Home foreclosures are on the rise in Lyon County, as are the number of people ready to purchase properties.
By Wednesday of last week, a total of 36 foreclosure cases had been filed in Lyon County District Court this year, reflecting a steady rise that began in 2006, when 63 foreclosure cases were filed.
In 2007, there were 82 foreclosures; the total jumped more than 42 percent in 2008 to 116.
Although the numbers do not approach those seen on the East and West coasts, the filing rates are growing.
In 2006, on average, one case was filed every 5.8 days; in 2007, the rate was one every 4.45 days; in 2008, one every 3.2 days, and for the first 77 days of this year, one every 2.1 days.
In this area, though, buyers are being found for a number of the houses that are in the end stages of foreclosure.
“They’re absolutely moving,” said long-time Realtor Jerry Olmsted, owner of Farm & Home Real Estate. “We had several (foreclosure listings) and we’re down to one, and that’s unusual. ...I guess it doesn’t surprise me, because I think it’s pretty obvious that they’re pretty good deals.”
The foreclosure situation nationwide is typical, he said: one person’s misfortune often is an opportunity for someone else.
“There’s some great opportunities out there I think, and people are taking advantage of it,” he said.
Olmsted was sympathetic toward those who were losing their properties for reasons like job loss or health problems that created too many financial burdens. Some of the foreclosures, however, resulted from people too eager to purchase more than they could reasonably afford, and from lenders who made loans for 100 to 120 percent of the values of the houses.
In recent years, Olmsted said, it was not unusual for national lenders to approve mortgages that more-conservative local banks would not handle.
“If you had a dog that could wag his tail good, maybe he could get a loan,” Olmsted said of the ease with which people qualified for mortgages. “Most of the stuff, I’d say 90 percent of the stuff going back, 100 to 120 percent (of value loans), those are the ones that went back. They couldn’t begin to get close to what’s owed on it.”
Mike Dean at First Community Bank in Emporia said that local banks in general have had little, if any, involvement in foreclosures in Lyon County.
He attributed that to the local banking community’s conservative and traditional approach to mortgages.
“We didn’t get into the creative financing that caused a lot of the problems that some of these other institutions have,” Dean said. “In fact, I’ve been here 24 years and I don’t remember when we had a foreclosure. I’m not sure that we have.”
Dean said that lenders sometimes buy back foreclosed properties if bids are not high enough to warrant accepting them.
“They can foreclose, but then the redemption period still applies. Each situation could be unique in its own way, for some reason,” Dean said.
The lender has the option of selling the property directly to a buyer, but ultimately usually lists it with a Realtor.
Olmsted estimated that the buyers of the foreclosed homes so far were split about 50-50 between real estate investors and people who intended to live in the homes themselves.
The average sale price on foreclosed homes often is about 30 to 40 percent less than appraised value.
“But you’ve got to understand that the market is down basically 20 percent from what it was just on normal houses, so you just may be double that on foreclosures,” he said.
Sellers — often financial institutions — are not likely to offer anything that adds value to the home, such as repairs or appliance replacements, as part of the price negotiations; the price already has been discounted because of the loss.
And the buyer needs to be willing to assume some risks, Olmsted said, because the homes often have been shut down, without occupants, for six months to a year. Not all of them escape suffering damages from lack of use and upkeep.
“Can you imagine how they’re froze up, pipes and stuff?” Olmsted asked rhetorically. “Can you imagine mold? You take that risk when you buy them.”
Conditions inside the house may be bad enough to warrant tearing off and replacing all the drywall, making plumbing repairs, and other major changes, and potential buyers need to factor in those risks and expenses when they bid on foreclosed homes.
Olmstead described a situation here in which a man and woman lost their jobs and moved away. The house sat vacant for six months, and in the winter, a water pipe broke and filled the finished basement with water.
“It’ll be a foreclosure,” Olmstead said. “It’s gonna sit there, who knows how long. ... It could be an absolute disaster. Do I think it could be so bad they’ll ’doze it? No.”
But the house may need to be gutted down to the frame.
Potential buyers need to remember the potential costs involved to make the house safely habitable, and to factor their bids accordingly.
“You’re really fortunate if you don’t have to spend a few thousand,” Olmsted said.
A few homeowners who know they will not be able to redeem their homes have made legal arrangements to give the home back to the bank that holds the mortgage.
Often, Olmsted said, banks will negotiate directly with buyers on those houses to sell them as quickly as possible. The sale still may result in a loss for the bank, but it may be preferable to take the loss early, rather than pay legal fees and watch the house deteriorate.
“Six months to a year, what is that house going to go down to in value?” Olmstead said. “Why wouldn’t they take the hit now?”
He said real estate agencies have paperwork that needs to be followed on foreclosures, including a statement for the sellers to acknowledge they realize giving a house back to the bank will harm their credit ratings. The credit harm would be there, he said, whether a house is signed back to the bank or whether the owners waited the six months to one year for the foreclosure process to be finalized.
“It’s just a matter of good economics. It’s like you’ve been cut with a chain saw and all you’ve got to put on it is a Band-Aid,” Olmsted said. “You know it’s not going to get better. But how do you stop the bleeding?”