Trends and Opportunities

Foreclosure sales of homes in WH’s circulation area increased 51.87 percent from 2009 to 2010. That increase doesn’t include short sales where a foreclosure sale was avoided. The 51.87 percent increase is just in homes that went through the entire foreclosure process and were sold at public auction. In contrast, for the same tim e period. overall foreclosure sales for Cook County only increased 4.81 percent and 13.1 percent in Lake County. The numbers demonstrate the northern suburbs are increasingly hard bit by the economy. The data was compiled for the zipcodes in the paper’s circulation area by CPI LLC, which provides data resources for foreclosure bidders.

For the 11 zip codes surveyed, there were more than 1,900 foreclosure auctions in 2010. While the statistics include family tragedies for many, they also include opportunities for others. There are many real estate auctions today that aren’t foreclosure auctions. Non foreclosure auctions-differ in many ways from foreclosure auctions. Most of the time, at a foreclosure auction, the lender bids its debt, which is called a credit bid.

Most of the time, at a foreclosure auction, the lender bits its debt.

As a general rule of thumb, that happens about 90 percent of the time. The lender then takes title to the property and resells it afterward at a price that is less than the credit bid but higher than an investor would pay at the foreclosure auction. If the leader doesn’t credit bid, that’s usually because there’s mortgage insurance, the lender needs to establish the loss at the foreclosure auction, and/or the loan is extremely upside down. The remaining 10 percent of the homes auctioned in foreclosure, on which the lender doesn’t credit bid, are primarily bought by investors because someone purchasing a home to live in usually needs a mortgage.and isn’t in a position to buy for cash at auction.

Location is always a major consideration in real estate, and now North Shore locations are increasingly going to foreclosure auction. There’s also truth in the adage that you make the most money in real estate when you buy it, bur in foreclosure auctions, that’s also where you can lose big . That’s why it’s critical, particularly for first time foreclosure auction bidders to do your homework carefully and include-qualified people experienced in foreclosure auction purchasing, distressed sales, evaluating property condition, value, rental or remarketing, cost estimating, and a contractor ready to do any needed improvements and repairs.

Such a team must include an attorney familiar with the additional title and other legal risks that are peculiar to a foreclosure auction. Examples include the post-sale Court approval required for the sale and the possibility of a borrower bankruptcy delaying that approval. Because an auction bidder must pos cash to bid and make payment in full almost immediateIy, all due diligence must be paid before the auction; any mistakes are likely to be costly. If access to the interior isn ‘t available prior to the auction, there’s an unknown risk as to repair costs that a buyer cannot afford to gloss over.

An educated guess as to the possible price range and the repairs most likely needed is critical, and it requires experience. Accurately estimating repair costs and time to completion for repairs before resale or re-occupancy is another issue. Knowing the marketplace and gauging the property’s value, both at and after the foreclosure auction, is even more important in this market because values don’t appear to have hit bottom, and when that may occur is uncertain.

Selecting the right team to evaluate potential foreclosure auction purchases is the critical first step that’s essential to avoiding costly missteps, both at auction and afterwards. Purchasing wisely and avoiding costly foreclosure auction mistakes isn’t easy, it requires careful due diligence and follow through, but the rewards can be very profitable for those who do it right.

S. Keith Collins is an attorney with over thirty years of diverse experience, including estate planning, succession planning, commercial and residential real estate, banking, lending, litigation, loan workouts, and transactions. Keith is a member of the American Bar Association, LawyersConnecting™, and the Illinois State Bar Association. Learn more about Keith Collins on LinkedIn™ at http://www.linkedin.com/in/skeithcollins. His email is keith@collinslawyer.com or call his office in Deerfield at 847/831-2178. This article is meant for general educational purposes only. It is not meant to offer legal advice and it does not create an attorney-client relationship with the reader. Neither a question from a reader nor a response creates an attorney-client relationship. Hire an attorney for legal advice.

Originally published in the March 19, 2011 issue of What’s Happening! Magazine.
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Keith Collins, the author, does not hold the copyright to this article. The article appears on www.keithcollinslaw.com with publisher permission. 

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