Benefiting From the Bust

By Alejandro Lazo
Washington Post Staff Writer
Saturday, February 21, 2009

Keith and Cynthia Antaya spent the years of the housing boom renting, unable to fathom how they could afford their own digs during the market's dizzying escalation.

As Fairfax County Public Schools employees, he a special education teacher and she a school psychologist, renting seemed more in line with their income than paying a mortgage.

Then came the crash, and a wave of foreclosures sent home prices tumbling, particularly in once-fast-growing markets such as Northern Virginia's western suburbs. Suddenly homeownership was a possibility for the Antayas, who focused their hunt on foreclosed properties. After a five-week search, the couple decided on a Woodbridge house that cost about $200,000. It needed some new paint and new floors but was otherwise in good condition.

"The kitchen was pretty much all brand new with brand-new granite countertops," Keith Antaya said. "We were pretty pleased with what little we ended up having to put into it."

The Antayas are two beneficiaries of the housing bust, and there are many more like them as investors, first-time home buyers and others plunge into the market of "distressed" properties: homes sold at auctions, repossessed by lenders or still in the hands of homeowners facing foreclosure. The National Association of Realtors said earlier this month that distressed sales accounted for 45 percent of all transactions in the fourth quarter of 2008, a factor that contributed mightily to falling home prices nationally.

Housing experts said buyers of such properties will play a key role in any kind of turnaround, helping pare the glut of vacant homes sitting on banks' books even as the Obama administration forges ahead with its plan to help homeowners in peril of losing their properties.

"It is very important that those homes get recycled back into some kind of productive use," said Eric S. Belsky, executive director of Harvard University's Joint Center for Housing Studies. "To the extent to which the homes are purchased by people intending to live in them, or improve them and rent them out, it can be a very important part of bringing the market back into equilibrium."

But while there are opportunities for those willing to scavenge the wreckage of the downturn, buying a foreclosed property or arranging a sale with a homeowner and his lender does not guarantee a bargain.

"Everybody thinks that by chasing foreclosures they are getting a good deal, and a foreclosure is not necessarily a good deal," said Mark Goldman, a California mortgage broker who teaches real estate finance at San Diego State University. "I strongly urge consideration and a careful, measured evaluation of the value of a property."

A variety of factors can come into play in shopping for a distressed home. Those owned by lenders are often sold in "as is" condition, and most require some kind of renovation or repair. Buying from a bank can be slow going, particularly if the lender is a large institution with a big inventory of foreclosed properties.

In foreclosure hot spots such as Prince William County, multiple bidders often make offers on a property, driving up the price. And with home values still in a freefall, there is no guarantee that a home's worth will appreciate significantly in the near term.

Purchasing a home at an auction or directly from a distressed homeowner comes with its own potential troubles. At a foreclosure auction, buyers rarely get the opportunity to inspect the property before they make an offer. They may also inherit the claims other creditors have made against previous homeowners, such as a home-equity line of credit, a mechanic's lien and back taxes that have not been paid.

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