What’s happening in the Phoenix Valley real estate market today is unprecedented. If you bought a home any time between 2005 and 2009, chances are you owe more than the home’s worth. It’s painful.

For those who work in real estate, it’s easy to become a little blasé about the devastation that has occurred in our communities, even though it happened to us, too. It’s just the way it is. I started selling homes in Casa Grande, AZ, in 2008, just before the values plummeted. The desert community of around 50,000 people is approximately half way between Phoenix and Tucson – right at the heart of the housing crisis. When I talk to out-of-state buyers about how much the values have dropped they eye me skeptically.

“We heard foreclosures are selling at a 40% discount,” they say. “We want a deal.”

“Everything’s a bargain right now,” I reply. “There’s a fire sale going on.”

The reality is that our market values are now being set by distressed property sales – short sales and foreclosures – and they have been for some time. Rather than the odd foreclosure popping up only to be snagged by a daring investor, the bulk of all the homes bought and sold in the greater Casa Grande area are either bank-owned, or about to be. If you want to sell your home, you either compete with those prices, or you do not sell.

So…how bad is it?

In June, July and August of 2011, distressed closings accounted for 75% of all homes sold in Casa Grande. Values are breathtakingly low. Earlier this year I showed a 2,400 square foot Casa Grande home that sold for $290,000 in December 2005. That same home ended up closing as a bank-owned home for $85,000 in May. Unbelievable? The fact is that this home sold for fair market value, 2011-style. Many buyers can’t fathom this momentous decline in prices until I show them the hard MLS data for a specific home. It’s not like this ‘back home’. In fact, property values in Casa Grande have almost halved in the last six years: the typical home in 2005 sold for $186,000. In 2010 that figure was $102,000.

But if real estate agents are ‘used to it’, the enormity of the losses to our community are felt anew daily by homeowners who have reached the end of their tethers – and their bank balances.

“I’m embarrassed,” said one of my clients as we discussed the short sale of his beautiful home. “We’ve always been on top of our finances. Our credit scores are over 800. How can this happen to us?”

“We’ve been watching the market for years now,” said another client, debating whether to short sale or foreclose. “But we can’t wait any longer. We can’t keep paying $1,700 a month knowing our home is only worth $110,000. Our lives have changed. We don’t want to be here any longer.”

The honest truth is that we, as a community, are in the middle of a monstrous break-up. Our love affair with our homes is coming to an end, and our hearts are breaking.

Of course, it’s a hollow comfort to know that we’re not alone – but we’re not. The average person moves home every seven years, often forced to, by relocation, illness, divorce or a change in family size. Life can change a lot in seven years. In the good old days when real estate was “safe as houses”, you’d simply sell your home and move. Possibly, if it was a really tough market, you might only get back a little more than you paid for it.

For many people in Arizona nowadays, that scenario is just a fantasy.

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How did we get here?

When the foreclosures first started to trickle through, it was a little disconcerting, but that was about it.

I remember listening in on a conversation among experienced agents during my licensing class in 2007. They casually observed that there seemed to be a few more REO sales creeping into the market. Probably nothing to worry about, right?

Wrong.

As the enormity of the situation began to emerge, the obvious scapegoats were the “irresponsible” home owners who’d borrowed more than they could afford and were spoiling it for everyone else. They’d over-leveraged themselves, buying at the peak when the Federal Reserve requirement was low and lending restrictions were non-existent. Loan officers used to joke that if you could fog a mirror you could qualify for a loan. ‘Free money’ was sloshing around everywhere. These buyers had fallen hard for the American Dream, head over heels with their McMansions, giving no thought to the option arm readjusting sometime in the distant future. Why would they? House prices would always go up, and they could refinance then. The honeymoon period was a flirtation of interior design magazines, HGTV and exotic decoration no landlord would have approved.

It gradually became apparent that these reckless zero-downers were not entirely to blame, however. I remember making a phone call myself to a lender in 2006, who assured me that the interest rate was indeed an astonishing and seductive 2%. Not being a REALTOR ® at this point, but knowing just enough to be dangerous, this was hard for me to swallow. “Does this rate adjust?” I asked, firmly. “No ma’am,” I was assured. “That’s just what the rate is.” “But where does the unpaid interest GO?” I insisted, ever the scourge of call centers. “It doesn’t ‘go’ anywhere ma’am. That’s the rate,” he replied, as if I were nuts.

Of course, negative amortization (whereby unpaid interest is added to the loan’s principal), adjustable rates, balloon payments, interest-only and ‘piggy-back’ loans contributed greatly to our current woes. That, and down-right lying on behalf of unscrupulous (or under-trained) lenders under pressure to sell more loans. “Half the people we can supposedly lend to wouldn’t even meet my credit requirements as a tenant,” one lender and landlord confided to me shortly after the crash began.

For the first few years as home prices softened, we were all reluctant to address reality.

“It’ll change,” we told ourselves, rationalizing that with 30 new home builders in a city this size, of course values couldn’t continue their astronomical rise. “This is just a blip. And anyway, a house is a home, not just an investment.”

The builders gradually went away, some filing bankruptcy, some selling off their vacant lots, some holding them to build again at some distant point in the future. With fewer homes to compete for buyers, the market reached a sort of plateau, and everyone breathed a silent sigh of relief. The love affair was back on.

And then prices fell off a cliff.

Now we really started to feel worried. As option arms adjusted, subdivision after subdivision started to sprout its own crop of foreclosures, like weeds after a desert rain. You could almost track each builder’s busy selling period by watching where the bank-owned homes were coming up. If you were crazy enough to follow trends, watching values plunge by several thousand every month was sickening. “We made a commitment, and we’re in this for the long-haul,” we said out loud, between gritted teeth. But in our most quiet moments we shuddered to contemplate how our “greatest assets” – our homes – were losing value by the day.

Today, the “irresponsible”’ homeowners who supposedly started all this with their selfish dreams of home ownership are long gone. Many of them are close to being out of their seven year waiting period to buy another home. The rest of the Valley, the “sensible” buyers who fixed their rates at a place they could afford, are facing a harsh reality. Even if you “did the right thing” and put down 10%, 20% or 30% on a home, you are likely to be “upside down”. You weren’t a sub-prime pariah? It makes no difference. That money you saved up for your down-payment? It’s gone. You added a pool? That money’s gone, too.

Regardless of the magnitude of the capital you sank into upgrades, if your circumstances have changed and you need to sell, you’re likely to be left with two options: you can either short sale, or foreclose.

For most of us this concept is a little tough to embrace. How could our equity have vanished like this, sucked into investment banker bonuses like moisture sucked from the desert soil? This realization is made all the more horrifying because it is happening to everyone. If you’re risk-averse, it’s likely you saw housing as a safe bet. We all did. The savings and loan crisis of the ’80s was far enough away for all of us to feel confident that putting money into property was secure. Ironically enough, we believed it would safeguard our futures.

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The emotional toll

Many people reach the point of deciding to short sale after months of stress and self-loathing. They have exhausted their savings and drained their retirement funds, spent days questioning their decision and nights rowing with their spouse. It’s traumatic.

According to Dr. Peter Lambrou, Chair of Psychology at Scripps Memorial Hospital in La Jolla, California, today's market has created unprecedented levels of seller anxiety that mirror symptoms of post-traumatic stress disorder.

"In other times, when people decided they wanted to move, it was a fairly easy exit, usually because they had an intention or desire to move,” he says.“They had positive expectations about where they were going.

"But when people are in distress or upside-down in their house, they're not looking forward to moving, they're doing it to prevent further chaos in their life. So oftentimes, they're abandoning a home that they really had no intention of leaving. That's much different than the typical home sale that people usually experience.”

Clients who’ve had mental breakdowns or even split up with their partners are not unheard of, says Lambrou. He explains that part of the problem can be from sellers “catastrophizing”, whereby they magnify the negativity of the outcome due to the extreme pressure they find themselves under.

"Research has shown that in circumstances of depression and anxiety, people overestimate the threat, the negative outcomes, and underestimate their resources - their job, their family, their social and professional networks," he says.

"When people imagine the worst-case scenario of actually being put on the street, that could imprint as a trauma. So in that regard, it could be on the order of a post-traumatic experience."

According to Lambrou’s definition, that’s an awful lot of people going through an awfully bad time. How can our communities ever recover?

Like any break-up, facing reality is the first step. Putting away the rose-tinted spectacles and recognizing our homes’ real values is essential– although it’s often a rude wake-up call. No wonder it’s so tempting to keep our heads in the sand.

Nevertheless, there’s no escaping the fact that our lost equity is not coming back any time soon. Hoping “things will change” keeps us paralyzed in a state of anxiety which can literally be bad for our health. If you do want to give things “one more chance,” then at least set a time when you’ll revisit your decision. Agonizing over market fluctuations on a daily basis is a slow torture, and it doesn’t help.

Those who decide it’s time to move on need to do so decisively. If you plan to sell rather than foreclose, list the home at market value. There is no point fantasizing that someone will be so taken with your home that they’ll pay far more than it’s worth. Everyone today is looking for a bargain, and over-priced homes do not sell.

Doing some honest talking about “worst-case scenarios” could also help: oftentimes, things aren’t as bad as they seem.

The other day I bumped into a friend of mine, a REALTOR®, actually; she’d dropped some weight and had a spring in her step. If I hadn’t known better I’d have sworn she had a new boyfriend.

"We got rid of the house,” she said, of the property that had been weighing her down for at least the three years I’d known her. “It worked out great. We’re thinking of starting a family.”

“It’s a fresh start,” said another friend, whose short sale had closed in less than two months. “I still feel angry when I think of all the things we lost, the work we put into that home. But at least the sick feeling has gone. We can move on.”

Positive changes like this are not uncommon when people relieve themselves of a burden they’ve been carrying for some time. For many, simply being able to close the door on a bad patch makes all the difference.

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Moving on

So, as our communal love affair comes to an end, are we destined to be once bitten, twice shy?

Probably not.

“I’ll definitely buy again,” another client told me after her short sale went through. “We know we have to wait, but we believe in home ownership. I think we all went a little crazy back there. Now we know we can live more modestly, we don’t need all that fancy stuff we thought we did. We’d like to get something we can afford comfortably and pay it off sooner.”

With ownership far less expensive than renting, and Arizona inventory shrinking across the board, eventual recovery is inevitable. And when the time is right for us to collectively move on, we may do so with a more jaundiced eye, but perhaps we will have learned from our mistakes. One thing is certain: when the dust settles and the biggest transference of wealth since the Great Depression comes to an end, we will find ourselves older and wiser, and maybe a little more likely to see our homes for what they are – somewhere to live.

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Are you sick of shovelling snow, depressed by never-ending grey drizzle, or just ready to look outside and see a blue sky - every day? You're not alone.

Casa Grande, Arizona, is an increasingly popular destination as both a winter residence and a full-time retirement spot, especially among buyers from colder states, Canada and even further afield. In fact, the mild weather, variety of things to do, excellent home prices and selection of gated and Active Adult communities has made Casa Grande #13 in the entire country for retirees. There are few places you can purchase a beautiful single-story 2007 home with a pool for under $120,000, but Casa Grande is one of those places. If you are considering buying a home here as a foreign or out-of-state resident, there are some important things to consider first, not least how strong your sun block needs to be...

ACTIVE ADULT COMMUNITIES
Casa Grande and the surrounding areas boast several excellent Active Adult communities, offering a range of community features, from golf, to sports, gyms, swimming pools, dining, crafts and more. Many of these communities are gated, and several offer ‘lock and leave’ low maintenance accommodation.

MAINTENANCE
If you will be away from your property for part of the year you may need to consider some basic maintenance while you are gone. Depending on where you buy, weeding, flushing toilets, keeping the front of the home free of papers and debris, repairs and pest control are all things to think about. Fortunately, there are local people who will perform these functions for a small fee, in your absence.

TAX CONSIDERATIONS
If you are buying a home as a foreign resident, you need to be aware of possible tax implications in the US. The Foreign Investment Real Property Tax Act (FIRPTA) may affect you when you sell your US property, and you should discuss this with a tax advisor who is familiar in this area.

FUNDS
When you find the home you wish to buy, you will need to make arrangements for your funds to be available to close. This is normally required a few days before scheduled Close of Escrow (closing of the transaction) and most people simply elect to wire funds directly to the Title Company, who will provide you wiring directions in advance. Other options include using a cashier’s check or opening a US Bank account (you do not normally require a Social Security Number), which may be useful if you plan to spend a significant amount of time here. Or, you may be able to work with a local branch of your home bank.

DIFFERENCES BETWEEN BUYING AT HOME AND IN ARIZONA
Many out of state or foreign buyers notice some changes between how a transaction proceeds in Arizona vs. at home.

• You will probably find the basic process – reviewing listings, viewing properties, the REALTOR®/ client relationship – to be very similar to back home.

• Unlike the basic one or two page document you may be used to, in Arizona the initial offer to purchase is a comprehensive document of at least 9 pages, covering terms, financing, escrow, disclosures and contingencies. Additional addenda may also be included if necessary.

• If your offer is accepted, the seller will sign and return it, or they may add their own counter on an additional form, which becomes part of the contract – this can continue until both parties achieve a meeting of the minds and a fully ratified (signed) contract is produced, with the initial offer and any counters signed by buyer and seller.

• Prior to this point, either party can withdraw from negotiations and walk away.

• After the contract is ratified, earnest money holds the property during the transaction process (escrow) and the amount is specified in the initial offer. It must be deposited (usually as check or through a wire) with the Title Company immediately on receipt of a fully ratified contract.

• Since many of the homes here are selling as foreclosures, it is worth being prepared for the transaction in that case to be slightly different again.  Not only do banks require their own lengthy paperwork, there is also a strong chance of more than one offer on the same home, in which case buyers are usually invited to make their ‘highest and best’ bid.

• A full price offer does not compel the seller to accept.

• Although all buyers and sellers are welcome to involve their lawyer, in Arizona it’s customary for REALTORs to draw up contracts and handle negotiations with no involvement from lawyers.

• The Escrow (or Title) Company then carries out the terms as outlined in the contract, performs a title check (looking for liens) and, once they are satisfied that the seller can convey ‘marketable title’, they will issue title insurance, normally paid for by the seller. Effectively, the Title Company handles the transference of ownership, draws up a settlement statement outlining costs and funds due to either party on closing, and finally records the buyer’s new ownership at the County Recorder’s office. Title fees are usually around $300.

Thinking about buying a foreclosure in Arizona? Here's what you need to know.

FAQs

1. Why would I want to buy a foreclosure property?

In general, foreclosures represent the lowest-priced homes on the market. If you are prepared for a transaction with some ups and downs, and are able to complete minor (or major) repairs, a foreclosure might be for you.

2. What are the pitfalls of buying a foreclosure?

The seller (the bank) is selling the property ‘as is’, which means they don’t offer any of the usual warranties and do not intend to make any repairs. There may be significant costs to the buyer in order to get the home up to standard – make sure you factor these in when making your offer. Also, the transaction itself can be less predictable than a traditional resale; be prepared for a few ‘speed bumps’ when the seller is a large corporation like a bank.

3. I heard I can ‘steal’ a home in this market. How much lower than the list price can I offer?

The reality is that smart banks are pricing their properties to attract offers, so most of the time, the listed price of a foreclosure represents a ‘steal’ already.  The low prices also attract buyers, and it is very common to find that yours is not the only offer. In fact, most foreclosure homes sell at the list price, or higher. Expecting to knock 10 or 20% off the price often ends in disappointment. Work with your REALTOR® to establish current market value and make your offer strong from the outset. That way, you stand a better chance of acceptance before additional offers reach the seller and create a bidding war.

4. What’s the difference between a foreclosure, a short sale and a lender-owned home?

Foreclosures, also referred to as ‘bank-owned’, ‘lender-owned’, ‘corporate-owned’ or ‘REOs’ (real estate-owned) are wholly owned by the bank, who has repossessed the property through the foreclosure process. Short sales are still owned by the individual seller and they require their lender’s permission to sell the home for less that the amount of the loan still outstanding.

5. Does ‘as is’ mean I can’t inspect the home and have to take it no matter how bad the condition?

‘As is’ reflects the bank’s intention to sell the home without warranties or repairs. However, buyers are still encouraged to conduct their own inspections, and if desired, to buy a private home warranty for at least the first year of ownership. If, during your inspection, you discover a major defect, you will almost always still be able to cancel and receive a refund of your earnest money.

6. Buying a home with multiple offers on it sounds like a hassle – why would I want to do that?

More and more we find that the best foreclosure homes receive multiple offers – usually very soon after hitting the market. Unless you are happy to limit your home search to less aggressively-priced listings, you should be prepared for multiple offer situations. As long as your Buyer Specialist REALTOR® has provided you with information to establish current market value, you need not fear over-paying in the case of a bidding war. In order to snag a bargain, you may find multiple offer situations unavoidable.

7. How can I be sure I win a bidding war?

First of all, work with a Buyer Specialist REALTOR® who is familiar with structuring an offer to give you the best chance of success. While most banks prefer cash offers, there are various ways to strengthen any offer,  aside from just increasing your offer price. There are no guarantees that even your strongest offer will be the winning bid, but an agent experienced in foreclosure transactions can maximize your chances by helping you offer terms that appeal to both you and the seller.

8. What is the process for buying a foreclosure?

First of all, work with your REALTOR® to find the right home for you, establish value and place your offer. You may wish to have one or two ‘back-up’ properties in case your first choice does not work out, for instance in the case of a multiple offer situation.  Make sure you are pre-qualified for a loan, or have proof of funds in the case of a cash offer, as the offer will most likely not even be considered without.

The bank (seller) will usually take two or three days to respond, longer if you offer below the list price or your terms are less than favorable. If there is more than one offer on the home, you may be invited to make your ‘Highest and Best’ offer, which is your last chance to win the purchase.

If your offer is accepted, your agent will normally receive a brief email or verbal acceptance from the seller’s agent.  Within a few days (maybe longer), the seller will send over their own paperwork, which may be in the form of an addendum or counter offer to the purchase contract your offer was written on.

You can expect the seller’s paperwork to be a standardized document containing various disclaimers and waivers  regarding the property condition and your rights as a buyer. Your REALTOR® will check that the new documentation reflects the material terms of your agreement, and clear up any discrepancies. It is very unusual to obtain the seller’s agreement to change any of the terms of their standard paperwork, unless there is an error, and most of the time banks take the attitude of ‘take it or leave it!’ If your agent is experienced in representing buyers in foreclosure purchases, many of the potential issues can be pre-empted and avoided up-front, often saving buyers thousands of dollars.

Once you sign and return the seller’s paperwork, the seller will review the complete contract and sign (‘ratify’ or ‘execute’) the complete contract – again, this may take several days. At this point escrow can be opened and your earnest money deposited with the title office, although it may be possible to open escrow early and get a head start. Check with your agent whether the inspection period starts after the ratified contract is received or at the seller's 'acknowledgement date', as there may be a gap of several days between the two. Remember that any issues should be raised before the inspection period ends.

From this point, the transaction can expect to proceed much like a regular resale contract, although, since we are dealing with large corporations and not private sellers, we can expect a few ‘speed bumps’ along the way.

9. Who pays for the utilities to be turned on?

The seller should ensure utilities are on for your inspection and final walk-through, however there may be cases where the seller refuses to do so. In this case, it may be necessary to obtain the seller’s permission for the buyer to turn utilities on in their name, ideally with a guarantee from the seller than any associated costs will be refunded to the buyer if a cancellation due to inspection issues results.

10. What’s a ‘per diem’?

Most banks impose a fine of $50 to $100 per day for every day the buyer is late closing, unless the delay is on the seller side. This is usually non-negotiable, so it is wise not to over-estimate how quickly you can close when making your offer.

11. What delays could I expect?

Due to the size of the organizations selling foreclosures, delays are usually related to bureaucracy. There may be issues in getting signed paperwork returned, agreement to repairs and occasionally problems with title. The most successful and satisfied buyers expect the unexpected!