Crash Course In Loudoun County Foreclosures, Short-Sales and REO

As foreclosures, short sales and REO (Real Estate Owned/Bank Owned) properties increase, so do the number of investors.  Loudoun County has seen a sharp increase in "distressed" properties and more and more investors are popping up, as well as buyers trying to get a "great deal" on their new home by "buying a foreclosure". Before all you investors and buyers get too excited, make sure you understand exactly what’s involved and whether it’s really worth it.

Pros

• You can get a 5 to 15 percent discount, possibly more on the property
• Your choices and opportunities increase daily as the number of distressed properties increases every day
• If you are a handyman or contractor or have a connection to one, you can do all the needed work at much less than the market value of your improvements and potentially sell the property for a profit or have equity built in

Cons

• You must know how to search for them
• You have to be very patient – banks can take up to 2 months to give you a response back to your offer (yes, you read that correctly and yes, it really happened)
• You need to fully understand what it means to buy a property "as is". Those two little words have a huge impact on you
• You have to be a bit of a gambler. No matter how good you are with numbers, budgeting or forecasting, you never know what may happen with the market and whether you’ll be able to clear a profit or end up losing money in the end, even with getting a 5 to 15 percent discount

Did we mention that you also have to learn a new language? Yup, you sure do. And new words and acronyms are added daily so you really have to stay on top of it. No, there’s no official dictionary and yes, it’s a pain. (Some, including myself, think that it’s done to further confuse, not only real estate professionals new to the biz, but consumers in order to not let anyone new into "the circle")

Rather than taking up another 100 lines of space here on Loudoun Stats, I would like to refer you to an excellent post by Frank Llosa entitled "SOL Homes: Virginia MLS Foreclosures, REO, Short Sales Defined + Email Alerts". The article goes over terms, acronyms and definitions, and touches upon other things such as auctions and market conditions.

If you still wish to explore the world of foreclosures, short-sales, REO, etc., feel free to contact Tony or myself for more information. We’d be glad to help out whichever way we can.

Foreclosures In Loudoun County Up 1000 Percent

"Foreclosure" is becoming a more commonly used term in Loudoun County and the DC metro by the minute. It’s front page news (today’s edition of The Washington Post) and the topic of conversation during many weekend bbq’s throughout Loudoun County. Why? Because foreclosures are up 1000 percent in Loudoun County; 400 percent in Fairfax County; 300 percent in Montgomery County and the list goes on… The effect can be seen and felt by all that live in the county as well as the entire region.

So what is the effect on you as an individual/consumer? Well here’s a short list to start off with:

1. Your neighbor’s home which is being foreclosed on looks awful, needs maintenance and TLC and is making your entire neighborhood less desireable.
2. Your property value is threatened because not all potential buyers realize that foreclosures don’t get the full/same weight as a "comp" as non-foreclosure sales.
3. Your ability as a buyer to obtain financing has just decreased and the types of loans available to you has diminished while the necessary credit scores to obtain a loan and interest rates have risen.
4. Your future tax rate is potentially threatened because the county loses money on taxes and utilities for every house that is in foreclosure and the county has to make the money up somehow (or cut services).

Though the number of foreclosures has risen tenfold, it’s a small number when compared to the number of overall sales in the county. And there are some many active ones still on the market because banks aren’t beat up enough to negotiate much on the sales prics.

Historically, foreclosures are associated with job losses, high unemployment and recessions. But this time around, it’s primarily (sub-prime) financing. But this wave of sub-prime financing will not last forever. Lenders have already become much more stringent when it comes to loan options and approvals. This will diminish the potential for situations like we’re in in the future. Once we get through this (probably another 12 months), we’ll see the foreclosure rate get back down to "normal".

Once this wave of foreclosures ends and we get back to normal, you’ll be able to

• celebrate because the "abandoned house" was finally bought and renovated by the new owner
• not worry as much about buyers trying to use foreclosures as "comps" like they used to
• obtain better financing options as lenders breathe a sigh of relief and the wounds start to heal
• have a leg to stand on when arguing with the county about using foreclosures as a scapegoat for "losing revenue" and raising taxes and/or cutting services

About a year to go – anyone have a time machine handy?

Related Reading:

Loudoun County Foreclosure Update – April 2007

Foreclosures, Pre-Foreclosures, Bank Owned and Short Sales in Eastern Loudoun County

Are You In Over Your Head?