Recession Brings a New Kind of House Flipper

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Remember the home flipping of yesteryear, where you bought a home, fixed it up, and sold it for major profit a year or two later? The economy has taken care of that particular trend. But house flipping is far from dead. The Wall Street Journal has the story (hat tip to Credit Writedowns):

(A) different breed of flipper is proliferating: one who seeks bargains at foreclosure auctions. Unlike the boom-time flippers, the latest generation needs cold cash, lots of local-market knowledge and strong nerves. Investors compete mostly with other full-time professionals who monitor foreclosure auctions at county courthouses across the country. The bidders often haven’t had a chance to inspect the property or determine whether it’s occupied by tenants, who may be hard to evict.

Flippers swoop in at public auctions of foreclosed homes, known as trustee or sheriff sales. In many states, the lender sets the minimum bid, and takes possession of the property only if no one bids more. In the past, the minimum generally was about equal to the mortgage balance due. But in today’s market, in which many home values have dropped far below the loan balance, lenders wouldn’t attract investors if they set the minimum at that level.

So lenders, or the loan-servicing firms that represent banks and investors, are increasingly likely to set the minimum much lower. Their goal is to tempt others to buy the house and spare banks the headaches and costs that come with taking possession.

Buying at these auctions is perilous. There are no public viewings, so bidders often can’t know how much damage may have been done inside a house by occupants facing foreclosure. “We’ve seen everything,” says Doug Hopkins, chief executive of PostedProperties. “We’ve seen people pour concrete down the toilets.” Unless they’ve done their homework, bidders also don’t always know whether they’re buying a home subject to a lien from another lender, which can happen in cases where the borrower took out more than one home loan.

But when flippers succeed, they can make hundreds of thousands of dollars in as little as 1 week. High risk, high rewards. If you’re interested in trying foreclosure auctions yourself, Realtytrac has a good how-to.

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