Surrounded by foreclosures? Here's how to protect your home

Having lots of foreclosed homes in an area can spell trouble for homeowners in the neighborhoods in which they are located. In addition to the potential for dragging down the values of surrounding homes as lenders try to unload, vacant foreclosures also present an inviting target for vandals and squatters.  "When there are a lot of foreclosures in a neighborhood that will put downward pressure on other homes. The banks will try to get foreclosures off their balance sheet as fast as they can, and they will be aggressive at pricing them," said Celia Chen, director of housing economics at Moody'sEconomy.com.

Even when priced below the competition, foreclosed homes can linger on the market. In the current market it could take up to four months to sell a foreclosed property, particularly those that appeal to "low-ballers" and "bottom-feeders" willing to wait in order to pressure lenders into taking just 50 cents to 75 cents on the dollar for the homes.  Although Moody's Economy.com sees home prices overall declining through 2008 due to excessive inventory, individual owners can take steps to make their property more attractive, Chen said. She recommended home improvements such as fresh paint and landscaping to ward off the impacts of falling prices due to a great number of foreclosures in a neighborhood.

Keeping Watch

For those homeowners fearing that the "low-ballers" and banks trying to unload foreclosed homes will sap the value of their own properties, residents could band together to watch out for a property.

Try forming a little neighborhood watch where people watch over that house to make sure there's no vandalism, no squatters trying to move in, and to avoid people from stealing the fixtures of the home.  Banks will board up houses that are vandalized or that people break into.  Making sure that doesn't happen can keep banks from dumping problem homes at fire-sale prices.

Homeowners who have to sell in an area where foreclosures are numerous might want to follow the lead of home builders, which are throwing in extras in to attract buyers while keeping up the selling price.  "One thing that the builders do is to offer to put all kinds of things into the house at no extra charge, like granite countertops," said David Seiders, chief economist for the National Association of Home Builders. "That gives the buyer more house for the money."

Also, paying your buyer's closing costs is an option that some home builders take, Seiders said. Those strategies "help hold the price up, but they do come out of the builder's margins," he said, as they would cut into home sellers profits.

More than two million households in the subprime market have already either lost their homes to foreclosure or hold subprime mortgages that are likely to fail in coming years, according to consumer groups. According to a recent survey from Yahoo Real Estate and Harris Interactive, 22% of homeowners are at least somewhat concerned about the possibility of foreclosure due to their inability to meet monthly mortgage payments. But even more Americans think there is opportunity in the situation: 37% of all U.S. adults would be at least somewhat interested in buying a house in foreclosure.

Don't Sell in a Panic

It's important to think of homeownership as a long-term investment, said David Berenbaum, executive vice president with the National Community Reinvestment Coalition. "People have been in an environment where they're flipping homes. We need to look at homeownership as promoting intergenerational wealth."

Berenbaum added that owners should remain calm rather than panicking and trying to sell now. Owners don't actually lose money on a home until they sell at a discount to the purchase price, he pointed out.  "We will weather this storm," he said. "At some point the housing market will come around. What we don't want to see are homes that are empty, home that create a destabilizing environment."

2:36 PM - May. 22, 2007 - comments {3} - post comment

re: Surrounded by foreclosures? Here's how to protect your home

I think neighbors banding together to protect vacant houses is a great idea. A broken down house next door will not help the neighborhood get back on track. The Denver PD works under the theory that if you fix the small stuff, the broken windows, graffiti and the like, neighborhoods will have less crime. The alternative is more crime if we allow the houses to be destroyed. I'm glad your promoting being proactive.

Jennifer Steck - 5:42 PM - May. 22, 2007

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re: Surrounded by foreclosures? Here's how to protect your home

Thanks Jennifer.  We agree that proactive neighbors can keep neighborhoods from becoming less than ideal places to live.

Andi Durbin - 7:32 PM - May. 22, 2007

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re: Surrounded by foreclosures? Here's how to protect your home

As an agent of that community try to promote the sales of the forclosure so that it can be resold and start to bring the value and community back together.

Bonnie Burton - 4:33 PM - May. 26, 2007

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