Zillow’s pre-foreclosure listings and the false hope

Hardly a week passes without an excited homebuyer dropping by the office and asking for direction as to a pre-foreclosure sign they saw in Zillow. These buyers are anxious to get great homes at affordable prices and whether it is by phone, email or physical visits; they do not waste time when it comes to trying to close the deal. It is thus quite disappointing for them to hear that the homes in question are not available for sale and not only that, but it could be a while before these homes come into the market if they ever do.

Regularly breaking people’s hearts is not an easy task, especially when I know how hard people work to get these affordable homes. The unfortunate thing is that these prospective buyers believe that these houses are the real deal and they do not want to get left behind. News on these houses often gets to them by way of close family and friends who are of the belief that foreclosed homes are the easiest ways to get great homes and at affordable rates. I would concur with them on this if we were having these discussions ten years ago. However, times have changed and the options that we have today are entirely different.

Why does this happen?

Zillow works by going through public record data from individual counties and looking for homeowners who have received a ‘Notice of Election and Demand’ from their respective lenders. Once they identify such addresses, they then post these homes on their pre-foreclosure section, thus attracting a considerable number of buyers to their site. However, this process is much more complicated than people realize and this is where the confusion comes in.

You see, when a homeowner falls back on their mortgage payments for more than 120 days, the bank acts by sending a ‘Notice of Election and Demand’ to them. This notice by itself is not a statement as to the availability of the house on the market, but rather it is a message to the homeowner that the bank will initiate the foreclosure process soon. As such, once a homeowner gets the notice, they can opt to stop the initiation by filing an ‘Intent to Cure’ notice with the court. With this move, the homeowner has two options. They can opt to offset the late payments and thus get back on track with their mortgage plans, or they can choose to sell the house and give the balance to the bank. The homeowner has an average of thirty days to file this notice and get the foreclosure stopped.

However, Zillow is actually on to something though their approach may not be the best one yet. This scenario would work if there were a down housing market in play. Picture this. ‘With the decline in housing values over time and the reduction of sales over the years, the foreclosure market is looking more attractive by the day. Home buyers are hoping that they can save tons of money by buying such homes and this explains the number of calls coming in each day on the same. The more foreclosures that a bank has, the more money that it will have to spend in maintaining the homes. Over time, banks tend to slack off regarding maintenance and repairs and the foreclosed homes end up looking neglected and reducing in value. Banks are willing to sell the houses at prices that are lower than what one would get at the market rate to avoid losses that they would incur in maintaining the homes.’ It is quite a situation to take in, right?

However, in reality, this is not the case, and it could not be further from the truth. The Northern Virginia real estate market is sprawling with buyers and sellers and it is therefore very active. Projections show that this trend will continue for decades before there is a slow-down and as such, Zillow may be well ahead of their time. At present, homeowners are registering returns of around ten percent, and if things continue this way, the equity gains will be higher over time. As such, the chances are high that if you own a house in Northern Virginia valued at $500,000, then the equity gains to your name average $50,000. As such, if a homeowner is unable to keep up with their payments, they can rely on their investment. They would prefer to call an agent and have the agency list the house on the market as opposed to having the bank come in and rake in all that equity.

The growth of the Northern Virginia market makes it quite hard to get a bargain on foreclosed homes. If a homeowner puts their house up on the market following a foreclosure warning, they will get offers at their asking price or close to it, and as such, anyone hoping to save some bucks will not get lucky. If a homeowner’s house ends up in the court auction, the chances are high that wealthy investors will come in and get the house long before it makes its way to the market. And where a foreclosed home comes into the market, the offers for it will be so many that the price will eventually go up. As such, it will sell at the market price as is the case with all other houses on the market. 

Thanks to these changes, it is evident that getting a foreclosed home is next to impossible at the present day and it will be a long time before the possibility of such options comes to life. Unfortunately, there are people out there who wish to eke a living out of giving people false hopes. Buyers will get attracted to the pre-foreclosure displays on the sites, but their hopes soon get squashed when they realize how dim the chances of getting those homes are. Almost all the houses on display end up on the market at standard prices, in the hands of wealthy investors or saved by the owners.

For more information on pre-foreclosures, visit us at Kutsevich Realty. Thank you!