Archive for the 'Foreclosures and Short Sales' Category

Today’s Madison WI real estate landscape offers some great buys for savvy real estate consumers, especially when it comes to foreclosure properties. Unfortunately, even though there are already a large number of foreclosures on the market, analysts are predicting that yet another wave of distressed properties will crop up in the coming months.

As a local Madison area Certified Distressed Property Expert (CDPE), I’ve consulted with many clients seeking to capitalize on a foreclosure purchase. I always advise them, however, to weigh the pros and cons. While a foreclosure could represent your best chance to get a great deal, make sure you educate yourself about the potential pitfalls of purchasing a distressed property in advance – and what correcting those pitfalls might cost. In most cases, it’s not so much about what damage occurred but rather the source of the damage and how long before the problem was addressed.

Here are the top 10 signs that may indicate trouble in a foreclosed home:

1. Unheated house in winter months. If the home has been properly winterized, there’s no need for heat. But if the home has not been properly winterized, pipes will burst and cause water damage.
2. Missing sinks, toilets and other fixtures. Make sure they’ve been properly removed and not ripped from walls and floors.
3. Peeling, bubbling and discolored paint; swelling in walls or ceilings (especially around kitchens and bathrooms), or a musty odor all indicate water damage and, potentially, the presence of moisture and mold.
4. Fungus growth inside cabinets, behind drawers and built-ins. Fungus could mean that there has been water damage. Since water falls down, look for the source above the mold.
5. Blocked drains or pipes will cause future problems and may have already created sewage backups.
6. Black cobwebs, greasy gray residue on walls and/or a strong oily odor. This could point to potential soot damage or a malfunctioning furnace.
7. An older home with extensive renovations. Check with the city for pulled permits in order to get remolding details. If asbestos is present and has been disturbed, be sure it’s been remediated by a certified specialist.
8. Excessive painting of every nook, cranny, door and floor may mean that the seller is covering up mold.
9. Discolored subflooring. From the basement, check the subflooring above for stains and small holes, both caused by mold.
10. Air quality. The air quality within a home tells a lot about the home’s condition. Be sure to include air and surface testing in your home inspection. It’s a few hundred dollars well spent.

Please keep in mind that not only are there potential issues with the condition of a foreclosed property, but each foreclosure property is sold subject to restrictions of record which are unknown to the Sheriff and subject to any unpaid taxes and water bills or assessments. One of our favorite resources is the Dane County Foreclosure website.

There are indeed many great opportunities in today’s market, but proper education and preparation are essential to making the right investment. Please call 608.251.6600 or email us for further information and be sure to forward this article to others who might be considering a foreclosure purchase.

Search all foreclosure homes in the Madison area.

Foreclosures can bring new opportunity

Guest post by Michael Carlson, Madison Area Community Land Trust

When You Start With Something Free

Homes live and they decay. Foreclosed homes – any homes – demand stable or permanent occupancy. Many foreclosed homes have fallen into disrepair, or are old, or have been neglected, or bear projects abandoned by owners in the midst of foreclosure. These properties need more money, but of a certain type, namely, capital improvement dollars. The project at 709 Gannon in Madison, WI fascinates both in the mechanics of its capital improvement financing, as well as its broader implications for home lending policy.

Madison Area Community Land Trust and Operation Fresh Start jointly purchased the Madison property with help from Buyer Specialist Darcy Haber of the Alvarado Real Estate Group, and paid with MACLT’s allocation of federal, Neighborhood Stabilization Program (NSP) funding. The NSP dollars are issued federally, distributed to the states, and then municipally administered. The fund acts as a grant, which we’re not obligated to repay: In a sense, a home has been donated to MACLT and OFS, on the condition that it be both bank-owned and located within a ‘HUD-qualified census tract.’

MACLT chose to exhaust the grant dollars on the acquisition of the foreclosed home, reserving a nominal portion to cover the cost of administration. The grant effected a transfer of title free and clear to the Land Trust.

The Land Trust will sell the home to an income-qualified homebuyer. MACLT, like many of the housing non-profits around the Madison area, sells homes to households who earn incomes of 80% or less than Dane County’s median income. Practically, those incomes can support a mortgage of $100,000 or less.

The Board of Directors authorized MACLT to borrow up to $100,000 in construction credit to carry out a ‘deep green retrofit,’ through which the home will be reconstructed using techniques that reflect a modern understanding of energy-efficiency, healthy building systems, and the like.  Residential Services staff from MG&E, the local power utility, have partnered with the project in the review and development of construction specifications and performance modeling.

Construction will be carried out by Operation Fresh Start, located on Madison’s East side, whose participation not only maximizes the sweat-equity value of the dollars borrowed to build, but whose joint ownership brings an additional infusion of federal subsidy to defray the cost of building materials. OFS will fully remediate the lead paint on site; they intend to deeply insulate the shell of the home and install new mechanicals; they will reconstruct the west facade to take advantage of solar gain; they will rebuild the rooflines, to protect the home from wet Wisconsin winters and springs, and to better shelter the interior from hot summer sun; they will restructure the interior to optimize space and build in accessibility; they will reconstruct the ceiling, to add architectural and aesthetic interest to a comparably small interior: These tasks paint the broad strokes of the ‘deep green retrofit.’

The qualifying homebuyers will be pre-approved for a mortgage somewhere between $85,000 and $110,000. The quality of the improvements they stand to inherit, feels almost surreal. The funding volume is a builder’s dream, and only a conservative, pragmatic ethic restrains what might be built, given how much money there might be to spend.  In any event, MACLT will repay the construction loan from the proceeds of the sale, which itself is paid by the homebuyer’s first mortgage. 

MACLT anticipates and budgets upon $75,000 in capital improvements to the property. Because we bought the Madison WI East side property outright, and because the Land Trust model insulates homeowners from the liabilities of land ownership, the homebuyer’s mortgage dollars match the construction dollars virtually one-for-one.  Because the buyers can afford up to $110,000, our incentive – the almost embarrassing incentive, for an ‘affordable housing provider’ – is to upgrade, upgrade, upgrade: Upgrade the systems, upgrade the form, and upgrade the longevity of this structure, to endure for the next 100 years. ‘Best practices’ are well-known, and here the money exists to implement them, at a price the homebuyers can bear. Free transfer of title catalyzes the volume and the quality of these capital improvements.

When debt that was attached to the initial building of the home, is erased, new, productive money can flow into the home. In a sense, ‘improvement dollars’ buy you more than ‘new build dollars,’ — as they intensify, rationalize, and perfect an existing, workable ‘substrate’ whose own construction dollars may have been spent less intentionally – and thereby shrink the total volume of loan needed by a potential buyer, even as the end product excels against the marketplace.

What needs to be done in housing, can in fact be supported by the reality of the incomes available, given free transfer of title to a responsible steward. Further, the free transfer stimulates at least two other loans – one to the steward or builder for construction, and one to the buyer – and both loans reactivate the home’s asset value and recalibrate that value to market reality.  When a bank releases the existing debt on the home, it frees itself to create new, productive loans that flow to right where they’re needed, and at a volume that the occupant can responsibly bear.

In a sense, these piles of foreclosed, bad mortgage debt can restructure or crystallize themselves around an endeavor to finance capital improvements into pre-existing housing stock, and to fix the new mortgage loans to the cost of those improvements. The leap of faith, is letting go of the old, in favor of the new.

Sounds like something you’d hear about in Arizona, Florida, Las Vegas or California real estate markets. But we live in Madison WI and the Madison WI real estate market isn’t that bad! Puhlease people, the economy and the burst housing bubble has sprinkled (and sometimes exploded) into every corner in the United States. I’m a glass is half full kind of a girl, but I’m also very tuned into reality. And even when the glass is half full and there are just as many opportunities in a swimming pool of threats, you’ve got to know what is out there.

Cash for Keys is when the lender just wants the keys back to the house that they hold the mortgage on and is willing to pay the homeowners (who are in default on their loan) to move out and sign the deed over to the bank. This gives the bank the ability to sell the house and get it off their books.

Why would a homeowner do this?

1) The homeowners are ready to move on from what is many times a nightmare of a situation. Typically there is a hardship that has happened; a divorce, loss of a job or the inability to refinance for a more manageable monthly payment and it has become clear that the homeowner won’t be able to get back to the same place they were and will need a less expensive monthly payment.  

2) Cash in hand. When times are tough and money is tight, getting cash to move on and into a new place is appealing. You aren’t pushed out quickly, you can typically negotiate with your bank so you have time to find an apartment and get the house clean before signing the paperwork and handing the keys over.

3) Avoid foreclosure. Let’s get something straight though, you are not avoiding foreclosure consequences completely, you are signing over the deed in lieu of foreclosure. It still can have a negative effect on your credit. Check with a credit counselor or attorney before making a decision like this.

Why would a bank want the house back? That we’ll leave for another post.

Yes, we live in our bubble in Madison WI, and life is progressive and purposeful here YET there are many suburbs of Madison that have been hit hard and as a homeowner, a concerned neighbor and/or an investor, it is important to understand what is happening and what options are available.