Data Sources: Harrisonburg/Rockingham Association of Realtors MLS, Rockingham County Circuit Court Clerk's Office (Thanks Chaz & April!)

Many have asked me how foreclosures are affecting our local real estate market.  Absent hard data on the number of foreclosures in Harrisonburg and Rockingham County, I have always mentioned that there aren't an overwhelming number of foreclosures --- and certainly not enough to make a huge difference in home values.

Now, I have the data, thanks Chaz & April at the Clerk's Office . . .

What can be seen here is that the percentage of the home sales that are foreclosures has certainly been on the rise over the past several years.  However, despite this being based on hard data, there is still a bit of fuzzy math....

The "Sales" includes all home sales as recorded in the HRAR MLS.  This includes most foreclosures, because most such properties end up being bank owned properties that are then listed (and sold) by Realtors via the MLS.  However, if only 127 of the 177 foreclosures ended up in the MLS as sales, then the true number of total sales for 2009 would have been 866 sales, making foreclosures 20.4% of the market as opposed to 21.7% of the market.

This year (2010) and next year will be important to watch as we see how many home sales we'll have, and how many foreclosures will exist in the market.  I predict that home sales will level off this year (and thus, stop declining), but that foreclosures will increase over last year.

Over at HarrisonburgForeclosures.com, I post notices of upcoming Trustee Sales (foreclosure auctions).  The graph below shows how many trustee sale notices we've seen over the past 7 months.



As you can see, there has been a general increase over the past seven months, though it certainly could be a seasonal cycle since I don't have 12 months of data yet.

Do remember that these numbers do not indicate how many properties are actually foreclosed on, but rather the number of properties for which a trustee sale is scheduled --- regardless of whether it ends up taking place.

I'm working to get my hands on data about how many sales actually go through.  Stay tuned!

Thankfully, the Harrisonburg and Rockingham County real estate market is not greatly affected by foreclosures and short sales.  Many people ask why we haven't seen an overwhelming number of foreclosures in this area -- to which I offer:

• We did not see as many hopeful homeowners pursuing the wild and crazy loan programs (interest only, reverse mortgages, etc) that some borrowers utilized in larger metropolitan areas.
• We did not have a great deal of overbuilding as was seen in many other metropolitan areas, leading to even higher levels of surplus inventory than we experienced in our market.
• We did not have investors contracting to buy multiple new construction properties with the sole intent of flipping them once construction was complete.
• We did not see as huge of an increase in values as was seen in many larger metropolitan areas.

All of these factors contributed to a relatively low foreclosure rate in the Harrisonburg and Rockingham County.  But indeed, some houses are foreclosed upon, and this often causes neighbors to wonder what will happen to the value of their property because of this foreclosure sale.  But before we get to the potential impact, let's examine how such a property might be sold:

• The homeowner might seek their lender's approval for a short sale -- a sale in which the proceeds from the settlement do not allow the homeowner to repay their lender in full, and where the homeowner does not have sufficient personal funds to cover the difference.  For example, if a homeowner borrowed $400k for their purchase, and a year later could only sell the house for $350k (and didn't have $50k to cover the gap), they might seek lender approval for selling the house at $350k and short-changing the lender by $50k. 
  
• The property might be sold at a Trustee Sale, which is an auction on the courthouse steps. 
  
• If the property is not purchased at the Trustee Sale, it becomes a bank owned property (REO) and is then put back on the market, sometimes at a below market value.

In any of the scenarios above, the property is likely to sell at a "below market" price.  Consider for a moment that homes in a particular neighborhood generally sell for between $250k and $300k.  We'll assume that the property in question (either a short sale, trustee sale, or REO sale) sells for $200k instead --- a big gap below market value.  Again, neighbors would understandably wonder whether that now means that their house is only worth $200k. 

So, what is the impact?  In our market, with a very low number of foreclosures, this sale will not have a tremendous impact, unless the particular neighborhood where it is situated happens to have an above average number of foreclosures.  Let's see why . . . .



The table above demonstrates the impact of foreclosures on a given market when 8% of the sales are foreclosures, 50% and 75%.  Of note, I have informally heard from several colleagues in Winchester that earlier this year 75% of active listings in their market were foreclosures, short sales or bank owned properties.  The analysis above assumes that "normal sales" range from $250k to $300k, and that the foreclosure sales are all at $200k.

As you can see, with a foreclosure rate of less than 10%, the impact on median sales price is marginal.  However, the market value of homes really starts to shift as there are more and more foreclosures in a market.

Interestingly, this is a bit of a snowball effect.  More foreclosure sales bring home values down, which puts more homeowners under water, which causes more foreclosures, which brings home values down further, etc., etc., etc.  Thankfully our local market has escaped this downward cycle to date!

This is a broad topic, so feel free to ask some clarifying questions or raise other thoughts or perspectives, in the comments below, by e-mail (scott@cbfunkhouser.com) or by calling me at 540-578-0102.

There is often confusion about what it means to "buy a foreclosure" -- and it really all revolves around whether your potential purchase is happening before, at, or after the Trustee Sale.  The Trustee Sale is the sale of the property on the courthouse steps to the highest bidder as a result of the borrower's default on their loan.

BEFORE THE TRUSTEE SALE

If a property is headed towards foreclosure, you may be able to buy it before it is sold on the courthouse steps.  Sometimes a property headed towards foreclosure is on the market during that pre-foreclosure time period, so you could go tour the home, make an offer, and follow a traditional path towards purchasing the property.  It's important to realize, however, that if a homeowner is headed towards foreclosure they are likely to be in a "short sale" scenario.  A short sale is one in which the proceeds from the sale won't be sufficient to pay off the money owed against the house.

If you are considering a property that would be a short sale, you may want to brush up on the typical timing of a short sale in Virginia.  It's also crucial to know that there will be lots of uncertainty in trying to buy a short sale property because you'll be waiting on approval from the owner's lender, which can take weeks or months.  During that time, other offers can come in, the property can be foreclosed on, etc. 

You'd know about these properties by reviewing notices of future Trustee Sales, or by asking your Realtor to look for properties in the MLS where a short sale is noted. 

AT THE TRUSTEE SALE

This is where all the action is --- or not!  Most trustee sales that I have attended do not have any bidders who exceed the bank's minimum bid.  That is to say that the lenders typically take the properties back at or close to the amount of the outstanding loan balance.  If the loan balance is a decent amount below perceived market value, then there may be bidders, but this is usually not the case.

The uncertainty in buying at the Trustee Sale is that you usually will not have viewed the property (so you won't know the condition), and you won't be able to make your offer/contract contingent upon a home inspection.  Thus, you're buying sight unseen, and as is.  Quite a dangerous combination, which makes most potential bidders hesitant to bid too high, as they don't know what types of repairs they may have to make to the property.  You'll also need to be prepared at the Trustee Sale with a cashier's check in hand, and be ready to close within just a few weeks.

AFTER THE TRUSTEE SALE

If you're "buying a foreclosure" after the Trustee Sale, you're really buying a bank owned property.  That is to say that the lender was not able to sell the property on the courthouse steps, and thus have it back on the market after having foreclosed on the original borrower.  Oftentimes, the new owner will not be the actual lender, but an asset management company.

Some asset management companies will price the house quite evenly with the market, and try to sell it in a reasonable, but not overly fast time period.  These properties are much like other properties on the market, except that they are owned by a bank or asset management company.  Other lenders or asset management companies will list the property at a price where it is sure to sell quickly, and likely with multiple offers.  A property such as this came on the market in Bridgewater this past week, and there were three offers on the property within the first few days of having been listed.

Buying a bank owned property is relatively straight forward, though you may be dealing with multiple competing offers, you will definitely be dealing with lots of extra paperwork and disclosures from the bank, and you may be dealing with a slower than normal process for negotiations and closing.

IN SUMMARY

If you have been encouraged to "look at some of those foreclosure properties" or think that your best opportunity might be a "a foreclosure" -- maybe you should, and maybe it is.  But bear in mind that the process, the risks, and the certainty of the purchase will vary quite drastically based on whether you buy before, at or after the trustee sale!

Earlier this week I attended an educational session put on by the Virginia Association of Realtors in regards to Short Sales which was very informative!  I am currently representing a buyer who has a contract on a house that will be a short sale, and I am currently representing a seller whose listing will likely result in a short sale.  Thus, in addition to being quite interesting, the top down overview prepared me to better represent my clients.

First, my simplified definition of a short sale is any home sale where the proceeds will not provide the sellers with enough money to pay off the mortgage(s) in full, and where the sellers can't come up with the rest of the money themselves, and where the bank agrees to release the lien against the house anyhow, even though they aren't being paid in full.

One very helpful part of our training session was an explanation of the typical foreclosure timeline (shown below) and how and when a short sale can fit in to prevent the foreclosure.


Click on the image above for a larger JPG version of the timeline, or click here for a PDF version.

As you can see, above, when a homeowner knows they are headed towards foreclosure there is often still plenty of time to attempt to arrange a short sale rather than to simply wait for the foreclosure to transpire.  Yet at the same time, as the foreclosure (trustee sale) looms nearer and nearer, the possibilitiy for a short sale diminishes.

What else do you need to know about short sales and foreclosures?  A LOT!

• If you're selling at a loss, but have the money to pay off the balance of the loan yourself, the bank won't permit a short sale.
• If you defrauded the bank when you applied for and received the mortgage (overstating income, etc) you likely won't be approved for a short sale.
• Lenders usually takes 30-90 days (or more) to provide a conclusive answer on whether they will approve a short sale.
• Lenders won't give you a concrete answer up front as to whether they will approve a short sale --- once you have a contract in hand, they will examine the proposed deal and decide whether to approve it.
• To be approved for a short sale by your lender you (among other things) must prove financial hardship and show that the proposed deal is generating the best possible sale price.
• Short sales can provide for great opportunities for buyers, but you must be willing to be patient and work through convoluted and tedious processes.

Feel free to ask questions about short sales and foreclosures below.  I will continue to examine these issues from time to time.

For almost a year now, I have been posting information about scheduled foreclosures (Trustee Sales) in Harrisonburg and Rockingham County to HarrisonburgForeclosures.com. 

In the more recent past I have been compiling some basic details on these scheduled foreclosures, an analysis of which is presented below, but first let me explain why this is only a "casual examination" of foreclosures.  HarrisonburgForeclosures.com offers information on scheduled foreclosures, not just those that actually are foreclosed upon (some Trustee Sales never take place.)

Thus, this analysis is based on properties that are headed towards foreclosure, but isn't just based on those that are actually foreclosed upon.
Click here to view a larger version of this document

As you may have imagined (above) most of the properties are in Harrisonburg (which includes Harrisonburg-addressed Rockingham County properties, and is the largest area in the County).  Coming in behind Harrisonburg are Elkton, Broadway and McGaheysville.

This next document examines when these homeowners purchased the home that is now being (possibly) foreclosed upon...

As you can see, the vast majority of these homes were purchased in 2005, 2006 and 2007.  This should serve as no significant surprise, as that was when loan requirements were being pared down and pared down, such that anyone with a pulse could obtain a mortgage.  These lax guidelines resulted in some people owning homes that weren't really in a financial situation that would allow them to consistently pay their mortgage. 

I'll update this analysis from time to time, but one thing that you ought to be sure to remember is that (thankfully) Harrisonburg and Rockingham County have an extremely low rate of foreclosure as compared to other parts of the country.  This is wonderful news, as it has not negatively skewed our home values as has happened in many larger metropolitan areas.

For more details on upcoming foreclosures, visit HarrisonburgForeclosures.com.

Thankfully, the foreclosure rate for Harrisonburg and Rockingham County is much lower than in other parts of the country.  However, we do have foreclosures in this area, and it isn't always easy to keep track of them.

Sites such as RealtyTrac.com and others invite you to subscribe to their services to access data on homes in the foreclosure process.  Their records, however, are not always accurate, and are often difficult to put into context.

The most complete source of foreclosure information I have found to date is the printed "Trustee Sale" notices in the Daily News Record.  To make it a bit easier for those of you who like to keep up with properties in the foreclosure process, you can always check in over at HarrisonburgForeclosures.com where I post those notices.

Also of interest - Types of Foreclosure Opportunities

A short sale is one where the sales price was insufficient to pay the total of all liens and costs of sale; and where the seller did not bring sufficient liquid assets to the closing to cure all deficiencies.  In other words, the seller had to sell at a price where they needed to bring money to closing, but they couldn't. 

A short sale almost always results in an incomplete payoff of one or more mortgage debts, so a lender has to agree to a short sale.  Lenders are apt (in the current market) to consider a short sale because they are likely to recoup more of the money owed to them than if they are forced to foreclose on the property.

I am listing a property this week that will almost certainly be a short sale, and I was surprised to learn from the owner that the bank had encouraged the short sale and was quite willing to go along with a short sale.  This was somewhat of a surprise to me because over the last years I have heard countless stories of lenders who are hesitant to consider a short sale, and instead pursued foreclosure. 

If you are considering buying a property that will be a short sale, it will likely take a little bit longer for the transaction to take place, as the bank must approve of the deal that is worked out between buyer and seller --- but a short sale can be a great opportunity to buy at a good value.

Over the past nine months I have posted quite a few foreclosures opportunities on this blog, HarrisonburgHousingToday.com.  Yet during this time I have realized that not all of my blog readers are interested in hearing about houses that are coming up for foreclosure.  Thus, I have created HarrisonburgForeclosures.com. 



On HarrisonburgForeclosures.com you will find information and news about the foreclosure process, as well as updated information on properties that will be foreclosed upon in the near future.  I will not be posting all foreclosure properties, but rather those where a reasonable opportunity exists for purchasing at a savings.

If you are interested in knowing about foreclosures in the Harrisonburg area, you can subscribe to HarrisonburgForeclosures.com here.

The property pictured to the right (506 Virginia Avenue) was purchased 18 months ago (January 2007) for $185,000.  The first mortgage, with an original loan amount of $148,000 is scheduled to be foreclosed upon on Wednesday, July 30, 2008 at 11:00 a.m.

The house was built in 1907, and offers 2,514 finished square feet, 3 bedrooms, and 1 full bathroom.  The property is currently assessed at $200,700 --- thus (potentially) offering a $52,700 equity opportunity.

Do you have questions about this foreclosure sale, or about the foreclosure process in general?  Feel free to ask (scott@cbfunkhouser.com, 540-578-0102).  Or review the notice in the Daily News Record.

2991 Taylor Spring Lane is a three-level townhome in Taylor Spring subdivision with three bedrooms, two full bathrooms, and a half bathroom.  In addition to the 1400 finished square feet above ground, the home has a 700 square foot unfinished basement.  Oh --- and as is evident from the photo on the right, this is an end unit with a brick facade!

The property was originally purchased in March 2004 for $126,540.  The deed of trust that may be foreclosed upon is dated August 30, 2004 and is in the amount of $135,000.  Thus --- even if the principal balance had not been reduced at all by regular monthly payments --- a $62,900 opportunity may exist.  This equity gap is based on the current assessed value of $197,900 and the original principal balance of $135,000.

If you're interested, the trustee sale will take place on July 15, 2008 at 4:30 p.m. at the Rockingham County Circuit Court. 

A few other articles that might be helpful for understanding the foreclosure process include:

• Buying a foreclosure sale before the sale
• Types of foreclosure opportunities
• How and why to buy property at a foreclosure sale

And if you'd like to see other comparable Taylor Spring properties currently on the market, click here.

The townhome located at 2979 Diamond Spring Lane (pictured to the right) may soon be sold at a trustee sale.  The property was originally purchased for $200,345 on July 31, 2006.  The mortgage that may be foreclosed on had an original principal amount of $160,000. 

This townhome (circa 2006) features three bedrooms, two full baths, a half bath, and over 1500 finished square feet.  The current assessed value of the property is $189,300 --- thus, compared to the original principal amount of the deed of trust, an opportunity exists for at least $29,300 of equity.

Click here to view other townhomes currently for sale in Taylor Spring.

The trustee sale is scheduled for July 16, 2008 at 3:30 p.m. at the Rockingham County Circuit Court.  A deposit of $15,000 (cash or certified check) will be required at the time of the sale.

To learn more about foreclosures, you might consider reading these articles:

• Buying a foreclosure sale before the sale
• Types of foreclosure opportunities
• How and why to buy property at a foreclosure sale

A credit line deed of trust with a maximum amount of $1,600,000 is being foreclosed on.  The trustee sale will take place on July 9th at 2:00 p.m. on site (5639 Thomas Spring Road, Bridgewater, VA). 

The site looks pretty interesting --- a river runs through it!

The current assessed value $413,980. 



A bidder's deposit of up to $25,000 in cash or certified funds may be required.

Trustee:  Doug Stark, 540-512-1800
Source:  Daily News Record, June 23, 2008

Click here to view a similar property.

Property Characteristics
Finished SF	1,428
Circa	2006
Bedrooms	3
Bathrooms	2.5
Lot Size	0.053 acres
Pricing
Assessment	$189,300
Original Amount of Deed of Trust	$160,000  (7/2006)
Equity Opportunity	$29,300
Trustee Sale Details
Date/Time	June 11, 2008 at 5:00 PM
Location	Rockingham County Courthouse
Deposit	$15,000

Source:  Daily News Record, June 5, 2008
Trustee:  Samuel I. White, 757-457-1460

Property Characteristics
Finished SF	1,120
Circa	2006
Bedrooms	3
Bathrooms	2.5
Lot Size	0.051 acres
Pricing
Assessment	$138,300
Original Amount of Deed of Trust	$116,000  (12/2006)
Equity Opportunity	$22,300
Trustee Sale Details
Date/Time	June 24, 2008 at 5:00 PM
Location	Rockingham County Courthouse
Deposit	10%

Source:  Daily News Record, June 5, 2008
Trustee:  Bierman, Geesing & Ward, 301-961-6555, www.bgwsales.com

Can it be done? YES! Is it easy and fun? NO!

Properties in Harrisonburg and Rockingham County that are being foreclosed on are almost always advertised in the Daily News Record as an upcoming "Trustee Sale." When I see good opportunities in these notices, I post the trustee sale details on my blog.

Oftentimes, information about these foreclosure sales is available several weeks before the actual sale, and thus interested buyers sometimes wonder if it is possible to short circuit the foreclosure proceedings, and buy the property before the sale. The simple answer --- yes, this is possible. However, there are typically a few obstacles:

Owners in denial --- or seclusion --- or anger!

Being in situation where you can't pay your mortgage any longer, and the bank is foreclosing on your home is not AT ALL a fun situation to be in. I don't at all intend to make light of the unfortunate light that some homeowners find themselves in. And thus, if you are hoping to purchased a foreclosure property prior to the trustee sale, it is important to consider the perspective of the homeowner.

Many such homeowners are in denial --- thinking or hoping that they will catch up on their mortgage payments such that the sale will not take place. Others will be very difficult to reach, and it won't be possible to discuss a way to help them sell their home without being foreclosed upon. And some homeowners will be downright angry if someone contacts them about their home, and it's status as a pre-foreclosure property.

The lender can't sell you the home before the trustee sale, so if you are to attempt to purchase it beforehand, you'll have to deal with the homeowner. Be careful how you broach the subject, and be sensitive to a time of difficult life circumstances!

The timing will be tight!

While there are often several weeks between the first notice of a foreclosure and the actual foreclosure sale, if you are financing the purchase, you will need every last day of it if you hope to purchase the property before the sale takes place. If you are purchasing the property with cash, or if you already have your financing lined up, you may not have as much of a time crunch.

Sometimes the lender will postpone the foreclosure sale if they can be assured of a pending successful sale of the property that would pay off their loan. If they have doubts as to the buyer's performance, or doubts as to whether the purchase price will pay off the remaining balance of the loan, they may foreclose as planned.

If you are going to attempt to buy a foreclosure property before the sale, be sure to have all of your financing details arranged ahead of time!

Those second lenders don't like being in second place!

Finally, it is important to recognize that there is sometimes a second mortgage or line of credit on the property being foreclosed upon. If a primary loan of $180,000 is being foreclosed on, it won't necessarily work for you to swoop in and offer the owner $181,000 because you know this will pay off their first mortgage and because you know the property is worth $200,000. If a second mortgage (of perhaps $10,000) is in place, the owner won't be able to sell the property to you unless they have other funds in place with which to satisfy the second loan.

The potential existence of second mortgages doesn't mean you shouldn't pursue a foreclosure property prior to the sale, but it does mean that it will be worthwhile to do some preliminary research before making a proposal to the homeowner.

It can be beneficial for multiple parties to purchase a home before it is foreclosed upon. You, the buyer, can get a good deal on the house. The seller can avoid a foreclosure scar on their credit history. The lender can avoid the hassle and cost of foreclosing on a property. But if you are going to attempt this feat of real estate acrobatics, be sure to review the factors above and consider how to adjust your proposal to make the scenario work best for all involved parties.

Some additional light reading on foreclosures:
- Types of Foreclosure Opportunities
- How & Why To Buy Property At A Foreclosure Sale

Property Characteristics
Finished SF	988
Circa	1963
Bedrooms	3
Bathrooms	1
Lot Size	0.207 acres
Pricing
Assessment	$134,200 (2008)
Original Amount of Deed of Trust	$30,000 (7/2004)
Equity Opportunity	$104,200
Trustee Sale Details
Date/Time	May 28, 2008 at 4:00 PM
Location	Rockingham County Courthouse
Deposit	Lower of $3,000 or 10%

Source:  Daily News Record, May 14, 2008
Trustee:  Shapiro & Burson, LLP, 757-687-8822

Property Characteristics
Finished SF	2,316
Circa	1982
Bedrooms	4
Bathrooms	3
Lot Size	0.207 acres
Pricing
Assessment	$223,200 (2008)
Original Amount of Deed of Trust	$192,000 (8/2005)
Equity Opportunity	$31,200
Trustee Sale Details
Date/Time	May 22, 2008 at 11:30 AM
Location	Rockingham County Courthouse
Deposit	Lower of $15,000 or 10%

Source:  Daily News Record, May 7, 2008
Trustee:  Shapiro & Burson, LLP, 757-687-8822