Because the foreclosure market is a small percent of total home sales, many people aren’t familiar with REO homes (foreclosures) and don’t fully understand how the process works. This lack of understanding can foster many myths that are detrimental both to homeowners who want to avoid foreclosure and to buyers and investors interested in purchasing.
Here are 8 of the most common foreclosure myths:
Myth 1: REO’s aren’t available locally.
While foreclosures are increasing nationally, they remain relatively low in the Charlotte region thanks to our realistic appreciation over the past few years. With this said, there are plenty of available REO’s in our current market. Many experts are predicting a continued increase over the next 18 months as home price appreciation slows and trillions of dollars in adjustable rate mortgages reset at a higher interest rate.
Myth 2: REO’s only happen in poor areas.
REO’s come in all shapes and sizes and occur in all neighborhoods. From low-income to million-dollar properties, you will see the full spectrum of homes entering into the foreclosure process. Economic forces such as rising interest rates and decreasing home values impact homeowners from a wide array of neighborhoods.
Myth 3: Financial irresponsibility causes most REO’s.
While there are always those cases of financial neglect, most homeowners have shown some high level of financial responsibility in order to qualify to purchase a property in the first place. Unforeseen events such as job loss or a catastrophic accident can cause sudden and unpredictable financial havoc. In addition, foreclosures also tend to increase when interest rates are up and property values plateau or decrease.
Myth 4: All REO’s are in disrepair.
While some homes can be in less than ideal shape, many are in great condition. The myth that all foreclosures are in disrepair seems to be driven by the other myth that foreclosures are usually caused by financial irresponsibility. If you are not an expert in buying REO properties, it is highly recommended that you seek the advice of a professional REALTOR who is experienced with these types of sales to avoid common pitfalls.
Myth 5: Lenders want to foreclose on homeowners.
The foreclosure process is costly and time consuming and is a last resort for lenders to recover their investment. When a homeowner defaults on a mortgage, the lender typically must first file a public default notice after which the homeowner is given a grace period known as a pre-foreclosure period. During this time, the homeowner can pay off the debt or choose to sell the property. Only at the end of the pre-foreclosure period can the lender auction the property off to a third-party buyer or repossess the property and sell.
Myth 6: REO’s can be bought for pennies on the dollar.
While it is true that foreclosures are often purchased below market value, buyers and investors should be leery of anyone claiming that they can consistently find discounts of less than 10 percent of market value.
Myth 7: REO investing is an easy way to get rich quick.
This myth is typically perpetuated by the same folks who claim that REO’s can be bought for pennies on the dollar. Buying or investing in foreclosures takes time, money and vigorous research. Those willing to put in the hard work often reap substantial financial rewards, but those hoping to amass a fortune off a couple deals that take a few minutes of their time have unrealistic expectations.
Myth 8: REO buying is only for professional investors.
Perhaps at one time this may have been the case, but with all of the tools available to today’s buyers, more people than ever before have the opportunity to purchase REO properties.