There’s no question about it: property investors with money to spend are profiting from foreclosures.
And compared to lenders, who buy back much more often at foreclosure auctions, they’re making out like bandits.
While the number of third parties who bought any type of real estate at a Massachusetts auction within the past year is tiny compared to the number of lenders that bought back, third parties who purchased and then re-sold a property since last September raked in an average of $26,000 in profit, compared to lenders’ average loss of almost $45,000 when they re-sold, according to a Banker & Tradesman review of public record data provided by The Warren Group, B&T’s parent company.
The numbers cover the 4,397 Bay State properties on which lenders recorded foreclosure deeds between September 2007 and February 2008. About half were single-family homes and all but 329 were a residence, defined as condominiums or one- to three-family homes.
Just 217 of the properties were bought by third parties, 56 of whom re-sold them in less than a year.
Gerry Nadeau, executive vice president for commercial lending at Rockland Trust in Rockland, said the average $45,000 hit the lenders took – not counting thousands in added costs such as property taxes, insurance and maintenance – doesn’t surprise him.
“I watch the deeds, and I know that they’re taking them back for too much money,” he said. “They are paying more for those properties than a third party would pay [in a less-stressed market].”
Lenders are probably forced to accept a certain minimum bid at a foreclosure auction because of contract commitments with loan investors or insurers, Nadeau said. But they have to reduce their prices in order to re-sell, since property values have plummeted in recent years, when many mortgages now in foreclosure were made.
Ninety-five percent of foreclosed-property buyers in the past year were lenders, who typically repurchase properties for the amount owed on the mortgage. Lenders usually won’t sell to a third party at a foreclosure sale unless the bid exceeds the mortgage balance.
Expensive Upkeep
One reason lenders lose more than investors when re-selling foreclosed properties is the difference in the property quality upon resale, said Linda Kody, a North Andover real estate agent specializing in foreclosed properties.
Lenders, who are already spending money on property taxes, insurance, and marketing properties that they want off their books as soon as possible, generally don’t fix up foreclosed properties beyond minimum local health codes.
Michael Nickley, senior vice president for mortgage lending at Rockland Trust, said lender-owned foreclosed homes are usually sold “as is” – and aren’t in great shape.
They stand in contrast to those an investor might buy to fix up and re-sell, he said.
Mary Szymczuk got a loan to buy a lender-owned foreclosed property in Brockton from HarborOne Credit Union, through the city’s Buy Brockton initiative. She said she spent $15,000 to paint, carpet, and repair electrical and plumbing fixtures in the Parker Street home she bought for $123,000 in June.
The house is now appraised at $220,000. Szymczuk said she’s happy there – “But if someone came along and made the right offer, I’d flip it and buy another.”
