Thank you for reading my post. You have some excellent questions. I was trying to be brief but I will go into a little more detail since you asked.
I say the people are crazy because the vast majority of the homes we see here (my part of Florida) were bought in the past 2 or 3 years. In most cases these were bought by â€œmom & popâ€ investors that did not get the whole story on being an investor. Instead they attended one of those seminars put on by the â€œinfomercial guysâ€ and attended the free seminar, signed up for the follow-up and heard a version of the following:
Find a house with pre-construction pricing, get control of the property with a contract to buy. Sell your contract before you close. If you end up closing sell the house before you have to make any mortgage payments. Keep the profits!
The sad part is these folks had no idea what they were getting into and while the market was on a sky-rocket they speculated and that drove up the prices, a lot of builders got stuck with houses that could not close, that drove up inventory, all the houses that did close drove up inventory, etc.
Now, I have looked at the notices of foreclosures, looked at the dates of purchase, and read the mortgages from the public records. When there is an Adjustable Rate Mortgage the initial interest rate is disclosed in that mortgage rider. The first adjustment date is also there. When the judgment is rendered prior to the courthouse auction then the entire amount owed is on display for all to see. Working backwards from the information given I can see where the owner did NOT make any payments ever. It has nothing to do with the ARM since the legal proceedings began BEFORE the first adjustment date.
High end homes have taken a bigger beating in this process than the lower priced homes so using the example of the 80/20 loan that $1,000,000 home is very likely to be not worth the $800,000 of the Mortgage plus the additional costs. Moreover, many owners when they loose the home to a bank strip all appliances, heating and cooling systems, plumbing and lighting fixtures and sometimes cause major destruction to the interior (Ex: An investor I know acquired an older house at the auction that looked like a good deal but the owner, before leaving, took a chainsaw to all of the interior walls cutting thru the studs.)
I say crazy because there are so many opportunities to get burned.
On your second question I can answer that in one word GREED.
Again, it all makes no sense!
One of the fundamental rules of life. â€œMoney will not make you smart!â€
WHEN IS BUYING A FORECLOSURE A GOOD INVESTMENT? When the home has been owned for over 10 years and was owned by a little old widow/widower. As we get older things can get tough and sometimes older folks loose their long term home. It has tremendous value relative to the mortgage amount but the person did not know how to get out of the problem. If itâ€™s to be auctioned at the courthouse I will be there to try for it along with some of the regulars. BUT, I try to get it ahead of time and how I do that is the secret stuff I can never revealâ€¦.and the person does NOT loose their home either (ainâ€™t I nice) but my real estate business will thrive from it.
JD â€œDanâ€ Weisenburger, GRI
Vanguard Realty, Inc. GMAC Real Estate