Foreclosure Articles
Foreclosure Auctions go Silent
CHICAGO BUSINESS/Powered by Crain - Virginia Groark
On a late June afternoon, Laurence Kallen stepped to the podium in the Randolph Street office that serves as his cramped auction house. Mr. Kallen had 11 foreclosed Chicago properties to sell and 10 bidders in attendance. The auction lasted 10 minutes. He didn't get a single bid.
"Two to three years ago I'd get up to 50 people," Mr. Kallen says, gazing at a room of mostly unoccupied folding chairs. "For a while it was like that every day. People were buying properties like mad."
"There's less deals than there used to be" in foreclosures, says Chicago investor T. J. McKinney. Photo: John R. BoehmNot anymore. Despite a meteoric rise in foreclosures — 17,096 Chicago-area homes were foreclosed on in the first half of this year, up 46% from 2006 — the market for investors in foreclosed homes has been in steep decline. Auctioneers and the investors themselves say slow home sales, tighter lending standards and, in a new twist, the proliferation of zero-down mortgages have made buying foreclosed properties a losing proposition.
"It's counterintuitive," says T. J. McKinney, a Chicago-based investor who also runs the subscription-based Illinois Foreclosure Listing Service Web site, which posts foreclosed properties in the greater Chicago area. "To be honest with you, there's less deals than there used to be."
ADDING TO GLUT
That's bad news for the city's housing market. Foreclosed properties that don't sell at auction revert back to the banks, which pass them off to a real estate agent to sell, exacerbating Chicago's glut of unsold homes and threatening to push down home values.
"If there's enough foreclosed property, it will definitely affect the real estate values in a neighborhood," says Marvin Stockert, executive director of the Illinois Assn. of Mortgage Brokers.
The rise in foreclosures has been largely attributed to loose lending standards. A recent study by Chicago-based National Training and Information Center showed that 97% of foreclosures filed in 2006 were on adjustable-rate mortgages.
Lenders in recent years also relaxed their requirements on buyers' upfront equity in home purchases, in many cases requiring no down payment or less than 5% of the purchase price.
When the bank takes back those homes in foreclosure, it seeks to sell the property for the amount of the loan. When that amount equals the home's full value, investors have no opportunity to profit from buying the property at auction and selling it in the open market.
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