U.S. Foreclosure Numbers are Up–Some Retreat Property Possibilities?

There has been a lot of news in recent weeks about real estate foreclosures in the US. Foreclosure.com (one of SurvivalBlog’s Affiliate advertisers) just published the following US residential real estate foreclosure statistics:

National Highlights:
* Foreclosure activity increased 36 percent from July
* Foreclosure activity increased 115 percent from August 2006
* REO (“Real Estate Owned”)s increased 59% month over month, the biggest increase of any of the three foreclosure categories (Default, Auction, REO)

State and Metropolitan Statistical Area (MSA) Highlights:
* Nevada, California and Florida posted the top three state foreclosure rates
* The states with the most total foreclosure filings were California, Florida, Ohio, Texas and Michigan
* California cities accounted for six of the top 10 metropolitan foreclosure rates
* Modesto, Stockton and Merced (all in California) documented the top three metropolitan foreclosure rates
* Other top 10 metropolitan foreclosure rates were Detroit, Fort Lauderdale, Las Vegas and Cleveland

Beneath these statistics, there are millions of untold tales of woe. Many of them come from house buyers that were never properly qualified to buy in the first place. Clearly, they just couldn’t make the payments. They had “the dream of home ownership” but they were really just dreaming. In essence, they were never really home owners. The bankers were, since they held the notes for 90% or more of the purchase price and very little of the loan principal was ever paid. Huge numbers of houses have gone through foreclosure and are now “bank owned” (a lovely euphemism). That number is expected to increase substantially in the next 18 months, as mortgage interest rate “resets” kick in on millions of adjustable rate mortgages (ARMs). Meanwhile, if the economy slips into recession as predicted, there will be large corporate layoffs, and that will mean even more payment delinquencies and inevitably more residential foreclosures. Many of the defaults and foreclosures will come from the once-popular but now notorious “2 and 28” mortgages. (These are 30-year ARMs that feature two years of a low “teaser” rate followed by 28 years of a substantially higher interest rate.)

What does the new glut of foreclosures mean to those of us that are actively preparing for hard times? A few of the foreclosed properties hitting the market are in lightly populated rural areas with good soil and plentiful water–prime candidates for use as survival retreats. If you are in the financial position to buy a retreat with cash (or with a very small mortgage)–perhaps in partnership with some members of your extended family–then watch the foreclosure listings carefully. A service like Foreclosure.com is a good way to monitor new foreclosure listings in your chosen retreat area. But of course you can accomplish nearly the same thing for free by bookmarking the web sites for three or four real estate agencies, checking them daily, and regularly reminding local agents that that you are looking for a foreclosure. Since bankers will want to cut their losses, they will start the auctions for many of these properties at substantially below their market value. Those houses that receive no outside bids (that are “bought back” by the banks at the opening bid price), will probably hit the market at true bargain prices, to ensure quick sales. Wait. Watch. Pounce.

In coming weeks, you will see some listings for foreclosed properties that would be appropriate for retreats on our spin-off site, SurvivalRealty.com.

Todd Savage Adds: Remember that in most locales the banks cannot just ‘take back’ a foreclosed property, they must bid on it themselves on the day of the auction and the amount is usually the face value of the first mortgage note plus any back fees et cetera. The second mortgage holder is out of luck unless they want to buy the first mortgage and try and sell the property. This of course usually only happens in rising markets. If you or your agent locate a property that is a good deal then you may want to have them go to the auction on your behalf and make a bid. Remember though that in most cases the purchase price is due upon closing of the sale and you must pay cash. So those of you that have done your refinancing and taken $300,000-to-$400,000 out of your investments then this is a great deal. Bring cashiers checks in large denominations and then you’ll write a check for the small difference. There are also a few locales that allow you to bid and hold a property for 30 days to come up with the money, but you must present a large non-refundable deposit (sometimes 10% of the sale price). If you are sure you can pull it off then go for it. Otherwise, be careful!