A Study In Foreclosure Science

Lately I have been frequenting our county court in Deland, Volusia county seat, trying to understand the science of buying foreclosure.
I must admit that this is a fascinating class to be enrolled into even if only as a spectator.

The most interesting foreclosure (from the point of view of investment) was a 2/2 unit in Ocean Walk Wyndham Resort in the North Tower. Ocean Walk Resort is by far the best condo-hotel in the area.

The Lender, as usual, bid $100. The next bid came at $125,001, which made me think that the minimum set by the Lender was $125,000. Then the bids started coming but died when the price reached $127,200 (I may be off by a hundred dollars). So, te winning bidder got a 2 bedr/ 2 bath unit on very high floor (higher than 20th) for... $127,200. Taxes were paid because there was a mortgage, and they paid taxes from Escrowed funds, the only thing that the winning bidder was liable for were 6 months worth of maintenance fee, would would amount to $2,700. Meaning that for a bit under $130K the winning bidder got a unit in Ocean Walk.

My understanding was that the unit was in rentable condition (and the property is high end and gorgeous).

Here are the prices in the North Tower of Ocean Walk Wyndham Resort. Only 3 for sale:

There were a lot more listed just a few months ago, and the prices were much lower. Actual sales since 01/01/2009 until today show two units: one sold for $255,000 and another one sold for $267,000.

Lets take the worst case scenario and assume that they would turn and sell it for $250,000. The purchase would cost them (after paying the court, doc stamps, and the registration) about $138,000. Selling costs (with 3% to the selling agent) would be about $11K-$12K. Which means that the Seller would walk away with cool $100K in their pocket.

However, the market has changed since those sales in the $200s. i will not be surprised if they get a quick sale for $350K (the difference between the lowest priced unit will be impressive $75K), and then their cut will grow to $200K. Is it real? Absolutely. Is it easy to do. Absolutely not.

There are plenty of smart guys there, who made it their profession. The bidding is often so competitive, that you can get a better price buying the same property after the lender took it and then put it on the market. And it is safer, as there would be no liens and not tricks. I figured that it would take me maybe 90 days of preparations and driving to the county court every days before I would nab one deal like that.

Would I be interested in doing it? Yes, but not for the 3%, and not for 6% commission. As a partner, - I would. My diligence, my time, my headache... It is too unpredictable. You can get the list of properties scheduled for foreclosure auction, but until 20 minutes prior to the Auction you do not know the minimum set by Lenders, and they are often the full amount owed to them plus attorney's fees, as until the Lender gets the posession, they have no clue about the condition of the property and their chances to sell it. So, you have to be able to keep your cool but change the strategy on the fly.

You also have to be able to pay ever penny on a winning deal before 2 PM (in Flagler County it is until 4 PM, but not here). So, if the guys won a deal for $127,200, they will have to pay in cash (or cashiers check) before 2 P.M. the $127,200, plus 3% fee to the court, plus doc stamps, and G-d forbid you are short, as your deposit (5% of the winning bid that goes on the table right when you win the bid) tells you "Good buy".

Of course, this could be a lucrative investment. But it rarely happens. Like everything else, it requires all your time, knowledge, expertise, access to MLS, and the ability to analyze the data. And if you can't sell what you bought, then you are stuck. And what if you need to fix something in the property? Not that it can't be done, but would you be doing it yourself?

It is pretty easy to make money.

It is even easier to lose money...