Foreclosed Homes In High Income Neighborhoods
Los Angeles, Beverly Hills, West Hollywood
At the time of this writing, there are more than 190 homes scheduled for sale under foreclosure rules by year end 2019 in the high-income communities of Los Angeles.
The neighborhoods of Bel Air, Beverly Hills, Malibu, Hancock Park, West Hollywood, and the Hollywood Hills each have multiple, luxury homes in various stages of distress. In every market cycle – boom or bust – there exists a small percentage of assets that fall into the ‘troubled’ or ‘distressed real estate’ category.
While we are nowhere near the levels of the financial crisis of the late 2000’s, where roughly one-third of home sales nationwide were deemed foreclosed home sales, we are seeing a modest increase in the number or troubled assets in the early stages of foreclosure.
Tom Levine, Realtor and Managing Partner of Native Angelino Real Estate, notes that he is seeing “early signs of broadening weakness in middle to upper-middle income communities, and definite dislocation at the high-end and speculative asset classes”. Further, “there appears to be an uptick in the number of properties in ‘pre-foreclosure’ status or offered under short-sale conditions”.
Distressed Real Estate - Foreclosures and Short Sales Defined
To review, the three primary categories of distressed properties are short-sale, foreclosure sale, and real estate owned (REO).
In a short sale, the final transaction price is less than the total amount owed the lender (bank, mortgage company, investor). This type of sale is completed before the lender forcloses. Thus, negotiation is between the buyer, the owner, and the lender.
A foreclosure sale is an asset that has been repossessed by the lender for failure to pay. Foreclosed homes are typically sold at auction. The downside to purchasing at auction is that the buyer is often precluded from entering and inspecting the property prior to bidding.
Real-estate-owned, or REO‘s, are foreclosed properties that were not successfully sold at auction and are now part of the financial institutions portfolio. With an REO, the home may very well be listing with an agent and available for walk through, and likely sold ‘as is’ and without concessions.
Is The Return Worth The Risk?
In each of the above cases, exists an opportunity to purchase an asset, often luxury real estate, at below market value. Yet, there is no guarantee that the acquisition price is indeed a bargain. Substantial analysis and the input of industry professionals is necessary and highly recommended.
Inability to enter a foreclosed home or REO property is only one of the many risks. Decision making is based on imperfect information, not limited to current value estimates of comparable properties, and the budget for damage repair and upgrades.
Further, the owner or lender will not warranty the property and price concessions for damage and highly unlikely. Federal and State tax liens, eviction complications, legal costs and a series of other factors must be estimated and included in the analysis of valuation.
Seek The Input Of Professionals
Tom Levine, Realtor, Managing Partner at Zero Hour Group and subsidiary, Native Angelino Real Estate, provides analytics, advice, referrals to legal and tax professionals, and access to necessary resources to evaluate distressed real estate assets. If you would like to discuss purchase of an encumbered asset for primary residence or investment purposes, please do not hesitate to phone or email.
Tom Levine has earned the Short Sales and Foreclosure Resource Certification From the National Association of Realtors. He has an MBA-Finance from USC Marshall School of Business and decades of experience in capital markets. He attended the Claremont Colleges and spent a term at the London School of Economics.