Baytown Sun forum discussion regarding foreclosures

By
Real Estate Agent with Houston Realty

Yesterday a topic was brought up on our local newspaper, The Baytown Sun's forum: http://baytownsun.com/forums.lasso regarding our market and area. I found this discussion very interesting for our area and wanted to post it in my blog for others to see that may have missed it. My screen name is Magnolia Hill and you will see my response in this thread. I thought it was a great topic and discussion for those that are not sure exactly how the forelcosure market in our area works and how it is affecting our area.

Let me know your thoughts on it:

Recession in Baytown

I vividly remember the last time there was a real estate bust in Baytown. This doesn't look anything like it. Housing starts may have slowed, but they are still building new homes everywhere. We keep hearing how bad it is everywhere else in the US, but it appears to not be anything like that on this side of Houston. Even heard a few days ago that Houston might already be back on the upswing. It might also have something to do with the fact that house prices never did get out of touch with reality like they did in Los Angeles. I kinda hate that Houston finally did have to admit there was an east side, and Houston started spreading this way. You can never go back.

 

Comments in this discussion: 21

Magnolia Hill (Mama2twowonderfulkids)
May 1, 2008 6:56 AM
#1 of 21
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Being a Realtor, I will be the first to say that things are definitely different than they used to be but not at all what the media is portraying (or at least not in our "neck of the woods"). In my opinion, we are not in a recession at all. We are simply back to the way the real estate market should have been all along. The last few years have been record years when it comes to real estate. Record high sales, record number of homes sold, record property values and now record foreclosures. The problem with real estate is not what is happening now but what has happened in the last few years...we are just clean up the mess of it now. People were buying homes they could not afford. They were being qualified for loans that they could not afford in the first place, then rolling in their down payment and closing cost. Then after stretching too thin for too long they could no longer take it and stopped paying for the home. By the time it was foreclosed on the balance on the loan was far greater than what the home was actually worth and therefore not making the majority of foreclosures make sense to buy either. Now that the secondary market is history, 100% loans are no longer around and you need at least a decent credit score with money down to buy a home the media is screaming that we are in trouble. People are listening to the news and have been scared to buy and the cost of gas is not helping the matter either. But the truth about our market (Houston/Sugarland/Baytown market) is that we have a risk rating of 5 (the best rating you can get) and a risk index of <1 (the best ranking again) according to the PMI mortgage insurance co. Yes, home sales have slowed down but home values are stable (actually increasing slightly in most parts) and days are the market has decreased slightly when looking at the Houston MLS as a whole. As a matter of fact, the PMI Institute named Baytown/Houston/Sugarland as one of its top 10 less riskiest markets in the United States due to job availability and you can buy without having fear of losing market value. The PMI institute went on to say that Baytown had a 8.8 percent chance of losing market value greater than 10 percent over a 2 year period...this is really great news for our community!!

Again, yes things are different now but I see so many positives that can come out of this if we just continue to learn and take responsibility for our own credit/finances instead of relying on someone else to tell us what we can afford..again, just my opinion! :o)


Baytown Bert (Mr_Peabody)
May 1, 2008 7:03 AM
#2 of 21
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Magnolia Hill: Thank you. I've believed what you wrote from the beginning.


Magnolia Hill (Mama2twowonderfulkids)
May 1, 2008 7:24 AM
#3 of 21
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Whew...glad to hear someone else agrees! Every time I post on here I worry that my message is not going to come out the way I intended and someone will take it wrong! LOL!

I would also like to add that the Associated Press has named the Baytown/Sugarland/Houston area #4 on the top 10 fastest growing cities in the United States...another great mark for our area. we were beat out by Dallas (#1), Atlanta & Phoenix markets.


bayou mimi (bayoumimi)
May 1, 2008 7:38 AM
#4 of 21
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Magnolia Hill -- thank you for writing an truthful statement..Having real estate broker and agents in my family, and My youngest daughter will be taking her realestate lic. test friday...Yiphee..the market is pretty much stable in our area, and no our area did not get outlandish on our home prices, and finally the mortgage companies that granted the loans to ppl that could not possibly afford homes are now mostly out of business.. Yes there is an housecleaning going on but much needed. Now we can get back to the way things should be if your credit can buy an home that you can afford then it is bought.. Guess folks here in coastal texas are pretty smart after all...


Salt Dog (SaltDog)
May 1, 2008 8:02 AM
#5 of 21
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I've been in the residential and commercial construction industry for the last decade. What you don't hear is how diversified the Houston area is when it comes to economy.

Since 1998, Houston has been subjected to many financial hits and actually grew during these times. Most other major cities have suffered economic downturns, but Houston has grown. For example, Enron crash (20k jobs lost), Dynegy layoffs, HP-Compaq merger (more layoffs), 911, slowing stock market, high oil prices and the so-called "national mortgage crisis". These factors hardly have touched our regional economy where in other cities even one of these situations would create, and have brought on, economic breakdown. Because of our diversified economy (manufacturing, technology, aerospace, construction, petrochem, energy, medical, law firms, banking hub and more) we can withstand and repell national economic woes.

As for housing, the Houston area is expecting over 30,000 new housing starts this year. That is new construction. We hit 36,000 in 2003 and then up to 42,000 in 2005-06. Yes there is a slow down, but mostly with the national production builders. They are losing money in markets such as Arizona, California, the Midwest and Northeast. So it will affect us here. Since they are losing money in other markets, they are selling land here to make up for those losses. Houston is the strongest housing and economic market in the nation right now, and it is projected to stay this way well into the next decade. Also, the "housing crisis" is mostly in the entry-level production home ($100k-$170K). Projections for Houston in the $200k+ homes is actually expected to show growth and to this point, it is very strong. It is the subprime and entry-level markets that are taking the hit.

I handle Houston and all the way to New Orleans in my territory, with most of my product going to residential and multi-family construction. My dealers and contractors in the Baton Rouge and New Orleans areas are reporting a 50% drop so far this year in sales and production. That is huge. Suppliers and builders alike are tightening their belts and ensuring they will be around by the end of the year. This is not the case in Houston. Yes, sales are down, but look at the overall numbers and you will see that we are strong and on a steady and profitable pace. The days of subprime loans are gone, only marginal and good credit ratings will get you in a home, unless you have a lot of money to put down (20% or more).

So with Houston's economy, we are the shining star in the American Economy. People are relocating here every day because of a strong emplyment market and the technology companies setting roots here. I hope this gives you a little comfort. You are living the only major US city that has a growing and prosperous economy.


tellthe truth (brodave2)
May 1, 2008 8:20 AM
#6 of 21
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I still think the shady mortgage companies are mostly to blame for the subprime debacle. Nobody seems to agree with me, but I still believe that a mortgage company has a fiducial responsibility to it's customers. They should be able to be trusted. I believe they intentionally ensnared people, basically dangling a carrot. There used to be laws to protect people from such. You oughta not have to hire a lawyer to buy a house. I'm sure most realtors can be trusted, and most mortgage companies, but I see proof that there still needs to be laws to rein in the outlaws. I saw a storefront sales office in front of a new subdivision. Painted on the window was "NEW HOMES 500$ A MONTH". Now I know and you know that that was a misleading advertisement, there had to be a catch, but to someone wanting the American dream so bad, and they went in and got misled by the salesman, and then given a mortgage from a lender who knew the borrower was going to lose the home in a year, I call that deceit.


Salt Dog (SaltDog)
May 1, 2008 8:43 AM
#7 of 21
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Truth,

Take a look at those homes. No catch to get in at $500 down. The builder is also financing the mortgage so he can do this. And the price of these homes is so low, it is cheaper than renting. That neighborhood will look run down in 3 years. I see this everywhere in Houston and other areas.

We don't need laws to protect us from our own selfishness or poor financial judgement. We are on our own. Yes, there were some mortgage lenders that took every loan they possibly could. But for the most part, the buyers knew where they stood financially and took it upon themselves to purchase too much home. Along with buying furniture, new cars and clothes on credit. It was not just the mortgage that is their downfall financially. It is the willingness of these buyers to buy everything needed to fill that home and garage with items purchased on credit. When the mortgage rates climbed, or they lost jobs, they were not only carrying a $200,000 mortgage, but over $10,000 in revolving credit card debt. Not to mention two car payments that average $600/month each.

So to accuse corporations of swindling these people is off course. As I said, there were some mortgage companies that funded these loans, but for the most part, lending requirements are, and were, tight. It is the mentality of materialism that is the downfall of many of these homeowners. I was a loan officer years ago and saw this everyday. People can afford the house, but after a year, they have racked up so much credit card debt, and bought new cars, they were overextended. Then all it takes is one hiccup and all is gone.

Also, read my previous post about our local economy.


Magnolia Hill (Mama2twowonderfulkids)
May 1, 2008 8:48 AM
#8 of 21
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Brodave,

I agree with you 100%! You are absolutely right that not only the mortgage companies but Realtors, and real estate attorneys have a fiducial responsibility to their clients!! As a matter of fact, that is standard practice article number 1 on our Code of Ethics under duties to clients and customers. It reads:

When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their client.

It goes on to say that we are obligated to tell our clients/customers that they are free to obtain legal counsel.

Deceptive practices hurt everyone involved. Actually, approx. 2 weeks ago I released myself from a transaction on the day of close because I felt that there was deceptive practices being performed by the lender. I felt that it was in the best interest of myself and my broker to not be a party of a transaction that even remotely resembled anything deceptive (in this case mortgage fraud). Upon looking more deeply into the matter the selling agent also withdrew herself from the transaction as well. Of course, we would have both loved to have closed the transaction and obtained our commission that we earned (plus much more on this particular transaction) after working on this deal since January but it simply was not the right thing to do. Buying this home and getting tangled into this web was not at all in the best interest of my client and I could not be a party to it and risk litigation or worse...you win some and you lose some but it all comes back in the end. If you are practicing deceptively and not putting your client's best interest first it will come back to haunt you (exactly what happened to the subprime market!) and on the flip side if you are putting your client first that will pay you in tenfolds as well!


Magnolia Hill (Mama2twowonderfulkids)
May 1, 2008 8:53 AM
#9 of 21
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Salt,

I agree with you as well. Ultimately in the end, it is the consumer's responsibility for their own actions and debt. However, we do owe it to them to be honest, straightforward and not make a decision based on our own monetary gains from the transaction...which unfortunately is what a lot of these subprime lenders did as well as some Realtors and nonethical builders. Which is a shame because in my opinion, this is the best industry there is to be in and it truly does not deserve the negative feedback that these offenders have caused!


tellthe truth (brodave2)
May 1, 2008 8:56 AM
#10 of 21
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wow, this is great, both sides of the story back to back. Seems there are always two sides to any story. It's rare to see them side by side.


Salt Dog (SaltDog)
May 1, 2008 9:14 AM
#11 of 21
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Yes Magnolia. There does need to be ethical and honest practices but that is not always the case. As a professional you are apt to catch these before the buyer, but if we look at most of the defaulting loans, the buyer was aware of their situation and still signed the papers.

Being an election year, these issues are more in the national forefront than they would be if it weren't. I hear the Democrats asking for assistance to the homeowners who are defaulting on their mortgages. This is not right. And there are laws and guidelines already in place to protect the homebuyers and sellers. I don't want to pay for someone else's financial mistakes. Just like I don't want to carry a family of six on welfare because mom won't get a job. All morgages are federally regulated and backed so again, the laws are in place and followed. For the most part. It is the buyer who needs to ask themselves, can I afford the home and all the stuff I need to fill it? Can I afford the utilities, insurance and taxes? The Romans said it well, "caveat emptor". Now 2000 years later, we still follow our wants, not our needs.

The research and statistics done so far on the rising subprime and mortgage forclosures shows that 85% of the defaulting loans were funded without deception. And done so with the strictest guidelines. The other 15% were ARM's, 100%, 105% and even 110% loans. And a high percentage of these were backed by local housing assistance programs, like those Baytown and Harris County provide. These programs have strict income and financing guidelines. And their default rate is higher than that of standard loans. There is something to be learned from this.

The majority of the problems and foreclosures are due to poor judgement on behalf of the buyers, not the realtors and lenders. As I said, there are, and were, deceptive and unethical people out there. But the majority of the responsibility lies in the hands of the buyer.


Salt Dog (SaltDog)
May 1, 2008 9:18 AM
#12 of 21
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brodave,

I was a loan officer at one time. Now on the construction end as a manufacturer of product, I have seen it all. So has Magnolia. But the great thing about all this, we both agree, for the most part.


Magnolia Hill (Mama2twowonderfulkids)
May 1, 2008 9:32 AM
#13 of 21
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Well said Salt Dog! I have enjoyed this discussion. It is really nice when you can have a great conversation about a not so great subject. Many different sides to this but it all comes down to everyone being held responsible for their own actions.


happy 77 (Happy77)
May 1, 2008 9:51 AM
#14 of 21
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Thank you Magnolia Hill and Salt Dog. I've been saying this all along. I am not a realtor, in the building industry, nor a lendor. Therefore, my thoughts were purely from what I've gathered and researched over the years.

I do however have concerns about foreclosures. I've wanted to invest. Therefore, having the means to do so, I've looked at homes all across Texas. Particularily the foreclosed homes. A huge percentage of those homes have major problems. They are not good investments.

Why are the people allowed to trash and ruin those homes? Secondly, why are the lending institutions setting a huge cap on those homes. You have to go through an arduous process in order to acquire one. The lending institutions take their merry time to reply. Additionally, they generally refuse any reasonable offers. Example: If they have set a price on the home at $159, 500, the lendors generally want $159,500 or $159,000. They do not take into account that the homes are completely trashed and that the investor would have to put in an additional sum of $50,000 or more in order to get it back up to livable conditions. That to me means greed.


Salt Dog (SaltDog)
May 1, 2008 10:20 AM
#15 of 21
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Greed. No. They are making the investment until the buyer pays off the loan. They are the ones bearing all financial responsibility until then. That is why they do this.

To respond to your comment on why people are allowed to trash the home. Ordinances and HOA deed restrictions. These need to be in place. Such as the new Parking ordinance by the City. This is a step in the right direction in ensuring that property values will hold and increase. And it is a way to keep homeowners from letting their properties fall into dismay. But when these laws are put into place, everyone complains. They want the change, but not when it affects them. As the saying goes, a few bad apples spoil the bunch. As is the case in the housing industry right now.

Magnolia, yes good conversation and topic.


tellthe truth (brodave2)
May 1, 2008 11:33 AM
#16 of 21
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I know someone who I have helped move several times. Everytime they move into a new apartment, it looks like new, fresh paint, carpet new or just been cleaned, basically spotless. When I help them move out 3 months later, the place is unbelievably trashed, looks like it's been ransacked for 5 years. I'd hate to think what some of these foreclosures look like inside.


Jacob Cathey Sr. (jacobdruce)
May 1, 2008 11:38 AM
#17 of 21
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KBR also filed chapter 11 after 2 billion dollars of asbestos litigations were placed under their name.

Several hundred technical positions were lost during the same time frame that Enron occurred.

Just another one on the list Saltdog


happy 77 (Happy77)
May 1, 2008 5:45 PM
#18 of 21
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With all due respect, I disagree. The ordinances and HOA restrictions are primarily for the "outside" visual appearance. I was referring to the inside of the homes. Ripped out carpet, damaged holes in the walls, ripped out ceilings, countertops bashed. Filth beyond comprehension in the inside. Outwardly they could pass as decent, that would be about 1/3. The others are trashed with ripped out building components, hardware, heaters, decks and many of them have cracked foundations (that would be about 15%). I don't think you really understood. Perhaps you scanned through my comment and didn't read it in its entirety. I know that I didn't explain that it was primarily inside. That could be one basis on why you responded in that manner. Additionally, I've been looking at foreclosed homes for about 10 years. I've been told repeatedly by realtors that it is the lending institutions that are setting the value on the foreclosed homes. They have a specific amount they need in order to recoup their loss. All they are doing is holding up the cash payers, those that really want to negotiate. But there is no flexibility. Is someone lying? Just curious.


happy 77 (Happy77)
May 1, 2008 5:49 PM
#19 of 21
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One more thing. Not many people have an LOC (letter of credit) stating they have the cash funds to purchase their bid. Most have to scramble to acquire the financial backing. You would think serious buyers would be taken into consideration. All it does is make someone who is tough like me, wash my hands of the deal. Will not be manipulated into buying a "lemon".


Magnolia Hill (Mama2twowonderfulkids)
May 2, 2008 8:38 AM
#20 of 21
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Happy,

Here is a HUGE problem with foreclosures. People are in their new home that most likely they had no business owning in the first place (due to their budget). They love it, take pride in it, show it off to their friends, etc. Then all of a sudden the payment becomes due on a regular basis. At first, they normally are able to pay it (they are so excited to be in this grand home that they never, ever in a million years thought they could own so they make sure the payment is made...at least until everything else begins to snowball) but then over time it becomes harder and harder to make the payments, the stress begins to get to them, ownership pride is dwindling by the day and eventually they can't make the payment at all. While it can literally take months for a foreclosure to be complete the owner is fully aware that they are on the verge of losing their home. At this point they become ashamed, hurt but most of all angry. When this anger hits them they take it out on the home and cause as much damage as they can (another example of their level of immaturity that got them in this place to begin with by taking on a mortgage they could not afford). They are outraged at the bank for taking it and since it after all will be going back to the bank (unless it is a HUD home and most people do not know the difference) they want to cause the bank trouble for putting them in this position to begin with (when they actually did it to themselves). It really is sad to see the damage that is done by this hurt!

(part 2 is coming...it is too long for one post) ;o)


Magnolia Hill (Mama2twowonderfulkids)
May 2, 2008 8:39 AM
#21 of 21
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This is not always the case with a foreclosure. There are some foreclosures that happen because of true hardships in someone's life...but when these happen you typically do not see the damage that you are referring to. I do not list many foreclosures anymore (they are 10x more work than a traditional listing and less money most of the time but my best friend who is a Realtor and post on here as well only list foreclosures - I hope she will respond because her insight will most likely be far greater than mine!) but when I did, one of the steps is called "cash for keys". It basically is a program that the bank sets up and the Realtor negotiates with the owner to leave the property in a mature manner. The Realtor offers cash in exchange for keys. It is normally a small amount ($200-$600 or so) and they are to have all of their belongings moved out, the home cleaned and the keys turned over to the Realtor on an agreed date. Until you have actually done this, it is really hard for you to understand how heart wrenching it truly is!! Don't get me wrong, you still run into the ones that are stlll really angry and take it out on you, the Realtor too but for the most part if they are willing to negotiate with you they are going to be cordial when they meet you. The feeling you get when you look this person in the eyes and see the deep pain that losing their home has caused it really is tough (doesn't mean that I think they are not responsible for it and have to pay for their actions but I am still human and touched by their feelings)...anyway, that is a WHOLE other story! LOL! Back to the condition of the property...I hope that I explained it well enough as to why the homes are left the way that they are.

Now as to why it takes so long, the price of the home, negotiating, etc...

The bank hires a third party company that deals with BPO's and REO's (RE terms). They send out request to authorized Realtors, Brokers and Appraisers to value a property. The Realtor will go and perform a CMA (comparing like properties to the subject property) and submit what they think the property should be worth as-is and if repaired. Most of the time they send out several Realtors from different companies and sometimes even appraisers. They take all of the returned information along with past sales in the neighborhood, days on the market, etc and set the price based on the accumulated data. They assign it to an agent after the home has been winterized and a clean out performed (sometimes the Realtor is responsible for the clean out). The Realtor is then responsible for having the utilties on during the life of the listing, the yard maintained, HOA dues, etc. (Remember, I am talking about foreclosures not HUD homes - they work a bit differently). By this point, it has already taken the owners months to be evicted, the price opinions done, clean out performed, etc (which is why it takes so long for a foreclosure to actually hit the market). The bank has to take in account how much is left on the loan (and the majority of homes that are being foreclosed on now have a balance far greater than original purchase price because most of these owners financed 100% and rolled all of their closing cost into it.), taxes, insurance, closing cost, BPO fees, appraisals (if any were performed), clean out, reimbursement for utilities, etc. in order to know how much they can negotiate on the loan. I have found in my experience with foreclosures that you can normally get them to come off of the loan on average about 3%. One thing you must remember when referring to you being a cash buyer...in the end it is all cash to them. Regardless if you are financing or not, at the closing table they are given the money to pay off the loan whether it be directly from you or another lending institution. A plus to a cash buyer is closing cost for the seller is a tad bit less and they do not have to worry about a hiccup with the loan but they must determine if the chance of that hiccup is a small enough risk to take possibly a higher offer from a buyer with a loan or a smaller offer from a cash buyer...

You can not submit an offer on a foreclosure without already having your loan in place (approved) so if you are going to be scrambling you need to do it prior to making an offer...

WHEW...I can talk A LOT! I hope I helped in explaining it better. It is a long drawn out process that everyone of us gets hurt in and it is a shame that the American Dream of owning a home has hurt so many simply from a lack of education and being responsible for your own actions.

 

Comments (4)

Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth
Misty, great discussion. I agree, that this downturn with the foreclosures as far as we can tell right now, is not as bad as the downturn in the mid to late 1980's with the oil bust and the savings and loan crisis. Credit being tight is hurting us getting out of this one though.
May 05, 2008 02:10 AM
davis wilson
widecircles - Forest Hill, TX

hi this is Davis.I have gone through your post.Really great.I know that I didn't explain that it was primarily inside. That could be one basis on why you responded in that manner. Additionally, I've been looking at foreclosed homes for about 10 years. I've been told repeatedly by realtors that it is the lending institutions that are setting the value on the foreclosed homes. They have a specific amount they need in order to recoup their loss. All they are doing is holding up the cash payers, those that really want to negotiate.

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Davis.

foreclosures

 

Sep 09, 2008 06:06 AM
davis wilson
widecircles - Forest Hill, TX

hi this is Davis.I have gone through your post.Really great.I know that I didn't explain that it was primarily inside. That could be one basis on why you responded in that manner. Additionally, I've been looking at foreclosed homes for about 10 years. I've been told repeatedly by realtors that it is the lending institutions that are setting the value on the foreclosed homes. They have a specific amount they need in order to recoup their loss.

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Davis.

foreclosures

Sep 09, 2008 06:10 AM
davis wilson
widecircles - Forest Hill, TX

hi this is Davis.I have gone through your post.Really great.I know that I didn't explain that it was primarily inside. That could be one basis on why you responded in that manner. Additionally, I've been looking at foreclosed homes for about 10 years. I've been told repeatedly by realtors that it is the lending institutions that are setting the value on the foreclosed homes. They have a specific amount they need in order to recoup their loss.

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Wilson.

foreclosures

Sep 09, 2008 06:10 AM