Foreclosure sales: Potential bargains can carry big risks

The vacant, dilapidated split-level rancher with the broken fence and dangling gutters has long been an eyesore to neighbors on Montrose Street in Alexandria. But Glen E. Scheirer saw it as an opportunity to snap up a dramatically discounted house directly across the street from his son and daughter-in-law, who have a son and another child on the way.

Last May, Scheirer made an all-cash offer of $375,000 for the foreclosure, which he figured would need about $100,000 more in repairs. Fannie Mae accepted the offer, and Scheirer began carting his belongings — including newly purchased appliances and furniture — from his Chantilly home to his son’s garage in preparation for the impending move.

But last month, Fannie Mae canceled the deal because it couldn’t determine whether the foreclosure had been done properly, and Scheirer is back to square one.

Scheirer has had first-hand experience with the many problems that confront people trying to buy foreclosures. Indeed, purchasing a bank-owned house can be an enormously frustrating experience, marked by unreturned phone calls, unforeseen tax bills, unexpected repair jobs, undisclosed title disputes, liens and legal obstacles.

“The most frustrating part of it was that the seller seemed to be so disinterested,” said Scheirer, 64, who recently retired from his job as a chemical engineer at Exxon Mobil. “I understand that Fannie Mae is selling many, many homes. But I am not sure that they have broken things down into manageable sizes. They could do a better job of handling the process. I’m disappointed.”

For its part, Fannie Mae acknowledged the difficulties it encounters with foreclosed properties.

“As with any real estate sale, snags occasionally occur. In this case, outstanding title issues prevented us from being able to convey insurable title,” Fannie Mae spokesman Andrew Wilson said in a statement.

“We extended the contract to give us more time to work at a cure, but ultimately the transaction could not be completed,” Wilson added. “Fannie Mae sells its inventory of properties on www.HomePath.com, and our goal is to sell to owner occupants as often as possible so that neighborhoods can stabilize and recover.”

House hunters seeking this affordable option have yet another obstacle to face: In the Washington area, the supply of foreclosures is dwindling fast amid growing demand.

According to the Bethesda-based data firm RealEstate Business Intelligence (RBI), the number of bank-owned active listings dropped from 2,272 at its peak in March 2009 to 194 last month. And from January 2012 to January 2013, the number of days on the market for foreclosed houses in the region fell from 49 to 30, an indication of strong demand.

Foreclosed properties at the entry-level price point are particularly popular. A bank-owned Prince George’s County home recently sold for $110,000, according to RBI, 66 percent over its $66,000 list price.

“The paperwork was a nightmare. Some of the financing rules are harebrained and take weeks and weeks of documentation,” said Wayne Crews, who in 2010 bought a Fairfax townhouse in foreclosure for $285,000. “But it ended up being a very good decision for me.”