Will the bad days of foreclosures come back?

As we find ourselves moving into, or are already in, a recession, the question has come up a few times about foreclosures. It wasn’t that long ago, 2008, that we saw the beginning of the last recession. Who knew what was going to be forthcoming at that time? It began slowly and built up such incredible market-changing momentum that most people froze in their real estate dealings during the year 2009.

Foreclosures occurred with great frequency as values dropped due to the lack of equity and/or staying power. These were primarily caused by the stated income loans, “liar’s loans,” and high loan-to-value loans. It didn’t take much decline to tip those homeowners over the brink. We then saw the short-sale phenomenon. Nobody had heard of a short sale because of a large percentage of our business.

It took a while for the lenders to establish an acceptable process for short sales and for the agent to be able to work within the parameters that ultimately got established. Once things settled down, the market stabilized — 70 percent below where it began at the start of the recession. At that time, sellers faced the choice of short sale versus foreclosure. There were benefits and challenges to each. Fortunately, we worked our way out of that … until now. We are facing something, but it is unlikely that it will get to the same level of price reductions and foreclosures/short sales that we saw then.

We just finished seeing record high prices, just as we did in 2008 after the market peak of 2006. The difference now is that we have stronger borrowers in their homes with many having 2.5 to 3 percent loans. The loans are more affordable, and the homeowners have equity in their homes. Jobs are readily available now and the market isn’t crashing, its slowing and reducing, but there isn’t a race to the bottom like we saw in 2008 when banks foreclosed and worked at quickly ridding themselves of the Real Estate Owned (REO), the foreclosed inventory, by slashing prices.

If foreclosures do become prevalent, remember the following if you want to participate in buying:

• You need cash at the sale, usually in the form of a cashier’s check, or a combination of checks to give you buying flexibility.

• Be sure to search the title to know what it is you are bidding on. We’ve seen people thinking they got a good buy when they were actually bidding on a second deed of trust that was behind a huge first deed of trust.

• Be careful about occupants. If you have a non-cooperating owner or tenant, you may be facing an extended period while you evict. It isn’t as bad as other states, but you won’t have immediate occupancy of the home.

• Condition of the home can also be deceiving from the street. Some borrowers get vindictive and vandalize the home on the way out.

There will be homes sold in the marketplace at a discount because the homeowners have gained equity either from a larger down than was common in the 2008 debacle, or because of the incredible gain in values during the runup of the last 18 months. Either way, sellers have equity to deal with and can sell at a reduced price rather than face foreclosure. Motivation changes. We recently offered $287,000 on a home with a 30-day close. The seller accepted $230,000 cash. One never knows.

Pay attention to the circumstances around you as a buyer and seller. People’s lives or opinions can change quickly — be ready to act. We will all persevere through these times of uncertainty.

Be clear in your wants and needs and you will recognize opportunities when they present themselves. The right one will come along for you regardless of what the rest of the world is doing. Pay attention.

When it comes to choosing professionals to assist you with your Real Estate needs … Experience is Priceless!

Jim Valentine, RE/MAX Realty Affiliates, BS.3481, 775-781-3704, dpwtigers@hotmail.com