James R. Hagerty of The Wall Street Journal Online talks about the business of buying foreclosures, which can be extremely lucrative for investors–but to my way of thinking less so for homeowners in trouble:
Advocates for the poor, as well as some politicians, warn that deals with foreclosure specialists are rarely good for strapped homeowners. Elizabeth Renuart, a lawyer at the National Consumer Law Center in Boston and the co-author of a 2005 report on foreclosure scams, says it is “theoretically possible to make a fair deal if the investor makes only a modest profit and the sale returns a reasonable amount of equity to the homeowner.” But she believes consumers would be better off trying to work out a deal with their lenders or seeking help from a financial counselor.
Illinois Attorney General Lisa Madigan likens some foreclosure investors to “piranhas.” She recently has filed three lawsuits against companies she alleges have misled homeowners into selling their houses for paltry sums.
Illinois is among several states that have passed, or are considering, measures to bolster protections for homeowners considering foreclosure deals. New legislation in Illinois will require investors to provide a clear, written contract and give sellers the right to cancel within five business days after it is signed. The new Illinois rules also will limit the profit investors can make when they buy a home and allow the occupants to remain as renters with an option to repurchase the property.
My initial reaction to these stories is to ask: “why the owners of these properties didn’t reach out to a real estate professional with an honest estimation of the situation?” An excellent broker/agent could have priced the home very aggressively and likely gotten the owner out with less pain and more cash than you can get selling to a bottom fishing “investor” who makes a living taking advantage of other people’s misfortunes.
Don’t get me wrong, many of these investors are providing a win-win situation by taking property off the hands of the soon to be “foreclosee.” But I believe that in most instances, if a seller is honest with themselves in the beginning when payments are made late, they would heed the red flags early, and sell for more money than they may have to later, when the bank is standing on their doorstep.
There is no room for pride when foreclosure becomes a possibility. A proud seller will almost always leave a great deal of money on the table by passing up a quick open-market stale in favor of foreclosure, at a time of life when every penny counts.