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RISMEDIA, February 14, 2009-(MCT)-Nikki Keating vividly recalls trembling when she blurted out a bid for a foreclosed house last July on the steps of the Jackson County Courthouse, a cashier’s check burning a hole in her pocket.

“I was scared,” said the 43-year-old Medford woman. “It was so much money and a big decision.”

At 3,000 square feet and with five bedrooms, the home seemed like a dream come true for her, her husband, Kevin, and their four children, and it still was in east Medford where they now live.

Her bid was accepted at the auction-she was the only one who made an offer that day-and she remembers shaking as she walked up the courthouse stairs to sign the paperwork and hand over the money.

Keating, who didn’t want the bid amount disclosed to protect her financial privacy, soon found out the hard way what many professionals and more sophisticated investors already know — temptingly low prices often come with a host of pitfalls.

Analysts have predicted the economic downturn won’t reverse itself until the glut of foreclosed homes gets off the market.

But buying one of these properties requires more investigation and more risk than most people are willing to take with their hard-earned money.

Foreclosures on the rise

Jackson County has the second-highest foreclosure rate of any county in the state with one in every 264 houses facing some kind of delinquency action, according to RealtyTrac, a company that compiles statistics on foreclosed properties. Deschutes County has the highest rate at one in 168 houses.

In a normal year, Jackson County has 900 to 1,000 homes on the market, said Roy Wright, who owns a real estate appraising business. This year, however, there are 1,969-and that doesn’t necessarily include all properties going through some kind of foreclosure action, he said.

The median price of a house in Jackson County in January 2009, based on sales through Friday, declined by 11.8%, to $215,100, from January 2008, Wright said.

Even with so many foreclosed houses on the market in Jackson County, the prices haven’t fallen far enough to tempt the most tenacious of investors who keep their eyes wide open, researching every aspect of these troubled properties. Foreclosed properties often come encumbered with liens, second and third loans, bankruptcies or actual damage to the home itself.

Only a fraction of the hundreds of properties auctioned each month actually sell.

Wright said it will take some time for these properties to clear out of the system, predicting that the real estate market may start a long, slow recovery in spring 2010.

In the meantime, it’s going to be difficult for those buying foreclosed homes and for people in the real estate business.

“This is a Darwinian episode where only the good ones will survive this,” he said. Sorry, you must move out

After the auction last July, Keating thought the house was hers, and she and her family began moving in almost immediately. About 10 days later, the lending company rescinded the sale because it learned the previous owners had filed for bankruptcy in another state. The Keatings had to get their belongings out and move back into their old house, which they still own.

“It’s hard for the kids when you can’t move in,” she said.

This wasn’t Keating’s first run-in with this house and she doesn’t think it will be her last. She just can’t get the home out of her mind.

Keating had tried earlier last year to purchase the home through a so-called short sale, where a property is sold for less than the balance owed, but the bank wouldn’t accept her offer. A few weeks later, the bank reversed itself and auctioned the property off for about $50,000 less than Keating originally had offered.

Even though Keating paid for the home immediately at the auction, it took several nerve-racking weeks to get the money back after the deal fell through.

Keating expects the house will be on the block again in a few months.

Undaunted, she said, “I think if it comes back on auction, we will try to go through it again. It’s a saga.”

Even though she looked through the house during the short sale period, Keating said she is unable to get a home inspection before the auction.

She is gambling there is nothing wrong with the foundation or anything is structurally amiss. Keating said the roof probably will have to be replaced because some of the shingles look loose. Overall, she thinks the house is in good shape.

“It will either work out or not, and we will just count our blessings for what we do have,” said Keating, who added she and her husband have far fewer problems than many Americans who have lost their jobs or are struggling to pay their bills. When she was at the auction, she said, some of the professional buyers, such as The Alba Group in Medford, offered her plenty of helpful advice, including a tip to buy insurance immediately after paying for the house. “The investors were very helpful to newbies like me,” she said.

Dennis Gates, who holds the auctions on the courthouse steps and remembers Keating’s situation, said he’s heard the gamut of success and failure stories from people who have bought houses at his auction.

Many times, the new owners get a good deal and there are few problems.

However, one man thought he bought a home in Josephine County for $70,000. After he paid for the house, he got a bill for $100,000 from a lending institution for the first trust deed that he has to pay before he can take the title. The man didn’t realize he had bought only the second trust deed, said Gates.

Another time, a couple bid on a home in Gold Hill that was in perfect condition, said Gates. After paying for it, they went to the house and discovered the windows, doors, appliances and other fixtures mysteriously had disappeared. They eventually negotiated with the previous owner, who bought back the house. Within a short time, the windows, doors and other fixtures were back in place.

Sales through auctions aren’t as brisk as someone might imagine. Gates believes that’s because the prices still are too high.

Out of about 200 properties that went on the auction block in January, only five have sold, he said.

On Thursday, he tried to auction off five houses, but received no offers from the seven people who gathered around him. Three or four people were there because they were curious about buying foreclosed houses and the auction process.

To get a qualified bid, Gates said someone has to bring in a cashier’s check for the asking bid plus one dollar. In addition, if a bidding war ensues, someone has to bring in extra cashier’s checks to cover the higher price.

Shady Cove resident Jane Hagan and her husband, Bud Rees, went to an auction Thursday on the courthouse steps, wondering whether she would want to invest her money in a foreclosed house.

“What I saw today really opened my eyes,” she said. “It’s riskier than I thought.” Hagan asked Gates what the process was like. She was particularly interested in a house in Eagle Point that was auctioned for $166,000.

“Do you have to bring a check for $166,000?” she asked.

Gates said yes.

“Wow,” she said.

After getting a rundown on some of the pitfalls and difficulties of dealing with lending institutions, Hagan said she has a steep learning curve ahead of her and lots to worry about whether she wants to compete in the foreclosure world.

“There really are lions out there wanting to take these properties,” she said.

Copyright © 2009, Mail Tribune, Medford, Ore.
Distributed by McClatchy-Tribune Information Services.

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