buyers sometimes approach the foreclosures market with high expectations for finding lower prices, but that is not always the case, he said. "Banks are pricing their foreclosed homes closer to market," Vitelli said.

Tomorrow: Web sites that streamline foreclosure and pre-foreclosure sales.

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