Is buying a home in foreclosure a good idea?

I’ve been in the real estate business for 10 years, and even back then — when I’d never heard the term “short sale” and foreclosures were something that happened in far, far away lands — buyers were asking about buying foreclosures as a way to get a smoking deal on a property. They look like good deals, but are they?

Before I get to foreclosures, I’ll explain a little about the steps leading up to foreclosure (auction on the courthouse steps, or the bank repossessing the home) and what happens after as well (sale as an REO).

When a seller falls behind on payments, he or she can explore a short sale. Most of us had never even heard the term “short sale” until the financial world imploded a few years ago, but now, we know them all too well. A short sale happens when the lender or lenders agree to allow the owner to sell for less than is owned on the property. The lenders take a hit, the seller’s credit is damaged (but less, supposedly, than if the house is repossessed), and the buyer may or may not get a better-than-market price, depending on the lender’s bottom line. Calling these sales short definitely doesn’t apply to the amount of time required to get one closed; I had a buyer in contract on one for 6 1/2 months, at which point the lenders decided to foreclose instead. Granted, that was a couple of years ago and most banks have improved their processes since then, but still. Six and a half months to wait for an all-cash offer to be turned down was a major bummer.

If a property makes it all the way through foreclosure (more on that in a second) and ends up as a bank-owned property, the major differences in the process involve disclosures (banks usually refuse to provide any disclosure that isn’t required by state law) and negotiations after inspections (banks usually demand an as-is sale). That said, Matt and I just closed a deal today in which our buyer clients got an FHA loan that required some repairs. The bank made the repairs and also gave our buyers an $8,000 credit for closing costs after we conducted our inspections. Never say never, right?

So, back to foreclosures. This is the step when the house is taken away from the owner, either by a buyer at the auction on the courthouse steps or the bank if no one buys it. This process isn’t for the faint of heart. First off, it’s often impossible to even see the inside of the house prior to bidding. After all, if the owner is cranky that his house is about to be taken from him, why would he let someone in to see it? There are no loans allowed, so the buyer must have cash. There are no inspections — so what you see, or what you don’t see, is what you get — and the new owner takes title subject to any unpaid taxes and penalties.

My two cents: buying a foreclosure isn’t a good idea for a novice buyer or anyone who is risk-averse. There are plenty of regular sales, short sales, and REO sales…leave the foreclosure sales to the investors with wads of cash and nerves of steel.

The other “top 10” San Francisco Urban Park

The Outer Sunset of San Francisco has a hard time getting the love it deserves. Personally, I blame The New York Times (everything is there fault anyway, right?) although most people like to blame the fog.

Earlier in the week I gave a shout out to Hayes Valley Farm after they were recognized by Sunset Magazine as being one of the top ten urban parks. But the good news doesn’t stop there. San Francisco is so awesome that not one, but two spots in the city were named to their top 10 list.

The other top urban park is La Playa Park which is still under construction as I type.  Running from Judah to Kirkham streets between La Playa and Lower Great Highway streets, the park truly has been a neighborhood effort and collaboration. Take a look at their website, it has a great set of pictures, plans, and updated information about how the park is progressing.

And in case you thought parks were just for fun, the website lists some of the more serious reasons for turning this strip of land into a park:

  • Create a recreation and gathering space, establishing ownership by the local residents, and increasing the sense of community
  • Increase greenery with use of drought-tolerant and native plants
  • Increase landscape permeability; reduce urban runoff in conjunction with the Plant Donʼt Pave Program
  • Educate visitors on importance of native plants in the landscape to provide habitat for pollinators
  • Increase awareness of local water quality issues and how our actions as city residents affect our local watershed and eventually the health of the ocean

Check it out next time you are in the area, and if you are looking for an outdoor project, consider volunteering some time and energy for a great (and helpful) cause.

And Sunset Magazine, thanks for recognizing two awesome spots in San Francisco.

Insurance: boring, but important

Insurance certainly isn’t a sexy topic. It doesn’t fall under the category of “real estate porn,” nor does it fall under the category of “well, it was fun to spend THAT money.” Nope, it’s not fun. But as anyone who has been in a car accident, had a house fire, been burglarized, or had someone slip and fall on their property knows, it’s really, really important.

There are different kinds of insurance needed for single-family homes and condominiums, and yet another type for unit buildings.

Today we’ll focus on the insurance required for condo units (this is different from what’s required for TICs; stay tuned for that entry in the future). In years past, lenders that were making loans on condo units asked for a copy of the homeowner’s association master insurance policy, and that was it. They usually wanted the master policy to have liability coverage for up to $1 million, so if, for example, someone was injured on HOA property the master policy would cover any damages. Today, most lenders ask for liability coverage of $2 million.

The HOA policy covers the rebuilding of the “shell” of the building — the framing, exterior walls, roof, foundation, windows (usually), unfinished floors, and unfinished walls. So what happens, you ask, when your condo building burns down and you need to rebuild the whole thing, including your cabinets, light fixtures, bathtubs, etc.?

Enter what’s called the HO-6 policy, which is your best friend if you have (and who doesn’t?) floor coverings, plumbing fixtures, appliances, and other stuff not covered by the HOA policy and there’s major damage to your building. The HO-6 policy hasn’t been required by lenders for very long, just a couple of years, but it definitely makes sense to have one even if you buy your place with cash. Otherwise, you would be on the hook for rebuilding your condo from the unfinished walls in — and replacing all of your personal property as well — if your place suffers major damage.

If you’re in the market for a condo plan to shop for an HO-6 policy while you’re in escrow. And here’s to hoping you never need to use it.

Kids… Flee San Francisco

This is no surprise to anyone who lives in San Francisco, and certainly no surprise to anyone with children in San Francisco, but the just released 2010 census data shows a net decrease of about 5,000 children living in the city.

The accepted narrative is that families with children leave the city because of the cost of housing and the quality of schools. And as the father of a young child, I’ll be the first to agree that housing is expensive and that public school quality is wildly inconsistent, with the application and districting process (although recently and gradually improving) so byzantine and arbitrary that even the most organized parents eventually feel like pulling their hair out and collapsing in a pile of tears.

That said, it is politically incorrect in San Francisco to discuss the role that “quality of life” plays in driving children and their families from our city. In particular, the city’s chronic inability to make meaningful change with our homeless population, many of whom suffer from mental illness, alcoholism, or other issues that make their presence even more challenging.

Speaking for myself, I don’t want to have to trip over a passed out homeless person while walking my daughter into a coffee shop or restaurant. I don’t want to explain why someone is defecating in a public place. I don’t want to worry about my family being attacked on muni by a deranged individual. I want to be able to take her to a park or playground without having to worry about cleaning up garbage left behind by a homeless encampment.

And given how much my little slice of heaven costs me each month in property taxes and mortgage, I feel all the more strongly about these things. I know that the solution to the problem of chronic homelessness is not an easy one, and I’m certainly not an advocate of round ’em up and lock ’em away. But, unfortunately in my experience, too many of our elected leaders either feel that homelessness is a valid and acceptable life choice or they lack the political will to make meaningful change.

If San Francisco wants to be home to children, it needs to be a place where children can be safely at home in public.