Neighborhoods Cope, Homebuyers Seek Deals
By Linda Y. Brown

The wave of foreclosures, washing across the nation, has left many neighborhoods stuck in the current, while a fortunate few are able to catch the wave to their own treasure island. Those stuck in the current are homeowners who want to move up, or even downsize to another home, but are forced to stay where they are. Meanwhile, a glut of vacant houses around the neighborhood cause property values to decline. Riding the wave to financial gain, investors and first-time homebuyers have the opportunity to make unusual deals on foreclosed and soon-to-be foreclosed homes.
In any case, buyer and seller should beware of making decisions that can be more costly than their present situation.

Pushed Down By The Current
There can be a lot of shame or guilt associated with being involved with a foreclosure. Even when the person is not actually going through the foreclosure, they're still uncomfortable because they know others are suffering from a situation that could even befall them someday.
Kevin Marchmann, executive director of the National Organization of African Americans in Housing, said he thinks the industry wants people to feel shame about being involved in a foreclosure, so they won't talk about it, which keeps them from coming forward to get help or help others.
A young Hispanic couple in their early 30s, who live with their two children in a southwest Denver neighborhood and asked not to be identified, started looking for a new home over a year ago. With a growing family, their current home no longer provides the space they desire. But, foreclosed homes with similar floor plans around them are up for sale for up to $35,000 less than what they owe on their home. If they sold their home, they would come out upside down. Instead of earning a down for their next home or even coming out even, they would owe more than the selling price.  They have since taken their home off the market and are stuck in the current of the foreclosure wave with other homeowners, who want to sell, hoping that property values recover.
“If you’re in a down market and you can stay in your home, you probably should,” said John McCloy, chief lending officer at Westerra Credit Union.  “The real estate market goes in cycles on a somewhat regular basis. I don’t think this market prevents people from moving up, but there may be some timing issues there.”
According to the DenverOffice of Economic Development, the impact of foreclosures on neighborhoods can be quite high, leading to: decreases in property values, deterioration of properties, and increased crime at vacant and boarded-up homes. The resulting resident turnover disrupts the stability of the school population, and the lack of long-term investment in the community is detrimental as well.
“The biggest problem for those in foreclosure is the declining property values – the same thing that makes those first-time homebuyers looking at a pretty good situation,” McCloy said.
A single 40-something Montbello homeowner, who also asked not to be identified, echoed the sentiments of many neighbors of foreclosed properties. Though she wants to see vacant homes in her area occupied again, she would simply be happy if those homes would be kept up.
The house next door to her was vacant for a year, the property was a mess and its yard was full of high weeds. A call to report the problem to Denver city services resulted in the city’s successful contact with the bank, which sent someone out to remove the weeds and clean up the property. The home had been broken into and someone was living in the basement. The trespasser was discovered when he tried to break into the single woman’s home. Luckily, her dogs did not allow the intruder to get away with anything.
The woman is now going through a foreclosure herself.

Searching For Treasure Along The Wave
New homebuyers and investors look for substantial savings when they seek to purchase a foreclosed home. According to realtor Frank Vigil of FrankCo Realty, foreclosed homes are classified in three stages: pre-foreclosure, foreclosure and post-foreclosure. 
“Pre-foreclosure is when the owner still has an opportunity to redeem the property, or sell the property. If the homeowner was not able to redeem the property or sell it, then the property is foreclosed on and can be sold at a public auction.  At post-foreclosure, the property is returned to the bank or lending institution that made the loan and is listed with a real estate agent and put on the market,” he said.
Successfully purchasing a foreclosed home at any of these stages requires homework.  When a home enters the pre-foreclosure stage, a notice runs in the newspaper giving the name and address of the homeowner. Addresses can also be obtained through Internet listings. A potential buyer can approach a homeowner with an offer to purchase the home. The first attempt is normally done by sending the homeowner a postcard, letting them know of your intentions, which can be a touchy situation.
“Because of the homeowner’s misfortune and state of mind, they are often taken advantage of by investors and others,” said Vigil.  
Renee Bryant lost her home to foreclosure earlier this year. She stated that when she was going through the pre-foreclosure process, investors would come to her home, pretending to be a couple, or an interested homebuyer, walking through her home very critically looking through every nook and cranny, asking, “Are you going to fix this?” 
Bryant was incensed by their insensitivity and says their offers were always insulting.
A homeowner unable to redeem their property may be helped by a potential buyer by doing a short sale. Once all other avenues have been exhausted, the lender may agree to a short sale, which allows the homeowner to sell the property for less than the value of the mortgage. This benefits the home seller as they are allowed to get out from under some of the bank debt, as stipulated by the Mortgage Forgiveness Debt Relief Act of 2007.
Previously when a homeowner did a short sale, transferred a deed in lieu of foreclosure, or had their home taken by an actual foreclosure, the difference in what they owed on the home could be reported by the lender to the IRS as income, often referred to as “phantom income.” The homeowner received a 1099-C and had to pay taxes on the difference. The act, passed by Congress last year, relieves the homeowner of an additional financial burden such as these taxes on top of what they may already be facing.
“Once a property is foreclosed on and eviction has taken place, the property could sit vacant for up to a year or more before it is available for market,” said Vigil.  “These properties are sold as-is and 90 percent of the time they are not in move-in condition – be prepared for major fixer-upper-type activities such as roof, plumbing work, electrical work, etc.”
Post-foreclosure happens after the home fails to sell during a public auction. The home is considered an REO (Real Estate Owned). The property is listed with a realty agency and can be inspected prior to submitting an offer as on any other property for sale, whereas with the first two types of foreclosure, the potential homebuyer may not get a chance to inspect the home.  Taking this route is a bit safer for the first time homebuyer. Sometimes, in order to get a good deal, a potential buyer may just need to be patient.
“The three stages of buying foreclosures are all very different, and each has their pros and cons.  Buyers need to determine which stage best fits them. Before jumping on the foreclosure bandwagon, buyers would be wise to educate themselves regarding foreclosures. There are a number of civic and community agencies that offer information and workshops dealing with different aspects of foreclosures. Above all, select a reputable realtor that can help you navigate through the difficult process of foreclosures,” says Vigil.
A Park Hill investor, an African American in his early 50s who declined to be identified, waited a year to get the property he had his eye on. His initial offer was made while the home was vacant and in the pre-foreclosure stage.  The bank rejected his offer. The first mortgage on the home was $180,000, with a second mortgage of $30,000.  The asking price was for the full amount of both mortgages. While the bank was still hoping to recover its loss, the home continued to sit vacant. It went back on the market, almost a year later, for $175,000 and finally dropped to $152,000.
“When my realtor called me and said they probably won’t go much lower, that’s when I made another offer and it was accepted,” said the investor, who saved money not only on the purchase price but also by making many repairs on the home himself.
For people considering buying a foreclosed home, Holly Jones, a mortgage sales team leader at Westerra Credit Union, recommended, “Get pre-qualified before you start talking to realtors and looking in neighborhoods.  Know what you can afford.”
Steve Leugers, Westerra’s vice president of mortgage and consumer lending, added, “This is a great time to be a first time homebuyer. There’s a lot of data that shows, the Denver market, for a western real estate market, it’s still very under-priced and a good value. That really tells you in the next few years we probably have a higher likelihood of seeing appreciation, than a lot of other western markets do. So as a first time homebuyer this is the time to strike.”

Editor’s note: The Denver Urban Spectrum chose to give some sources anonymity for this story, because we established trust with the writer and sources, and consider the topic and related experiences significant to readers. Many individuals dealing with foreclosures fear public discrimination and ridicule, and prefer to share the hard lessons in their life anonymously.

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