Buying Vail Valley foreclosures: More trouble than it’s worth?
While Eagle County has escaped the worst of the nation’s real estate problems, there is no denying that the number of foreclosures is growing. There are about 28,000 whole ownership deeded properties in Eagle County, and so far this year about 100 have gone into foreclosure.
However, buying a foreclosed property is not always the deal one might think. For several years lenders were lending 100 percent of the appraised value of a home and in some cases values have dropped. In addition, there can be tens of thousands of dollars in accrued interest, legal fees and unpaid taxes on top of the original loan amounts. As such there often is zero equity in foreclosed property.
But for those who want to chase foreclosures, here are the basics of how this works:
When a borrower takes out a loan, they execute what is known as a deed of trust. This is basically a promise to give the lender the house in the event the buyer cannot pay.
When a borrower is no longer making payments, the lender goes to the public trustee and files paperwork to instigate a foreclosure. The public trustee then notifies the borrower via mail at his last known address and publishes notice of the action in the paper.
For foreclosures filed after Jan. 1, in Colorado there is a minimum 120-day waiting period before the sale. During that time the borrower has the right to make the payments current and pay any associated penalties and legal fees and cure the foreclosure.
If the borrower cannot cure the foreclosure there is a sale held by the public trustee. The lender notifies the trustee of the minimum amount he will accept, and this is called the lenders bid. It is generally available the day before the sale. Usually, though not always, this includes the exact amount owed plus legal fees and accrued interest.
If a buyer wants to buy the property from the lender he must file a minimum bid with the public trustee prior to the sale and it must be at least $1 more than the lenders bid. If there are no bidders, the lender gets the property.
If there are multiple interested parties, an auction is held and the high bidder gets the property. The winner must present certified funds for at least the minimum original bid immediately and must bring any additional funds in within a few hours.
Under the 2008 law there is no longer a redemption period for the owners once the sale has been held. The winning bidder initially gets a certificate of purchase which can be converted to a public trustee’s deed after the redemption period for other lien holders has passed, and provided none of them redeem under their rights.
There is still a redemption period for junior lien holders, which can run up to 19 days for the second lien holder and five days for each subsequent lien holder. As such, it can be several weeks until the winning bidder has a clear title to the property.
The downsides to purchasing a property at auction also include not only the above issues but also that the buyer rarely has a chance to inspect the property beforehand and has no control over or possession of the property between the sale date and getting the trustee’s deed.
We have heard tales of former owners stripping and trashing the house completely, even pulling our heating systems and toilets. In fairness, we have also heard of cases where the owners had the carpets cleaned and touched up the paint before they left.
Some people loved their homes and want to walk away with dignity; some are very angry and upset individuals who don’t want anyone to get what was once theirs.
There is no recourse if you buy a house at auction and find it uninhabitable.
Keep in mind that you will have to pay cash at the auction as well, and that no financing is available in such a purchase. You might mortgage the house after you have it, but that will be cash out refi and be limited and cost you more than a traditional purchase money mortgage.
Unless the property is an unbelievable deal and you are sure you cannot go wrong I would suggest waiting and trying to buy the property from the lender once it has gone through the foreclosure process. You might find you end up paying less than what the lender wanted at the sale.
Chris Neuswanger is a mortgage loan originator at Macro Financial Group in Avon and can be reached at 970-748-0342. He welcomes mortgage-related inquiries from local readers.