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Myths about Foreclosure (Texas)

By
Education & Training with DFW Mentor

Please note that my area of expertise is in the State of Texas and the statistics contained in this article should not be relative to other states.

 The following question was asked on a local Dallas Real Estate Board about foreclosure deals... 

"So where are these great deals!! Inquiring minds want to know :confused"

Here is my relpy...

All you need to do is wait at home because the foreclosure deals are set to be delivered right to your front door! Packed with equity and eager homeowners ready to leave their homes in tip-top condition!

WRONG

I feel this is a good time to relay a little bit of REALITY.

The Myths of Foreclosures:

1.  Foreclosures represent great deals

2.  Houses in foreclosure have a lot of equity

3.  Homeowners are never at fault

4.  Texas is 6th in the nation with foreclosures

5.  Homeowners are Motivated to sell

You DID note that I said Myths? I.E. Not true.

Ok here are my comments to the Myths. Or in other words.... here is the reality of foreclosure.

1. Foreclosures represent great deals

No they don't. In fact ony HALF of all properties posted for foreclosure, make it to the courthouse steps for the auction. Of the 50% that go to sale, only EIGHT percent (8%) are offered with an opening bid that has enough equity to warrant a bid. That means 92% of the properties at the sale, go back to the lender.

2. Houses in foreclosure have a lot of equity

Not true. While the total number of properties posted for foreclosure skyrocket, the equity (in Texas) hasn't. The recent loose lending habits allowed many owners to borrow up to 100% and some allowed the closing costs to be rolled into the loans! Interest Only loans also have contributed to the problem (granted Texas hasn't had as many as other states). Texas hasn't appreciated like elsewhere. The result? The owner loses the house.

 

3. Homeowners are never at fault

Yeah, right!

According to Foreclosure Listing Service, Inc. in Addison, Texas, the top three reasons for foreclosure are:

  1. Divorce
  2. Loss of Job
  3. Health

I agree with those being the root problem. However, I know a lot of people that got a divorce and didn't lose their house. I know a lot of people that got laid off but didn't lose their house. I know a lot of people that have had major health setbacks but managed to not lose their house. The top 3 reasons are what starts off a series of Poor Choices!

In my experience, only 1 out of 25 homeowners that are in foreclosure, are there for reasons other than poor choices. The one that comes to mind was a couple that I consulted in Richardson. The woman was a smart, well dressed, Paralegal of all things. Her husband was an INS Attorney. I was baffled and asked how they got to the point of foreclosure. She said, "My eight year old daughter has a brain  aneurysm. She has been in and out of hospitals since she was five. I understand the bank has to protect their position at some point but, any money we have had access to, has gone to the care of our daughter." I wanted to disappear into thin air right then. More than I ever had before. THAT scenario, I think anyone would understand.

That coulple is the ONLY one out of hundreds of owners in foreclosure that stands out as someone I can reason with. The vast majority of the time, it's brought on by poor, bad or just dumb choices.

It's easy to sit and say, "I feel so bad people are losing their houses." Let me twist it a little and ask, "If you had given someone the money to buy a house and they failed to make a payment in TEN months... would you still feel the same way?"

4. Texas is 6th in the nation with foreclosures

I had to read the posting three times to catch it. Read what it says... "The RealtyTrac report is based on data on more than 800,000 properties from nearly 2,500 counties across the United States -- including databases of pre-foreclosure and foreclosed properties."

"Including databases of pre-foreclosure and foreclosED properties."

They are two very different markets. Pre-foreclosure means the homeowner is still the legal owner and most likely is still on title. "Foreclosed" property is otherwise known as an "R.E.O." It stands for Real Estate Owned. It no longer belongs to the homeowner. It has passed through all the legal steps and was sold at the auction. If there are no bidders, then the lender becomes the buyer and the house is then REO with the lender.

Adding those statistics together is not a fair way to relay foreclosure statistics to the public.

Texas and Florida go back and forth as the top 2 states in Actual PRE-FORECLOSURE postings monthly. Dallas County, ranks number one in the Country in overall postings monthy. Last month Dallas County was just shy of 2,000 properties posted for foreclosure.The following table chart shows the local foreclosure statistics, not Florida's or Ohio's or California's, where I don't work or have any use for their figures. The source of these statistics are courtesy of George Roddy Sr., who is the President and Owner of Addison based Foreclosure Listing Service, Inc. (http://flsonline.com/).

  

  

  

AREA

OR COUNTY

  

#

RESI

POSTINGS

MARCH

2006

  

#

RESI

POSTINGS

MARCH

2007

  

%

CHANGE

FROM

 MARCH

2006

  

%

CHANGE

FROM

PREVIOUS 

MONTH

D/FW METRO

3,063

3,276

7 %

-19 %

DALLAS

1,473

1,510

3 %

-22 %

TARRANT

934

1,029

10 %

-19 %

COLLIN

341

411

21 %

-13 %

DENTON

315

326

3 %

-14 %

 

 

 

 

 

 

 

 

 

5. Homeowners are motivated to sell

This is, in my opinion one of the largest myths in the business. We all agree that the general public dislikes attorneys, right (personally, I feel that my work could not be done without them)?

If that is true, and and most homeowners are in denial, then why do over 40% of the owners in foreclosure, file for Bankruptcy (Chapter 13 is most common and Chapter 7 is filed on occasion)? A lawyer is usually the one that files on behalf of an owner. Oh wait, the owner isn't in a right state of mind so why would they willingly go to an attorney? Simple. Bankruptcy lawyers help people stay in their house by getting it protected in Bankruptcy so the lender can't proceed to sell the house at the auction.

Before the Bankruptcy laws changed in October of 2005, nearly 60% filed for Bankruptcy. SIXTY!

Maybe I am wrong in my analysis though? On second thought, yes. Homeowners ARE motivated... To KEEP their home. Not house. It's their home. Who lives in homes? People. While this business is about buying and selling houses, we tend to overlook that people live in those houses. So actually it's a business about people.

Treat them right. Don't take advantage of their situation as some have before. Talk to them. Let them know what options they may have overall and that is something most Investors, Lawyers, Realtors and Lenders don't do very often.

Should any of this be seen as a negative? Absolutely NOT! I have made a living working the local foreclosure market and also teach/mentor others about it. It's the "myths" that can mislead some people into thinking there are all sorts of "deals" out there.  In Reality, there are good deals in foreclsoures. Just take the time to properly research any foreclosure property. They all start by being posted for foreclosure. Don't get mislead into thinking there are all kinds of "free" foreclosure lists out there or take RealtyTrac's statistics as gospel locally.

Hope this has helped.

-Jim Watkins

www.dfwmentor.com

Marchel Peterson
Results Realty - Spring, TX
Spring TX Real Estate E-Pro

HI Jim:  I found your blog very informative.  I agree I have not found the "Deals" with foreclosures.  I have also not found the banks to be a very motivated seller; you are dealing with an entity rather than a person.  That said it seems we are getting more of them in the Houston area.  I have had more buyers buying foreclosures in the past 6 months than I have had in the past 5 years.  If you have any tips on working with the banks please share.

 Thanks!

Feb 20, 2007 11:28 AM
Jim Watkins
DFW Mentor - Garland, TX

I have not had much luck dealing with REO departments either. I think it will change in the next 6 to 9 months though.

All I can offer is something George Roddy Jr. of Foreclosure Listing Service told me once;
He said the banks get offers all the time and they are jaded toward investors because a lot back out after they agreed to buy it.
To get a bank to take you "seriously" he suggested you submit a contract offer with a $10,000 non-refundable deposit.
Even then, the banks still try for full market value. The as-is condition is of no interest to them.

Feb 20, 2007 11:52 AM
David Petrovich
S.P.O.C.H. a 501c3 Charitable NP - Oakhurst, NJ
Jim, would you please post this Blog topic and your experiences on:  ForeclosureFocusUSA
Apr 12, 2007 01:32 AM
Jace Hicks
Self Employed Referral Agent - Lafayette, IN
I think I would rather work three jobs than let all the hard work and equity (not to mention the sweat equity), I put into a home go bad, just to give it all back to the bank!!!
Aug 15, 2007 10:25 AM
Anonymous
Jim Watkins

Jace,

I personally agree with you. Homeowners facing foreclosure are entirely different. The reasons are numerous and sometimes I really feel for the homeowners as I don't think the foreclosure is a result of their wrongdoing. Other times I sit, amazed at how little common sense a homeowner is using and want to reach out and smack some sense into them. It's difficult either way.
Sweat equity? Sorry.... I grinned when I saw that because a huge majority of houses that go back to the lenders and investors, have a lot of issues with them that require someone other than the homeowners to fix. A lot simply don't care.
Lastly, it continues to be a public "fluff" when we hear there are so many foreclosure deals out there. In the past few years, the loose lending guidelines has put a lot of people in houses with little down and the result (Texas especially) has been there is not a lot of houses in foreclosure or bank owned that have much equity. That will be changing in the next 12 months I suspect though.

Aug 15, 2007 09:01 PM
#5
Anonymous
Jim Watkins

Jace,

I personally agree with you. Homeowners facing foreclosure are entirely different. The reasons are numerous and sometimes I really feel for the homeowners as I don't think the foreclosure is a result of their wrongdoing. Other times I sit, amazed at how little common sense a homeowner is using and want to reach out and smack some sense into them. It's difficult either way.
Sweat equity? Sorry.... I grinned when I saw that because a huge majority of houses that go back to the lenders and investors, have a lot of issues with them that require someone other than the homeowners to fix. A lot simply don't care.
Lastly, it continues to be a public "fluff" when we hear there are so many foreclosure deals out there. In the past few years, the loose lending guidelines has put a lot of people in houses with little down and the result (Texas especially) has been there is not a lot of houses in foreclosure or bank owned that have much equity. That will be changing in the next 12 months I suspect though.

Aug 15, 2007 09:02 PM
#6
Anonymous
Anonymous
We have a whole neighborhood of inexpensive built homes, ( not trying to bash anyone, the truth is the truth) with government assisted home loans, some with A.R.M.'s, and I believe it is killing our entire market. We have so many new homes being foreclosed on, the people go in the home with no money out of pocket, so what have they got to lose, besides a place to stay. They can always find another place to stay (rent). Not that development is bad, but too much is a bad thing, but I feel when the new homes aren't being built cheaper than you can buy an existing home, then we will fully recover our market. supply vs. demand. And we need to pass legislation of some sort to protect the banks and the home owners from ever getting themselves into this situation again, they are BOTH to blame, if you ask me...
Aug 16, 2007 12:57 PM
#7
Anonymous
Tim

Mr Watkins

Very informative Blog you posted. I would however like to express my concern regarding your remark about the Home owners who go into foreclosure and the Myth that it is not their fault. I have an issue with that remark. No two situations are the same. I returned from working in Afghanistan as a security contractor, making sure that convoys got across the desert to the troops, working with local afghans and rooting out taliban insurgents, watching young kids get turned into spray paint. I am a 52 year old veteran and no stranger to the horrors of war. I returned to the US to a home I purchased prior to leaving on assignment, to find out that monies that were supposed to have been wired to my family while I was overseas was not. That my bills were in arrears and my new home in jeapordy. I was supposed to be paid in full by the organization I was employed by. That organization packed up its office and moved to Virginia to be near the HQ, leaving myself and other employees who risked out lives and had family depending on us in Texas with no jobs. I have worked many jobs since, but the debt incurred while overseas has compounded with my inability to earn the wages that I had made previously and the home and all my bills were carefully organized and purchased around my income. I paid and paid and worked and worked for wages 1/3 of what I once made. My wife left me and returned to the New England area. I am losing my home on May6th to auction. I tried negotiating a short sale, selling the house and making arrangements with the bank.

My Home is workt 20k more than I paid for it...and the bank wants full market value. I was a good customer and moved 100's of thousands of dollars and business through that bank over the years. But, business is business. Seeing how this happened to me, has made me humbled and more sensitive to the situations of others. I have found out that there are thousands of Military Civilian Contractors like myself that returned home to be discarded, not paid and not called back. IT is not about sub standard service. I personally am in possession of dozens of plaques, citations, autographed Unit Posters and countless letters of reference including a US Flag with certificate that was flown in my honor on 9-11-06 by the US Army at the site of the Talibans Last Stand and given to me as a token of their appreciation for my service with their unit. So Sir, forgive me if I take issue with your comment. I feel that unless you have walked in my shoes or the shoes of others then your comments are out of order. Sure there are those that have no desire to keep their homes and should have been counseled and advised to make a different decision and those peoples are a percentage of the people who were ill advised by their loan officers and assisted in buying homes they were not ready to buy. I get it, I understand. But to say what you said 'wrong'.

Respectfully

TMS

May 02, 2008 06:32 PM
#8
Jim Watkins
DFW Mentor - Garland, TX

Please see my reply in BOLD TEXT, mixed in with the posters original comments.

Mr Watkins
Very informative Blog you posted. I would however like to express my concern regarding your remark about the Home owners who go into foreclosure and the Myth that it is not their fault. I have an issue with that remark. No two situations are the same. I agree. I returned from working in Afghanistan as a security contractor, making sure that convoys got across the desert to the troops, working with local afghans and rooting out taliban insurgents, watching young kids get turned into spray paint. No one likes to hear about things like that happening and I commend you for your work there. I am a 52 year old veteran and no stranger to the horrors of war. I returned to the US to a home I purchased prior to leaving on assignment, to find out that monies that were supposed to have been wired to my family while I was overseas was not. That my bills were in arrears and my new home in jeapordy. I was supposed to be paid in full by the organization I was employed by. I am confused. Are you saying that you were supposed to have been paid while you were overseas? Or that your pay was to have been wired directly to your family while you were there? Or you were to be paid one lump payment? That organization packed up its office and moved to Virginia to be near the HQ, leaving myself and other employees who risked out lives and had family depending on us in Texas with no jobs. Again I am confused. Were you working for this company in the U.S. and overseas? Are you saying that upon your return, this organization had moved without notice and your stateside job was gone? I have worked many jobs since, but the debt incurred while overseas has compounded with my inability to earn the wages that I had made previously and the home and all my bills were carefully organized and purchased around my income. I paid and paid and worked and worked for wages 1/3 of what I once made. My wife left me and returned to the New England area. I am losing my home on May6th to auction. I tried negotiating a short sale, selling the house and making arrangements with the bank.

 

My Home is workt 20k more than I paid for it...and the bank wants full market value. Let me get this right... Your house is still yours, correct? It has not gone to the auction. What are you talking about when you say the bank wants full market value for it? Your home being worth 20k more than you paid for it shouldn't make any difference in this scenario. I was a good customer and moved 100's of thousands of dollars and business through that bank over the years. But, business is business. I fail to see what moving "100's of thousands of dollars and business through that bank" has to do with your mortgage being in default. In my opinion, that is nothing more than an attempt to justify the mortgage being late. Further, I would think the bank has a different opinion about you being a good customer if they are having to foreclose. Seeing how this happened to me, has made me humbled and more sensitive to the situations of others. I have found out that there are thousands of Military Civilian Contractors like myself that returned home to be discarded, not paid and not called back. Not paid? Surely you are not suggesting that you worked overseas and were not paid at all until the assignment was over? And is it a factual statement (not to mention, not relevant to your individual situation) that there are thousands of other contractors that have not been paid or is this your opinion? IT is not about sub standard service. I personally am in possession of dozens of plaques, citations, autographed Unit Posters and countless letters of reference including a US Flag with certificate that was flown in my honor on 9-11-06 by the US Army at the site of the Talibans Last Stand and given to me as a token of their appreciation for my service with their unit.

I am going to assume that what you have listed above is entirely true. Not only will I commend you for your service and contribution but, I will also say, "Thank you" as well. Having said that, I do have to raise the following point... What has any of that have to do with your mortgage being in default? I don't think you presented that information along with your loan application so, why should that information change the status of your loan? So Sir, forgive me if I take issue with your comment. I feel that unless you have walked in my shoes or the shoes of others then your comments are out of order. Granted I do not have the military record that you have. I am not trying to suggest that your military record is not important. What I am saying is that your military record is not relevant in this case. Also, it is presumptuous of you to assume that I have not endured any financial hardship in my life. I could present you with a list of my accomplishments but, none of that would be a reason to justify my mortgage getting to a foreclosure stage. Sure there are those that have no desire to keep their homes and should have been counseled and advised to make a different decision and those peoples are a percentage of the people who were ill advised by their loan officers and assisted in buying homes they were not ready to buy. I have to point out a contradiction of yours... You just said that, "there are those that have no desire to keep their homes." Earlier you said that you tried to negotiate a short sale, correct? Surely, you know that two of the lender requirements for granting a short sale are 1) The homeowner or seller, can not profit with a short sale and 2) The homeowner or seller, must move. So I ask if you had more of a desire to save your home or your credit?

Knowing that my words will be seen as unpopular or harsh to some, I will state my opinion that you are ultimately responsible for this situation. You had said that monies were supposed to have been wired to your family while you were overseas, were not. That statement alone is my reason for saying the situation is your fault. Am I to believe that you had zero contact with your family while you were gone? If they had not been getting that money, I am certain that they would have done anything possible to let you know about it. Any rational person who has something like that happen to them would go directly to who the money was to come from and get to the bottom of it...Quickly. Not wait several months until you return to see what the problem was. Oddly (and sadly) enough, you also mention that your wife left you to move to New England. That fact alone would cause me to go to the company that money was to come from and ask for verification of wire transfers. If they can't provide them, then you would have good reason to go after them. However, all of that should have taken place months prior and not waited until there was nothing you could do.

I get it, I understand. But to say what you said 'wrong'.

I am going to end this by agreeing to disagree with you. Were you put into your situation because you were wronged? Maybe. Did you do everything you should or could have before the situation became dire? My opinion is, No.

You can say I am "wrong" to say what I said but, I can say that you are not "right" to claim what you have.

I hope you have better luck in the future and I am sorry you lost your house.

Jun 19, 2008 10:28 AM