Next “Wave” of Foreclosures: Fact or Fiction? (Dont Hold Your Breath)

We’ve all been told that there’s another “Wave” of foreclosures coming and I’ve even done some of my own planning based on that prediction.   Almost all of the people I’ve heard the next “wave theory” from were just repeating what they had heard from someone else.  The more thoughtful of these pointed to the continuing rise in Notices Of Default but we all scratched our heads because the expected actual foreclosures didn’t show up on the REO market.    What happened?   The foreclosures seemed to get lost on their way to the MLS…

I had nothing objective to base it on but just started losing my faith in the Foreclosure Wave theory a few months ago.   Then I finally found an objective explanation of why the foreclosures aren’t showing up on the expected schedule.   Check out this chart which shows what happened to foreclosures after Secretary Paulson’s Troubled Asset Relief  announcement last September 19th. Here it is on the chart, courtesy of Sean O’Toole  of Foreclosure

Before and After Secretary Paulson's announcement on Sept 19, 2008

Before and After Secretary Paulson's announcement on Sept 19, 2008

O’Toole explains, “While many will point out this was necessary to keep home loans available and interest rates low, I think it also clearly sent banks a message… you will get more for these assets from the taxpayer than you will through foreclosure. Add to that the mark-to-model rule changes from the Federal Accounting Standards Board, and a ton of politicial pressure and it should be no surprise to anyone that foreclosures have slowed.   The drop in foreclosure sales defies logic given the continued increase in properties scheduled to be foreclosed on. But defying logic to do what is politically expedient while simultaneously inflating bank earnings and bonuses and without regard to future consequences IS the new normal. We are yet again trading tomorrow for today.” (Full Article here)

Whether O’Toole’s analysis is right or wrong, the fact remains, Investors can no longer choose from many available foreclosures like in the “old days” of 6 months ago. I believe there are still good deals out there, we just have to look harder for them.   The larger spread from buy to sell which is available in foreclosures is what allows me to do large energy saving packages in the renovation and still sell my projects to first time buyers.  So even if the good deals are harder to find, they are worth the effort.    Here are three techniques that I’m using while waiting for the wave.

1.  Increased attention to Short Sales.   As you know these can take a long time, so it’s good to have a lot of offers in the pipeline.   My broker and I have turned our attention to Short Sales and recently got one (after 5 months)

My Newest Really Ugly House

My Newest Really Ugly House

2.  Remember the Ugly House. The house that I just put in escrow last week may qualify for the “Ugliest House” award.  Certainly in the City, Maybe the State.    My perfect plan is to buy the Worst House in the neighborhood and make it the Best House in the neighborhood.  We call it our Cinderella Process.      I’ll be showing pictures and talking about my latest Ugly House on the RoundTable Conference Calls every Tuesday at 6pm Pacific.    Sign up on the FREE WEBINAR form and I will send you the slide deck before the Conference Call.

3.  More Conventional Ways Of Finding Motivated Sellers. We’ve really gotten spoiled this last year with such easy pickings in the REO market.   It’s time to dust off some of the harder ways to find those great deals.   Pre foreclosure letters, signs, working with attorneys…. none of which are my specialty, but I will post here and we can learn together.

The effort is worth it and we need really good deals if we are going to Save The Planet, One House At A Time thru Energy-Wise House Flipping.

And who knows.  The political winds and banking rules may change and the “Wave” may really come.   Wise investors will have a little cash available for the buying party when it’s Wave Season.

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