Home Buyers Avoid Foreclosure Properties

By Mike Colpitts

A large number of home buyers are refusing to even look at considering distressed properties for sale, according to a monthly survey of real estate market conditions by Campbell Mortgage Finance as prices on foreclosures that are selling continue to fall.

Four major national lenders have frozen foreclosure sales as a result of state attorney generals investigating banks and mortgage servicing company practices in all 50 U.S. states for illegally obtaining foreclosures through courthouse orders. The share of home purchases involving distressed properties declined last month, the survey determined. The Campbell poll of real estate market conditions surveys more than 3,000 real estate agents nationwide each month.

Freddie Mac has ordered the halt to foreclosures in 23 states where courts must approve foreclosures connected to the inquiry by attorney generals. Some 14% of owner occupant home buyers and 6% of investors shopping for real estate refused to even look at foreclosed properties, the survey found. Fear related to the highly publicized actions is even higher over bank assisted short sales, where 30% of owner occupant shoppers refused to view the homes.

Distressd Property

Typically homes formally repossessed by banks and other mortgage lenders must receive clear title to obtain title insurance required by most lenders to obtain a new mortgage on a property. But under some circumstances title insurance policies can be obtained with exceptions to coverage being made around some issues and still receive title insurance on a home or other property.

“It’s clear that decreased home buyer demand for distressed properties has resulted in lower prices,” said Thomas Popik, research director for Campbell Surveys. “Home buyers were squeezed into non-distressed properties that resulted in a higher average price for this type of transaction. With the foreclosure ‘fraud’ issue still out there, buyers are skeptical to purchase a REO.”

A separate survey also found that 24% of closings scheduled in October were either cancelled or delayed due to problems with short sales, while 12% were delayed or called-off because of foreclosure issues. Foreclosed properties and short sales dominated the majority of home sales this year as purchasers took advantage of the federal tax credit and record low mortgage rates.