Roping an REO
Even though the foreclosure process in Texas is the shortest of any state, lasting as little as one month, veteran real estate agent Jimmy Hendon of Beaumont found out firsthand that purchasing a bank-owned property there can require an extra measure of patience. He waited several months to complete the purchase of a bank-owned foreclosure property that he first found listed on RealtyTrac scheduled for public auction.
“I wasn’t interested in buying it at the auction because they hadn’t paid property taxes,” Hendon said, noting that there also could have been other liens attached to the property that he wasn’t aware of but that he would have been responsible for as a buyer at the auction. “It’s too big of an investment to take a chance of there being any type of a lien attached.”
Hendon’s strategy was to approach the foreclosing bank with an offer after the auction — assuming that a third party did not purchase the property at the auction. Buying directly from the bank would ensure that he acquired the home with a clean title and would allow him to finance the purchase — instead of having to pay cash at the auction.
But this strategy meant that he had to wait. First he had to wait for the auction, which was delayed several times. Then he had to wait another few months for the bank — which acquired the property at the auction — to evict the former homeowner before it would entertain his offer.
Hendon’s strategy also meant that he may have sacrificed some of the additional discount potentially available by purchasing directly from the homeowner or at the auction. But because he plans to live in the home for a while, he’s happy with the respectable bargain he realized on the 2,600-square foot property, which is just three years old and situated on a large corner lot. He bought the property for $267,000, and another similar property in the neighborhood is now listed for $340,000.
“I did OK on it, but it wasn’t a steal like my last house. My last house was also a foreclosure and I recently sold it and made a pretty good chunk of change off it,” Hendon said.
Hendon said that although foreclosures are not skyrocketing in Beaumont like they are in many other areas of the country, plenty of good opportunities are available in the local foreclosure market, in part because of overly generous lending practices of recent years. The home he purchased from the bank was originally bought as a new home using an adjustable rate mortgage and 100 percent financing.
“The type of financing that they got on the house should not have been available,” Hendon said, adding that the original owners never paid property taxes or homeowner’s association dues in the three years they owned the property. “There should be limits as to what can be done.”
Hendon’s advice for those interested in purchasing a foreclosure: “Stay on top of the situation and move quickly. When something’s posted, a lot of times the decent properties are either done on a short sale, or an investor will step in and help the seller so they can purchase the property before it goes to auction.
“Make sure to do the title work; make sure it’s been foreclosed on properly,” he continued. “If something comes up two months after closing that’s a valid lien then you’ve got problems.”
Hendon noted that in Beaumont, as in other parts of the country, there are also opportunities to purchase foreclosure homes in the $20,000 to $40,000 range in certain neighborhoods. Hendon said some investors will purchase one of these low-priced homes at foreclosure auction and then rent it out under Section 8 housing, which provides a guaranteed monthly income of $700 to $800 and allows the investors to pay off the mortgage in as little as five years.