Foreclosure Market: All Hype?

Question

My sister/brother n law have been trying to purchase a foreclosed home in the northern VA area. They've made several offers on homes however the banks have turned them down each time. One time the bank accepted their offer and when they submitted the last bit of paperwork the bank changed their mind and chose to go with another buyer! This was heartbreaking as the bank didn't inform them they were considering them with another buyer. Also, the bank told them they preferred the loan that the other couple had versus theirs. Personally, I feel that they were discriminated against. In another situation, my sister offered more than what the house was listed for and the bank decided to reassess the value of the home and increased it to more than it was originally lised. The family in the home was willing to accept my sister's offer but the bank pulled a fast one. Can someone please explain how if we are in such a foreclosure crisis, why banks are holding out and making it more difficult to purchase the homes? Perhaps the foreclosure crisis is all hype and the banks aren't really suffering. I keep hearing that banks are anxious to sell and willing to sell below the home values but it doesn't seem so in the northern VA area. Personally I feel that the banks are toying with buyers emotions and don't intend to sell anything until they get back up from the government. Its a shame that my sister and husband who are full fledged americans are being blocked out of the market while I hear about foreigner investors buying up foreclosed properties! Please shed some light!

Answer 1

Realize that the foreclosure crises has not affected all areas equally.  There are some areas that are not in such a desperate position.  And even when they are, banks still want to make as much money as they can.  So they may reject your offer in favor of a higher one.  Just follow up a few weeks later and see if they will change their mind... "The fortune is in the follow-up"

Answer 2

You've made some great observations.

1) The banks are not yet anxious enough or suffering enough. Apparently there is still a good number of buyers / bargain hunters like your sister. We're are only in the 2nd year of the down cycle following an enormous bubble. Typically down cycles last at least 5 years. Give it some time...

2). Bargain hunters rely on banks being stupid, and the banks are happy to oblige. Therefore, do not expect good business sense from a lender when shopping for a foreclosure bargain.

3). Finally, everything to do with banks and real estate is usually excruciatingly slow. Even during hot markets, it takes several months to a year to find a close a deal.

My advice is to have fun, be patient and keep looking for your dream foreclosure deal. Maybe not this year, but eventually you'll find the right place!

Answer 3

First, you are talking about two different things here.  A foreclosed home is one that the bank owns, the former owners are out and the house is vacant.  You mention one time where "the family in the home was willing to accept" the offer. This is not a foreclosure sale.  This is a short sale.  They are very different and should be handled different ways.

Once a foreclosure happens you have to imagine that the bank has lost money simply because they had to pay court costs, etc to get the house back from the former owner.  Once this happens the bank will look at a few things before accepting an offer.  One is what is the house worth.  They won't sell a house for severely under market rate at this point because they spent a fortune to get to that point.  In addition they will know what the house is worth.  If you have something worth $100,000 would you sell it for $50,000?  Probably not.  Neither will a bank.

For a short sale (where the owners still live in the house), you are asking the bank to take less than what is owed on the house.  SO basically the owner went to the bank and asked to borrow $100,000 to buy a house.  they can't pay anymore and they ask the bank if they can sell the house for $80,000.  Basically they are asking the bank to give them $20,000 for free.  Banks won't jump at the chance to lose money.  They will look at these deals carefully.  Again they will look at what the house is worth.  They will take into account if the current owner can afford to pay the mortgage and just doesn't want to.  they will look to see if they will make more money by foreclosing then selling on the open market.  Banks are not in business to lose money.  They will make the decision that benefits them the most.

Answer 4

I am not sure I am following you.  

I am buying bank owned homes, and they are being bought around me at a pretty good clip.

Your sister needs to offer close to the market value and have a decent investment of her own (down payment).

It is really hard for a bank to discriminate, they rarely actually meet people and have no idea what their race, religeon, or anything else that is protected is.

It is all paper, you have to look good on paper.

The banks are looking after their best interest and need to minimize their loss, sometimes that means not selling at all.